OFFICE OF CHIEF ECONOMIST April 2014 I I n n d d o o n n e e s s i i a a U U p p d d a a t t e e Contents Benefit from Biodiesel Mandatory Program p.02 Jan14 External Debt Update: Not Yet Alarming p.08 The Impact of High Fuel Dependency on the Sustainability of Economic Growth p.12 Mandiri Leading Economic Index p.18 Mandiri Banking Pressure Index p.20 Indonesia Current Data (Table) p.23 Chief Economist Destry Damayanti [email protected]Analyst Faisal Rino Bernando Andry Asmoro M. Ajie Maulendra Nadia Kusuma Dewi Nurul Yuniataqwa Karunia Sindi Paramita Reny Eka Putri Andrian Bagus Santoso Adjie Harisandi Mamay Sukaesih Romauli Panggabean Rully Arya Wisnubroto Fitri Yunita Publication Address: Bank Mandiri Head Office Office of Chief Economist 18 th Floor, Plaza Mandiri Jalan Jend. Gatot Subroto Kav.36-38 Jakarta 12190, Indonesia Phone: (62-21) 524 5516 / 5272 Fax: (62-21) 5210430 Email: [email protected][email protected][email protected][email protected][email protected][email protected][email protected][email protected][email protected][email protected][email protected][email protected][email protected]See important disclaimer at the end of this material Benefit from Biodiesel Mandatory Program Energy security is the crucial agenda that Indonesia has to resolve in the near future. Growing middle class population has triggered development of transportation industry as rapid sales of numerous vehicles and demand more goods and services which also drives rapid growth of consumers based manufacturing sectors. Indonesia has been relying on oil fuel to fulfill its energy needs and the domination of oil fuel as energy source was projected to continue in the future. Oil import is unavoidable and it is obviously unfavorable condition from macroeconomic perspective in term of current account performance that leads to a pressure on Rupiah recently. Jan14 External Debt Update: Not Yet Alarming Total external debt increased in January 2014, yet remains below average. It rose to USD269.3 bn in January 2014 from USD264.1 bn in December 2013 and slightly pushed up the external debt to GDP to 31% from 30%. Indonesia’s external debt level of 31% of GDP remains safe as it is under the conventional level of 40% of GDP, according to the IMF’s paper “Assessing Sustainability”, 2002). Indonesia’s growth pick up in the medium term, rising external debt will need to be controlled, especially for companies not having natural hedge. Increasing investment of manufacturing sector, which is partly financed using external source whereas its earning is rupiah denominated, has enhanced and will likely continue ahead as a consequence of rising middle income class. The Impact of High Fuel Dependency on the Sustainability of Economic Growth The whole process of production and consumption in the economy would require energy. Several empirical studies also mention the existence of a very close connection between economic growth and energy demands. Stern (2010) in Stern (1997) states all economic processes must require energy and there must be limits to the substitution of other factors of production for energy so that energy is always an essential factor of production. Indonesia’s economic growth is accelerating, the country’s future energy demands are expected to increase. The BPPT (Indonesia’s Government technological research insitution) report titled Outlook Energi Indonesia 2013 (Indonesia’s Energy Outlook 2013) shows that in 2011, Indonesia’s energy demands only reached 1.044 billion barrels of oil equivalent. I ndonesia Energy Needs Projection ( in Million BOE ) 1,044 1,207 1,535 1,960 2,518 0 500 1,000 1,500 2,000 2,500 3,000 2011 2015 2020 2025 2030 CAGR : 4,5%
Transcript
OFFICE OF CHIEF ECONOMIST
April 2014
IInnddoonneessiiaa UUppddaattee
CCoonntteennttss
Benefit from Biodiesel Mandatory Program
p.02
Jan14 External Debt Update: Not Yet Alarming
p.08
The Impact of High Fuel Dependency on the Sustainability of Economic Growth
p.12
Mandiri Leading Economic Index p.18 Mandiri Banking Pressure Index p.20 Indonesia Current Data (Table) p.23
Benefit from Biodiesel Mandatory Program Energy security is the crucial agenda that Indonesia has to resolve in the near future. Growing middle class population has triggered development of transportation industry as rapid sales of numerous vehicles and demand more goods and services which also drives rapid growth of consumers based manufacturing sectors. Indonesia has been relying on oil fuel to fulfill its energy needs and the domination of oil fuel as energy source was projected to continue in the future. Oil import is unavoidable and it is obviously unfavorable condition from macroeconomic perspective in term of current account performance that leads to a pressure on Rupiah recently.
