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THE REPUBLIC OF INDONESIA

THE REPUBLIC OF INDONESIA. April 2009. Presentation Outline. 1 Update of the Global Credit Crisis on Indonesia’s Economy. 2 Effective Policy Responses in 2008 and Proactive Measures for 2009. 3 Indonesian Q1 2009 Profile: Budget and BOP. 4 Fiscal Stimulus and Budget Financing.

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THE REPUBLIC OF INDONESIA

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  1. THE REPUBLIC OF INDONESIA April 2009

  2. Presentation Outline 1 Update of the Global Credit Crisis on Indonesia’s Economy 2 Effective Policy Responses in 2008 and Proactive Measures for 2009 3Indonesian Q1 2009 Profile: Budget and BOP 4 Fiscal Stimulus and Budget Financing 5 Conclusion

  3. Update of the Global Credit Crisis on Indonesia’s Economy

  4. Impact of the Global Credit Crisis on Asian Economies and Indonesia’s Macroeconomic Environment Depreciation of Stock Indices & Exchange Rates Bank Indonesia has more room to cut policy rate due to fall of headline inflation Mar 09 Comparison between January 2nd to April 20th 2009 Equity and currency markets have stabilized Sufficient foreign reserves (USD bn) despite global crisis Mar Source: Ministry of Finance, Bank Indonesia, Bloomberg Source: Ministry of Finance, Bank Indonesia, Bloomberg

  5. Credit Growth Decelerated, But Remains Resilient Bank credit growth falling but remains at double-digit level Banks’ loan-to-deposit ratio stabilizing Non-performing loans ratio remains low Source: Bank Indonesia

  6. Credit Contraction Resulting in Higher Financing Cost Bond yields have risen considerably amidst heightened risk aversion in global capital markets Source: Bloomberg

  7. International Bonds Historical Yield Indonesia International Bonds Historical Yield Curve Source: Bloomberg

  8. Slowdown in Real Sector Growth has been Gradual Despite the Decline in Raw Material and Commodity Prices… … The Trade Surplus Remains Stable Source: Central Bureau of Statistics, Bloomberg

  9. Slower Economic Growth Forecasted for 2009 Breakdown of GDP Growth Quarterly GDP Growth Source: Ministry of Finance, Central Bureau of Statistics * 2009 GDP based on Adjusted National Budget

  10. Effective Policy Responses in 2008 andProactive Measures for 2009

  11. Steps Taken in Financial Markets and Forex Market Supporting the Banking and Capital Market Systems • Place government funds with state-owned banks to increase liquidity in the banking system • Increase the amount of deposits guaranteed by the government • Stronger coordination between the central bank and government in monitoring, supervising, regulating and policy implementations on banks and capital markets • Prepare crisis protocol (implementation of the Financial System Stability Committee) Ensuring Foreign Exchange Stability • Manage state-owned enterprises’ currency transactions to reduce currency volatility • Maintain a sufficient level of foreign exchange reserves through trade financing facilities and prevention of illegal imports • Requiring greater disclosure on large-sized purchases of foreign currency against IDR to curb speculative pressure on IDR • Double Bilateral Swap Facilities with Japan (US$12 bn) and signing bilateral swap facility with China in Local Currency equivalent to US$ 15 bn

  12. Balance Of Payment and National Budget 2009

  13. Current Account Balance Current Account: Tracking Q1 I 2009(USD million) Prediction Prediction Realization

  14. Capital Account Balance Capital Account: Tracking Q12009 (USD million) Prediction Realization Prediction

  15. Portfolio Investment Portofolio Investment by Foreigner: TrackingQ12009(USD million) Prediction Realization Prediction 1) Sukuk Valas : Global Islamic Bond (Asumed bought by Foreign Investor 95% from total Emision) * Provisional Figures ** Very Provisional Figure

  16. FDI Inflow FDI inflow and outflow: TrackingQ1 I 2009(USD juta) Prediction Prediction Realization Prediction Prediction Realization

  17. Government Transaction Government Debt: TrackingQI 2009(USD million) Prediction Prediction Realization

  18. Private Sector Transaction Private Sector Debt: TrackingQ12009(USD million) Prediction Realization Prediction 1) Noted in NPI as one of component in Direct Investment in Indonesia 2) Noted in NPI as one of component in Portfolio Investment in (liabilities) * Provisional Figures ** Very Provisional Figure

  19. Foreign Reserve USD Billion Months Foreign Reserve Right Scale is for the Monts For Import and Foreign Bond Payment *On April 2009 there is additional reserve from Global SUKUK : USD 650 Million

  20. National Budget 2009 Realization (in Trillion Rupiah)

  21. Tax Collection by 31 Mar 2009 below 2009 target

  22. Tax Collection by Sector (ISIC-2) by March 2009 Non-oil corporate Income Tax Transportation & Communication Finance Agriculture Mining Manufacturing Trade & services Domestic VAT Transportation & Communication Mining Manufacturing Construction Trade & services Finance Import VAT Transportation & Communication Construction Trade & services Finance Mining Manufacturing

  23. Ministries Expenditure by March 2009 = 10.9% (March 2008 = 9/9%) 2009 non stimulus 2009 Stimulus % Min Spending 2008 2007 Min Spending per March 2009 = Rp36,4 T, faster than 2008 = Rp28,7 T Total Min Spending

  24. Financing by March 2009 Bond Payment Government Securities 2008 Real. 2008 Real. 2008 Real. 2008 Real. Realization on Foreign Loan in 2008 and 2009 Program Loan Project Loan 1,9 1,1 0,8 0,1 Jan Feb Mar

