76
Is Indonesia Changing Direction ? Indonesia Study Group ANU Canberra 25 May 2016
Is Indonesia
Changing Direction ?
Indonesia Study Group
ANU Canberra
25 May 2016
Today’s Questions
For more than a decade, Indonesia’s economic policy-making has been inward-
looking and defensive. Since August last year the government has been singing a new song
of reform, global engagement and competition.
vHow real is this change in direction?
vHow broadly and deeply is it accepted with in the body politic, bureaucracy and amongst the public at large?
vWhat are the chances for success?
Some Background: the Narrowing of Space for the Private Sector 2005-2014
CA
Ø Beginning in 2005, the Negative Investment List (DNI) has been used to steadily reduce the areas where foreigners can invest and the maximum equity percentages they can hold in numerous sectors.
Ø Rules, often unwritten, on minimum levels of capital investment restrict foreign entrepreneurs from investing in start-ups and the service industry.
Ø The landmark trade, agriculture and industry laws passed by the previous parliament are highly detailed, prescriptive and intrusive.
Ø These laws clearly reflect the view that entire economy is under threat from external forces, cannot be competitive and needs as much protection as possible.
Ø They demand a very high level of bureaucratic micro-management that exceeds the competence level of many of the officials charged with implementing them, increase bureaucratic discretion and invite more corrupt, collusive behavior.
Ø In the course of the promulgation of these laws, there was no resistance from any significant element of the Indonesia body politic advocating liberal, open-market, pro-private sector policies or for reducing the role of the bureaucracy or state-owned enterprises
Ø …the policies the government is pursuing…are heavily protectionist in nature.
Ø Unfortunately, the good economic times also attracted the attention of crony capitalists.
Ø …[over the past decade] the government and the parliament passed new laws on mining, farming, and horticulture that had a serious impact on openness to trade and investment.
Ø Although Indonesia may not be the worst offender in the region in imposing new trade-restrictive regulations, it is one of the worst when it comes to non-tariff measures.
Ø The anti-foreign attitude also helps explain why Indonesia has been less enthusiastic about participating in the global value-added network.
Source: Lowy Institute: Trade Protectionism in Indonesia: Bad Times and Bad Policy, June 2015
Trade Protectionism [Lowy Inst June 2015] (1)
Ø …there are few indications that President Jokowi is going to abandon the protectionist trend in Indonesian economic policy.
Ø …interventionist policy may lead to a wasteful allocation of resources.
Ø …the worry for Indonesia is that it will repeat the mistakes it has made before…
Paying the price:
Ø Increasing protectionism is likely to prove immensely counterproductive for the Indonesian economy. Rather than pursuing interventionist policies the Indonesian government needs to return to the basics: infrastructure, logistics, and consistency of rules and regulations. Unfortunately, for the immediate future, that seems very unlikely.
Trade Protectionism [Lowy Inst June 2015] (2)
Source: Lowy Institute: Trade Protectionism in Indonesia: Bad Times and Bad Policy, June 2015
Today’s Presentation
Ø Indonesia & its Emerging Market PeersØ GDP Growth & the BudgetØ Macro-Economy & BankingØ Trade & InvestmentØ The Real SectorØ Employment & PovertyØ The Political LandscapeØ The Future: Changing Course?
Jokowi’s Challenges – Wall of Reality
Source: The Jakarta Globe
INDONESIA OCTOBER 2014 – Jokowi Takes Office
The World 2016
Ø Fragile Global RecoveryØ A Slowing ChinaØ Weak Commodity PricesØ Asynchronous Monetary Policy- US vs
RoW (the Rest of the World)
The Wall of Reality – The World
Source: IMF
Indonesia
Ø The Budget – Declining revenueØ Macro – Debt, Currency, Interest RatesØ Recalcitrant BureaucracyØ Rent seeking elements of the EliteØ Politics - Golkar, PDIP/Mega, PPP
wracked by internal faction struggles. SBY/PD seeking cracks for 2019
The Wall of Reality - Indonesia
GrowthhasheldupwellrelativetootherEMs…..