Jan14 External Debt Update: Not Yet Alarming Total external debt increased in January 2014, yet remains below average. It rose to USD269.3 bn in January 2014 from USD264.1 bn in December 2013 and slightly pushed up the external debt to GDP to 31% from 30%. Indonesia’s external debt level of 31% of GDP remains safe as it is under the conventional level of 40% of GDP, according to the IMF’s paper “Assessing Sustainability”, 2002). Indonesia’s growth pick up in the medium term, rising external debt will need to be controlled, especially for companies not having natural hedge. Increasing investment of manufacturing sector, which is partly financed using external source whereas its earning is rupiah denominated, has enhanced and will likely continue ahead as a consequence of rising middle income class.
The Impact of High Fuel Dependency on the Sustainability of Economic Growth The whole process of production and consumption in the economy would require energy. Several empirical studies also mention the existence of a very close connection between economic growth and energy demands. Stern (2010) in Stern (1997) states all economic processes must require energy and there must be limits to the substitution of other factors of production for energy so that energy is always an essential factor of production. Indonesia’s economic growth is accelerating, the country’s future energy demands are expected to increase. The BPPT (Indonesia’s Government technological research insitution) report titled Outlook Energi Indonesia 2013 (Indonesia’s Energy Outlook 2013) shows that in 2011, Indonesia’s energy demands only reached 1.044 billion barrels of oil equivalent.
Indonesia Energy Needs Projection (in Million BOE)
Benefit from Biodiesel Mandatory Program M. Ajie Maulendra ([email protected])
Why do we need to develop biodiesel ? Energy security is the crucial agenda that Indonesia has to resolve in the near future. Growing middle class population has triggered development of transportation industry as rapid sales of numerous vehicles. Also, middle class population demand more goods and services which also drives rapid growth of consumers based manufacturing sectors. Therefore, energy usage in the upcoming years will be mainly absorbed by transportation and industry sector.
Indonesia has been relying on oil fuel to fulfill its energy needs and the domination of oil fuel as energy source was projected to continue in the future. In the mean time, Indonesia has been facing serious issue about declining oil production in recent years. In fact, Indonesia oil refinery capacity can’t
Energy usage in the upcoming years will be mainly absorbed by transportation and industry sector
Indonesia oil refinery capacity can’t match oil consumption
Indonesia Energy Needs Projection (in Million BOE)
1,044
1,207
1,535
1,960
2,518
0
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2011 2015 2020 2025 2030
CAGR : 4,5%
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Oil Fuel Coal
Gas + LPG Electricity
Biomass
Proportion of Energy Source by Its Type(%)
Figure 1. High dependence on fossil fuel. As energy needs continue to climb up, the source of energy still dominated by fossil fuel. In 2025, fossil fuel will still be the biggest portion of energy source (42%) while the rest of it will be coming from electricity (17.5%), Gas and LPG (14.8%), coal (14%) and biomass (9.6%). (Source: BPPT Indonesia Energy Outlook, 2013).
match oil consumption as shown by 2012 data where Indonesia oil refinery capacity was only 1,032 MBPD, less than 1,300 MBPD of oil fuel consumption. As a result, oil import is unavoidable and it is obviously unfavorable condition from macroeconomic perspective in term of current account performance that leads to a pressure on Rupiah recently.
According to that current energy issue, we obviously need to diversify our energy usage in order to release our dependence on fossil fuel in the long term. One comes to mind in observing alternative energy source is biodiesel. The form of this energy can be produced from particular edible oil such as soybean oil and palm oil. Compare to other renewable energy forms, biodiesel will have advantages to be developed in Indonesia regarding to palm oil abundant in Indonesia. In fact, it is currently the biggest palm oil producer in the world with 26 million tons of palm oil production in 2013. Moreover, palm oil price is lower than soybean oil price. The average of palm oil and soybean oil price between year of 2009 and 2013 is USD951 per ton and USD1133 per ton respectively. That comparison shows that palm oil is cheaper than soybean oil in term of raw material in producing biodiesel.