  25. Fiscal Stimulus and Budget Financing

  26. Fiscal Stimulus package for 2009 Accelerate job creation and foster growth of small scale businesses • Infrastructure and national programs, including: • Expansion of program for poverty alleviation • Expansion of credit program for small businesses • Reduction in tax rates for small businesses • Provision of subsidies for employee tax payments • Additional infrastructure projects 1 Boosting the household purchasing power • Subsidies on medicine and cooking oil • Direct subsidies (cash transfers - unconditional and conditional) for low-income households • Direct and indirect subsidies for education and health sectors • Tax rate reductions on individual household incomes 2 Stimulate trade and promote entrepreneurship • Import duty facility on selected capital goods and materials • Trade finance facility • Tax rate reductions on corporate income and listed companies, as well as higher minimum threshold for individual income tax • Discounts on electricity peak-hour charges for industries and lower prices of diesel fuel 3

  27. Fiscal Stimulus 2009 in Indonesia amounted 1.4% of GDP • 2009 budget deficit increase from 1% of GDP to 2.5% of GDP due to projected drop in revenue collection and additional fiscal stimulus • This deficit will be financed by: a. Rp 51,3 trn (USD 4.6 bn) from 2008 budget cash surplus b. Rp. 44 trn (USD 4 bn) Debt financing,contingent loanfrom WB/ADB, Japan and Australia c. Additional loans program amounting toRp1,1 trn from 2008 which had not been dispersed earlier

  28. 2009 Budget with Safety Net and Crisis Prevention Mechanism The 2009 budget is designed to give the Government enough room to adjust to any potential impact of the global credit crisis 2009 Budget (in USD) Assumption 1 USD = IDR 9,400 for Original Budget, 1 USD = IDR 11,000 for Adjusted Budget Source: Ministry of Finance

  29. Approved Regional Budget 2006 - 2009

  30. Consolidated Deficit for Central and Region Government % to GDP

  31. Outstanding Regional Development Bank Fund in SBIin IDR Trillion

  32. Newly 2009 Budget Outlook • Adjust macroeconomic assumptions: • Economic growth: 6.0%  4,5% • IDR/USD: 9,400  11,000 • World oil price: 80  45 US$/b • Revenue projected to belower than original budget • Accelerate expenditure disbursement from the central and regional government • Semi Automatic price adjustment with maximum cap applied to gasoline price • Original capital and social spending through line ministries remain unchanged • Incorporate fiscal stimuli (1.4% of GDP) to stabilize the economy • Budget deficit: 1% to 2.5% of GDP • Increase in budget deficit to be financed by 2008 budget surplus of US$4.7bn (1% GDP) and additional debt of US$4bn (0.8% GDP) • Arrange contingencies financing from multilateral and bilateral countries in anticipation of any worsening of the Financial crisis

  33. Available SWAP Agreement and Foreign Exchange Inflow 2009

  34. Bonds Issuance(in IDR Trillion) (2009 Value is as of April 16, 2009) (1 Equivalent to USD 650 Million (2Equivalent to USD 1,5 Billion (3 Equivalent to USD 1,5 Billion (4 Equivalent to USD 3 Billion

  35. Liquidity Support for Budget and BOP Budget Deficit Financing (in USD) Parameters: • Deficit increased from USD5.5 bn (1.0% GDP) to USD12 bn (2.5% GDP) • Finance by accumulated budget surplus amounted USD 4.6 bn • Additional Debt required: USD 4.0 bn • Under the volatile market, the additional “contingencies” financing coming from: • The World Bank • ADB • Bilateral (G2G): Japan and Australia • Maintain amount of government securities of USD4.9 bn nett of issuance, including domestic and international Sukuk Liquidity and Trade Financing Support (in USD) In response to forex risk due to volatile market conditions, steps taken: • Extend BSA swap with Japan, USD 6 bn to USD 12 bn • Bilateral swaps with China in Local Currency USD 15 bn • Trade Financing through IND Exim Bank with JBIC up to USD 500 mn

  36. 2009 Funding Plan Budget Deficit Financing (in USD) 2009 Original Budget 2009 Budget Outlook a) 1 Revenue and Grant $104.9bn $77.1bn 2 Expenditures $110.3bn $89.8bn 1 - 2 Deficit - $5.5bn - $12.7bn 3+4+5 Financing $5.5bn $12.7bn 3 Non Debt $0.6bn $5.0bn b) 4 Amortization - $11.3bn - $10.6bn Loan - $6.6bn - $6.6bn Gov. Securities - $4.8bn - $4.1bn 5 Gross debt Financing $16.1bn $14.2bn Loan $5.5bn $5.1bn Program $2.8bn $2.8bn Project $2.7bn $2.3bn Gov. Securities $10.6bn $9.1bn Additional Debt $4.0bn c) Notes: a) Estimates based on new set of assumptions plus additional fiscal stimulus measures b) 2008 financing surplus c) Additional debt from standby facility Assumption 1 USD = IDR 9,691 for 2008, 1 USD = IDR 9,400 for 200 9 Original Budget, 1 USD = 11,000 for 2009 Budget Outlook Source: Ministry of Finance

  37. Conclusion

  38. Conclusion • Indonesia continue to experience robust economic growth, improved investment climate, low inflation and reduce debt to GDP ratio. • Indonesia economy experience a negative impact due to slower world economic growth and negative world trade volume. • In response the global crisis, Indonesia introduce easing monetary policy, prudent financial sector, provide liquidity for forex market and fiscal stimulus in line with other Asian countries. • In order to fulfill the financing need for fiscal stimulus, trade financing facility and liquidity support, Indonesia received various contingent facilities from the World Bank, ADB, and from bilateral counterpart such as Japan, China, and Australia.

  39. THANK YOU

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