Indonesia is currently the biggest palm oil producer in the world with 26 million tons of palm oil production in 2013
Figure 2. Indonesia Oil Product Import . The lack of improvement of oil refinery capacity makes import of oil product continue to increase as rising oil fuel demand. (Source: Central Berau of Statistics)
In addition, consuming more biodiesel as alternative energy is expected to have better impact for our trade balance sustainability. By increasing the usage of biodiesel in transportation and industry sector, import of oil is expected to decrease and therefore the trade balance will be gradually improved. Equally important, biodiesel as one of renewable energy source is believed to be more environmentally friendly than fossil fuel based energy. The CO2 emission from combustion using biodiesel is considerably lower than CO2 emission resulted from fossil fuel. Acceleration of biodiesel mandatory Government had implemented biodiesel mandatory program in 2008 (MEMR No. 32) before the latest one released in September 2013 (MEMR No. 25). The latest biodiesel mandatory program was issued in order to accelerate biodisesel usage as a fuel mixture. For instance, minister of energy and mineral resources (MEMR) regulation in 2008 obliged 10% biodiesel usage that must be implemented in 2015 while the latest biodiesel mandatory regulation advancing the schedule to 2014. One of the reason is based on fact that in 2013 biodiesel usage has already reached 7.5%, that was higher than 5% biodiesel usage obliged in first regulation (2008). In addition, this policy was taken to support government effort in reducing fuel import and fixing the current account deficit. Government predicted 5.6 million kl of diesel fuel import can be reduced between 2013 and 2014 since biodiesel mandatory regulation has implemented. In other word, it is equal to save USD4 million of our foreign reserve.
The latest biodiesel mandatory program was issued in order to accelerate biodiesel usage as a fuel mixture
Consuming more biodiesel as alternative energy is expected to have better impact for our trade balance sustainability
Government targetted 4 million kl of biodiesel usage this year, which is higher than actual biodiesel usage in two previous years, 1.07 million kl in 2013 and 669 thousand kl in 2012 respectively. Four million kl of biodiesel usage will be allocated to 1,644 million kl of PSO (public service obligation) transportation sector, 808 thousand kl of power plant and 1,567 million kl of non PSO transportation sector.
Impact on CPO industry By assuming 4 million kl biodiesel will be produced domestically and considering that production ratio of biodiesel from CPO is equal 1:1, then 4 million kl biodiesel production will demand around 4 million kl of CPO (equal 3.5 million tons) in 2014. In other words, demand of CPO for biodiesel production will experience sharp increase by around 43% (YoY) in 2014. Increasing biodiesel production would limit CPO export volume in 2014. Considering Indonesia Palm Oil Producers Association projection of domestic CPO consumption in 2014 that will reach 11 million tons (including 3.5 million tons of CPO for biodiesel), we estimate a slight increase of CPO export volume by only 7.9% this year. The growth shows recovery from drop in 2013 (-19.7%) but it is lower than growth in 2012 (14.6%).
Increasing biodiesel production would limit CPO export volume in 2014
Figure 3. Biofuel Regulation. The latest regulation is expected to save the import of diesel fuel by 1.3 million kl and 4.4 million kL in year of 2013 and 2014 respectively. Therefore, total diesel fuel import can be reduced by 5.6 million kl or it will provide foreign exchange savings of USD4.096 million. (Source: MEMR Government of Indonesia)
Further impact of biodiesel usage acceleration program in Indonesia will be seen in bullish price of palm oil through this year. After the announcement of the latest biodiesel program in September 2013, CPO price has increased by 12% ,from USD798 per ton to USD895 per ton, between 3Q13 and 1Q14. By considering an increase of CPO demand for biodiesel, we expect average CPO price in 2014 will hover around USD900 – 950 per ton which is higher than average price in 2013 (USD849 per ton).
Figure 4. Strong domestic demand . Currently Indonesia is the second biggest palm oil consumer in the world after India. Further, it is possibly to become the biggest palm oil consumer with assumption that biodiesel usage in Indonesia will have significant increase. (Source: International Trade Statistics, Oil World)
16 17.3 19
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Production Export
Indonesia Palm Oil Production and Export (Million ton)
Market Share of Palm Oil Consumption by Country (%)
Despite government seems very eager to encourage biodiesel usage as fuel mixture, there are some challenges to be addressed properly as follows : 1. Support of good infrastructure in order to distribute
biodiesel to all provinces in Indonesia. 2. Dissemination to all stakeholders about the importance of
shifting to biodiesel as energy sources. 3. Price determination mechanism of biodiesel in domestic
market need to be reviewed in order to provide sufficient incentives for both Pertamina (as buyer) and producers.
4. Concistency of government policy in implementing biodiesel mandatory program regardless of any political interests.
5. In the medium and long term, reducing subsidy on oil fuel gradually is necessary to create competitiveness of biodiesel as alternative energy.
0.2 0.24
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2009 2010 2011 2012 2013 2014F
Indonesia Biodiesel Production (Million kl)
Figure 5. Biodiesel production will continue to increase. Production capacity of biodiesel is predicted to reach 8.8 million kl in 2015 from 5.6 million kl of its current capacity. (Source: APROBI)
Total external debt increased in January 2014, yet remains below average. It rose to USD269.3 bn in January 2014 from USD264.1 bn in December 2013 and slightly pushed up the external debt to GDP to 31% from 30%. Private external debt portion remains higher than public’s (52% vs. 48%). In terms of growth, total external debt accelerated 7.1% YoY from 4.6% YoY in corresponding period. In our view it is still benign and below the average growth of 11%. The source was global bond issuance. January 2014 total external debt acceleration was significantly contributed by the public side. Driven by the government’s USD4 bn global bond issuance, public external debt grew 1.9% YoY in Jan14 from -2.7% YoY contractions in December 2013. Meanwhile, private external debt grew 12.2% YoY from 11.0% in the same period, propelled by banks external debt. Wider funding gap from the banking sector has likely caused higher needs of external financing. We believe, however, the condition should get better ahead as interbank USD average daily transaction has increased recently. Is it alarming? We think Indonesia’s external debt level of 31% of GDP remains safe as it is under the conventional level of 40% of GDP, according to the IMF’s paper “Assessing Sustainability”, 2002). It is also lower than peers; the figures for Korea, Thailand, and Malaysia are 34%, 37%, and 38%of GDP, respectively. Private sector used some of external debt for direct investment. We think private external debt remains sound as well. Part of the debt is related with long term productive purpose which is direct investment. This is because the loan from parent and affiliated companies accounts 35% of total external debt. Moreover, more than two-third of private external debt has a maturity above 1 year, suggesting minor risk on debt instability near time.
Corporate bond outstanding remains relatively low. As percentage of GDP, corporate bond outstanding is still small at 6% of GDP (USD45.1 bn) in 2013 or increased 7% YoY. In detail, local currency corporate debt accounted to 2.4% of GDP. The remainder is foreign currency denominated debt at 3.6% of GDP. External debt trajectory should remain benign. In our view, external debt position should not yet be harmful for the economy this year, especially considering easing financing needs for investment. Based on our estimate, total external debt to GDP is expected to hover around 30% - 32% of GDP in 2014. Although there would be some government debt repayment in the road, this is expected to be manageable. We also see further increase of interbank USD supply, reducing the risk of FX liquidity shortage in the system. The average USD daily transaction continues to increase and in month-to-17Mar14 reached USD1.2 bn, up from USD460 mn in December 2013, and is a 30 month high. Nevertheless, as Indonesia’s growth pick up in the medium term, rising external debt will need to be controlled, especially for companies not having natural hedge. Increasing investment of manufacturing sector, which is partly financed using external source whereas its earning is rupiah denominated, has enhanced and will likely continue ahead as a consequence of rising middle income class. The Association of Banks Singapore (ABS) discontinued its offshore IDR/ USD fixing rate and recommended JISDOR to traders as the new benchmark to settle NDF contract starting next week is positive incentive to trigger hedging activity. However, further deepening and improvement of onshore hedging market by policy makers should be intensified.
The Impact of High Fuel Dependency on the Sustainability of Economic Growth Adjie Harisandi ([email protected])
Energy is very crucial to drive sustainable economic growth. The whole process of production and consumption in the economy would require energy. Several empirical studies also mention the existence of a very close connection between economic growth and energy demands. Stern (2010) in Stern (1997) states all economic processes must require energy and there must be limits to the substitution of other factors of production for energy so that energy is always an essential factor of production. For example, Indonesia’s economy, which recently continues to grow, implies on the increasing demands for energy. BPS data show that in the period 2009-2012, Indonesia’s economy continued to grow at a growth rate range of 4.63% to 6.49%. On the other hand, the growth rate of final energy consumption grew nearly double as compared to the economic growth in the range of 9.09% to 16.01%. Thus, it can be concluded that the use of energy in Indonesia is elastic to economic growth, meaning that to encourage the high economic growth needs relatively higher growth in energy supply.
Figure 10. Economic and Energy Consumption Growth. Indonesia’s energy consumption growth always higher than an economic growth for period 2009 – 2012.
Indonesia’s economic growth is accelerating, the country’s future energy demands are expected to increase. The BPPT (Indonesia’s Government technological research insitution) report titled Outlook Energi Indonesia 2013 (Indonesia’s Energy Outlook 2013) shows that in 2011, Indonesia’s energy demands only reached 1.044 billion barrels of oil equivalent. However, in 2030, Indonesia’s energy demands will increase by less than 2.5 time of the total energy consumption in 2011, reaching 2.5 billion barrels of oil equivalent. By observing the energy use per sector, in 2011 the household sector still had a dominant role in energy use. However, in 2030, a sector to dominate the energy use will be the transportation and industrial sectors.
Figure 11a. (left side). Indonesia energy needs projections (in million barrel of oil equivalent). Indonesia energy needs will continue to increase with average growth reach 4,5% every year until 2030.
Figure 11b. (right side). Indonesia energy usage by sector (%). In 2011, Household, Industry, and Transportation sectors still dominating the consumption of energy. In 2030, role of household sector will shrinking and only Industry and Transportation sectors will dominate an energy usage.
However, in order to meet these demands, Indonesia has experienced problems in the mix of energy sources. Currently, Indonesia is highly dependent on fuel-based energy. When referring to data in the Indonesia’s Energy Balance report 2008-2012 published by BPS, in 2012, despite declining trend, the final energy consumption derived from fossil fuels still reached 51%. (Figure: Development of Final Energy Consumption by Fuel Type). In terms of quantity, Indonesia’s fuel consumption continued to grow. In 2007, Indonesia’s fuel consumption was only 1.07 million bpd. In 2013, Indonesia’s fuel consumption has reached 1.3 million barrels per day, meaning that there has been an increase of 21.5% in the last 6 years. On the other hand, Indonesia’s oil production continued to be in the declining trend. Indonesia’s oil production in 2006 was the last time when Indonesia reached the production of 1 million bpd (barrels per day). In 2013, Indonesia’s oil production reached 830 thousand barrels per day, a decline by 17% when compared to 2006. In addition to the declining oil production, Indonesia has a limited ability to process crude oil into fuel and other refined petroleum products due to the limited capacity of oil refineries in Indonesia. The capacity of Indonesia’s oil refineries is currently only able to process 1 million barrels per day.
Figure 12. Composition of energy consumption by fuel type. Oil fuel stil have a significant role in Indonesia’s energy consumption.
48,8% 48,6% 47,9% 42,9%51,0%
22,1% 21,3% 21,6% 27,2%23,5%
16,9% 15,3% 14,1% 13,6%12,0%
9,1% 11,7% 13,6% 13,3% 11,0%
3,0% 3,1% 2,7% 3,0% 2,5%
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Oil Fuel Coal Electricity LPG and Natural Gas Biomass
The economic impact arising from high dependency on petroleum products is quite significant. Firstly, the increasing demands for fuel without an increase in production capacity will increase imports of petroleum products. BPS data show that the volume and value of imports of petroleum products continue to have an increasing trend. In 2003, the value of imports of petroleum products amounted to only USD3.4 billion with a volume of 13.2 million tons. However, in 2012, the value of imports of petroleum products has reached USD28 billion with a volume of imports reached 27.6 million tons. This has led to a deepening trade balance deficit of petroleum products, and even has affected the surplus in the non-oil and gas sector that Indonesia’s whole trade balance was in deficit in 2012 and 2013. Secondly, the increasing demands for fuel oil will interfere with the quality of state spending. Annually, the government subsidizes fuel, while the subsidy tends to be non-productive. Energy and Mineral Resources Ministry data shows that private vehicles, i.e. cars and motorcycles, are the biggest consumers of subsidized fuels, reaching 93%. Meanwhile, transports of goods and public transports only consume subsidized fuels by 4% and 3%, respectively. Thirdly, dependency on fuel oil will give impact on the competitiveness of Indonesian economy. The use of fuel oil as an input in production raises a more expensive value compared to other energy sources, such as coal, gas and geothermal. For example, the production cost of electricity using fuel oil in 2012 reached IDR2,390 per KWh, while coal, natural gas, or geothermal costs were well below such cost of only IDR582 (natural gas), IDR359 (coal) and IDR660 (geothermal). Fourthly, Indonesia could not continue to rely on petroleum-based energy in the long run. With the current production level and the assumption that no new reserves would be found, Indonesian petroleum will be exhausted in 12 years.
In view of the demands for oil in the short term, Indonesia still needs to boost production and increase oil refinery capacity in order to reduce imports of fuel oil. Exploration activities to find new oil reserves need to be increased. Petroleum fund is an interesting concept though in fact it can be said too late to be implemented in Indonesia because Indonesia’s oil production has been declining. Petroleum fund refers to a portion of funds from non-tax revenues of the oil and gas sector appropriated or deposited for long-term
investment needs. For example, the fund can be used to increase completeness of initial data for PSCs with an interest in an oil and gas block. This will help the sustainability of oil and gas production in the long term as investors have been complaining about the lack of data of oil and gas blocks offered by the government. In addition, the petroleum fund can be saved for future generations; thus, the result of oil and gas is not only felt by the current generation. The government also should realize that the business of oil and gas production is a long-term investment that certainty about regulations, rules, and taxation for PSCs is crucial as it will affect the calculation of their return on investment. In addition,to increase exploration activity, maybe government should change the scheme or giving more incentives to PSC contractors because exploration field are shifting to eastern part of Indonesia which is more difficult and need bigger investment cost.
In addition to problems in upstream production, Indonesia should also be prepared to shift the consumption pattern to non-fuel energy sources in the long term. Industrial and electricity sectors had been shifting gradually towards non-fuel energy sources as the ban on the use of subsidized fuel on these sectors. However, to accelerate the shift, the government needs to prepare the infrastructure to make non-fuel alternative energy affordable, e.g. gas pipeline or regasification terminal like FSRU to bridge between gas producing areas and gas consuming areas.
Differently, the heaviest fuel dependency problem is found in the transport sector as the government continuously subsidizes fuel usage for this sector. To reduce the dependency, there must be political will of the government to eliminate incentives in fuel usage by reducing fuel subsidies gradually. In addition, the need to create a road map or regulation for all major cities in Indonesia regarding the application of mass transit and other alternative energy options for modes of urban transportation in Indonesia, such as CNG (Compressed Natural Gas), electricity or biofuels.
Essentially, energy problems cannot be solved partially. Energy problems must be viewed from a national standpoint. If only energy affairs are supplemented to the seven central government affairs, which include foreign policy, defense,
security, justice, national monetary and fiscal and religion on Regional Autonomy Act, uniformity of understanding on the importance of energy in order not to be spent now but to be saved for future generations may occur.
Mandiri Leading Economic Index (MLEI) Economic Growth Outlook: Moderate Continues April 2014
In February 2014, MLEI has moved down by only 0.1% (MoM) to the 99.4 level, from an increase of 0.1% (MoM) in previous month. MLEI fluctuated in the range of 98.3 to 100.2 during the period of January 2013 to February 2014. Most of constituent indicators of MLEI showed an increase in February 2014 (see detailed data on the following tables). It predicts the economic growth to stay at ‘moderate’ level in 2Q14 and 3Q14. In our view, economic growth will reach 5.6% this year, slower than 5.8% last year. The Indonesia trade balance recorded a surplus of USD0.79 billion in February 2014, brought the January to February surplus of USD1.23 billion. Higher trade surplus was mostly driven by import deceleration rather than better export performance. Tighter monetary policies to dampen high import pressures has affected in 2014 lower import figure. The evidence of slower import, due to moderating domestic demand, was shown in the contraction of non-oil and gas imports. As a result, the the non-oil and gas trade surplus jumped to USD1.6 billion in February 2014 or higher than USD0.6 billion last month. Going forward, we expect the trade balance stay surplus this year and reached around USD6.2 billion on the back of recovery in advanced countries and better commodity prices. On the currency side, we view that Bank Indonesia will keep its tight monetary policy and favors an exchange rate that supports exporters as well as domestic economy. IMF has cut its projections for Indonesia’s economic growth in 2014 and 2015 to 5.4% (YoY) and 5.8% (YoY) respectively. The IMF also estimated Indonesia’s current-account deficit will reach 3% of GDP (Gross Domestic Product) in 2014 and 2.7% of GDP in 2015. In 2014, Bank Indonesia expected improvement in the current account performance and reaching below 3% of GDP. At this stage, Bank Mandiri’s economist team expected the current account deficit will be at 2.7% of GDP this year.
Business Activity Expectation Index 99.6 98.9 99.1 100.4 101.5 1.2
Usage of Labor Expectation Index 99.5 100.4 99.8 100.9 100.0 (0.9)
Industrial Production Index 107.5 108.7 99.7 99.7 100.1 0.4
Retail Sales Index 99.9 98.3 98.8 100.2 102.5 2.2
Motorcycle Sales Index 101.3 101.3 99.8 98.3 99.8 1.5
Cement Consumption Index 100.0 99.7 99.6 99.7 99.8 0.1
Feb-14*Jan-14Oct-13 Nov-13 Dec-13
note : *) preliminary
Index > 100 and increasing indicates expansion
Index > 100 but decreasing indicates downturn
Index < 100 and decreasing indicates slowdown
Index < 100 but increasing indicates recovery
Changes in parentheses indicate negative numbers
Mandiri Leading Economic Index (MLEI) and Mandiri Coincident Economic Index (MCEI) are composite indices for predicting the movement of GDP (Gross Domestic Product) so they can be useful as an early warning on the movement of Indonesian economy. MLEI is used to predict the movement of GDP in the next 6 months, while MCEI is used to predict the movement of GDP in the same month. MLEI and MCEI composite indices are formed from several indicators deemed important in studying the movement of Indonesian economy
Mandiri Banking Pressure Index (MBPI) Banking Sector Ahead: Back To Normal April 2014 Bank Mandiri considers the importance of being aware of the banking sector development as a whole; both in booming times, recessions and crises through a leading indicator. From the importance of being knowledgeable on the financial (banking) sector development in the country in a clearer and measurable manner, Bank Mandiri established the Mandiri Financial Performance Index (MFPI) which is a reflection of the service sector and financial business performance, both historical and real time. Bank Mandiri also composed an index that can project the direction of MFPI future movement, called Mandiri Banking Pressure Index (MBPI). Looking at the actual condition, MFPI in April 2014 reported at 86.7. This position indicates that the condition of the Indonesian banking sector is in alert situation. Credit growth to the private sector cooled off from 20.9% (YoY) in January 2014 to 19.9% (YoY) in February 2014, as domestic demand moderated. Credit growth is expected to decelerate post tighter monetary policies and reaching around 15% - 17% this year. Meanwhile, capital market performance in March 2014 improved (+13% YTD), as depicted by gains on the IDX Composite Index and lower yields (around 7%) of tradable government securities (SBN). Mandiri Banking Pressure Index (MBPI) is a leading indicator of the banking sector in Indonesia. It is an indicator that provides a predicted direction of MFPI’s movement in the next 6-9 months. In February 2014, it decreased to level 98.8 (-9.4% MoM). At that level, we expect Indonesian banking entering normal condition in the period from August to November 2014, as the result of monetary and macro prudential policy mix. This prediction is expected to be a reference to taking appropriate pre-emptive measures and crisis mitigation efforts. Bank Indonesia kept its benchmark interest rate at 7.5% in April 2014, consistent with ongoing efforts to steer inflation back towards its target corridor of 4.5±1% in 2014 and 4.0±1% in 2015. This decision along with a more-balanced domestic economic structure along with improvements in external sector performance is helping to strengthen the Rupiah exchange rate. In our view, the current monetary policy was still ideal to help balancing the external and internal factors, unless there’s a change in government policies such as an increase in subsidized fuel prices. At this juncture, we see a possibility of BI Rate hike by another 25bps to 7.75% this year due to Rupiah volatility, current account deficit, slower China economy and global commodity prices fluctuation.
Mandiri Banking Pressure Index (MBPI) and Mandiri Coincident Banking Pressure Index (MCBPI) are composite indices for predicting Mandiri Financial Performance Index (MFPI) which is a reflection of the service sector and financial business performance, so they can be useful as an early warning on the movement of Indonesian banking sector. MBPI is used to predict the movement of banking condition in the next 6-9 months, while MCBPI is used to predict the movement of banking condition in the same month. MBPI and MCBPI composite indices are formed from several indicators deemed important in studying the movement of Indonesian financial condition
MAC R OE C ONOMIC INDIC ATOR S AND FOR E C AS T 2008 2009 2010 2011 2012 2013 2014F 2015F
National A c c ount R eal G DP (% yoy) 6.0 4.6 6.2 6.5 6.3 5.8 5.6 5.7 Domes tic Demand (% yoy) 7.5 5.4 5.3 5.7 6.1 5.1 4.5 5.3 R eal C ons umption: P rivate (% yoy) 5.3 4.9 4.7 4.7 5.3 5.3 5.1 5.0 R eal C ons umption: G overnment (% yoy) 10.4 15.7 0.3 3.2 1.3 4.9 4.0 4.5 R eal G ros s F ixed C apital F ormation (% yoy) 11.9 3.3 8.5 8.8 9.7 4.7 3.5 6.5 R eal E xports (% yoy) 9.5 -9.7 15.3 13.6 2.0 5.3 3.8 4.5 R eal Imports (% yoy) 10 -15 17.3 13.3 6.7 1.2 1.0 3 G DP (R p tn) - nominal 4,949 5,606 6,436 7,427 8,229 9,084 11,100 11,450 G DP (US $ bn) - nominal 513 543 710 846 877 871 939 1,004 G DP per capita (US $) - nominal 2,234 2,328 2,977 3,498 3,583 3,500 3,820 4,039
E xternal S ec tor E xports (%yoy,US $) - Merchandis e 18.3 -14.3 32.1 27.0 -6.1 -2.6 4.3 5.0 Imports (%yoy,US $) - Merchandis e 36.9 -24 43.7 30.3 8.4 -1.4 1.8 4.5 Trade B alance (US $ bn) 22.9 30.9 30.6 34.8 8.6 6.1 6.2 7.4 C urrent Account (% of G DP ) 0 2.0 0.7 0.2 -2.8 -3.3 -2.7 -2.5 C urrent Account (US $ bn) 0.1 10.6 5.1 1.7 -24.4 -28.5 -25.3 -24.9 E xternal Debt (% of G DP ) 30.2 31.8 28.5 26.6 28.8 30.3 29.8 32.8 International R es erves (US $ bn) 50 66.1 96.2 110 113 99 102 110 Import cover (months ) 5.1 8.9 9.1 8 7.5 5.6 6.0 6.1 R p/US $ (period average) 9,757 10,354 9,078 8,773 9,419 10,452 11,825 11,400 R p/US $ (year end) 10,950 9,400 8,991 9,068 9,670 12,189 11,400 11,000
Other B I rate (% period average) 8.8 6.9 6.5 6.6 5.8 6.5 7.7 7.8 B I rate (% year end) 9.3 6.5 6.5 6 5.8 7.5 7.8 7.8 Headline Inflation (% yoy, period average) 10.3 4.3 5.3 5.1 4.3 7.0 6.2 5.7 Headline Inflation (% yoy, year end) 11.1 2.8 7 3.8 4.3 8.4 5.3 6 F is cal B alance (% of G DP ) -0.1 -1.6 -0.6 -1.5 -1.6 -2.2 -2.3 -2.0 S &P 's R ating - F C Y B B - B B - B B B B + B B + B B + B B + B B B - S &P 's R ating - LC Y B B + B B + B B + B B B - B B B - B B B - B B B - B B B -
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