10
Source:IMFWEODatabase Source:IMFWEODatabase
-6
-4
-2
0
2
4
6
8
GDP Growth in 2016(in percent)
-6
-4
-2
0
2
4
6
8
GDP Growth in 2015(in percent)
Indonesia weathered the challenging conditions in 2015 well……
10
Emerging Market GDP Growth2014 - 2017
2014 2015 2016F 2017F
China 7.3 6.9 6.5 6.2 India 7.2 7.3 7.5 7.5 Philippines 6.1 5.8 6.0 6.2 Vietnam 6.0 6.7 6.3 6.2 Emerging Asia* 6.8 6.6 6.4 6.3 Malaysia 6.0 5.0 4.4 4.8 INDONESIA 5.0 4.8 4.9 5.3 Sri Lanka 4.5 5.2 5.0 5.0 EM Asia ex China & India 4.6 4.7 4.8 5.1 Taiwan 3.9 0.7 1.5 2.2 South Korea 3.3 2.6 2.7 2.9 Hong Kong 2.6 2.4 2.2 2.4 Singapore 3.3 2.0 1.8 2.2 Thailand 0.8 2.8 3.0 3.2
Source: International Monetary Fund - April 2016
Real GDP Growth - YoY %
Nevertheless, growth has been slowing and
Indonesia is falling behind its regional
peers Vietnam, Philippines and India
Macro Economy & Banking
GDP Growth (%)2011 – 2016
Sources: CBS, CastleAsia
6.2 6.0 5.6
5.0 4.8
6.5 6.3 6.0 5.9 6.1 6.2
5.9 5.9 5.5 5.6 5.5 5.6
5.1 5.0 5.0 5.0 4.7 4.7 4.7
5.0 4.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2011
2012
2013
2014
2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2013 2014 2015 2016
Year on year By Quarter%
Slow, steady growth decline may have bottomed out. Govt’s5.7% 2015 target very optimistic
GDP Growth (%)Q4-2014 thru Q1-2016
Sources: CBS, CastleAsia
5.04
4.73 4.66
4.74
5.04 4.92
4.34.44.54.64.74.84.95.05.15.2
Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16
%
Annual GDP Growth and Share of GDP, by Services Subsector, Indonesia 2000 - 2014
2000 - 10 2010 - 14 2000 2010 2014
Transport and communication 12.9 10.6 4.7 9.4 10.9 Trade, hotels and restaurants 6.0 7.3 16.2 17.3 18.0 Construction 7.0 6.7 5.5 6.5 6.7 Finance, real estate & business services 6.7 6.6 8.3 9.5 9.9 Other services 5.3 5.9 9.3 9.4 9.4 Electricity, gas and water supply 8.0 5.5 0.6 0.8 0.8 Manufacturing 4.5 5.4 27.7 25.8 25.5 Agriculture, livestock, forestry, & fisheries 3.5 3.5 15.6 13.2 12.1 Mining and quarrying 1.1 1.6 12.1 8.1 6.7
All services 7.1 7.4 44.6 52.9 55.7 Excluding construction & electricity, gas & water supply 7.1 7.6 38.5 45.7 48.3
GDP 5.2 6.0 100.0 100.0 100.0
Source: Data from BPS
Average annual growth (%) Share of GDP (%)
Actual Consumption of Subsidized Fuels(2006 – 2016)
Source: Gov’t Budgetary Note 2016 – 14 Jan 16
16.8 17.9 17.921.2
22.925.5
28.1 29.3 29.4
19.7
10.9 11.8 12.1 12.914.5 15.5 16.0 15.7 17.1 16.0
10.0 9.9 8.5
4.82.4 1.7 1.2 1.1 0.9 0.9 0.7
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 APBNP 15
APBN 16
PremiumDieselKerosene
(Million Kilolitre)
Government SOE Capital Injection Program: Infrastructure & Maritime Development Allocation
4,160
1,000
1,000
1,250
3,000
4,000
2,250
486 565
2,000 32.1 1,000
PT Sarana Multi Infrastruktur PT Penjamin Infrastruktur IndonesiaPT Sarana Multigriya Finansial PT Jasa MargaPT Hutama Karya PT Wijaya KaryaPT Pembangunan Perumahan Perum PerumnasPT Pelayaran Nasional Indonesia PT Angkasa Pura IIPT Amarta Karya PT Pelindo III
Total Rp 20,742 Billion(US$1.56 Billion)
Source: 2016 Budget
National Road Management in Indonesia and South Africa
Sources: Badan Pusat Statistik, the Ministry of Public Worksand Housing, and SANRAL, BIES
Indonesia South AfricaInstitution Bina Marga SANRALLength of Network (km) 38,570 21,403Employees 7,372 295Km per Employee 5.23 72.5Number of Contracts 3,266 175Average Speed (km/h) 46 98Budget Allocation ($ mln) 3,593 1,011Allocation per network km ($) 79,317 47,246
Inflation 2005 – 2016*
2005 – 2016* Monthly 2015 – 2016 (YoY)
Sources: CBS, CastleAsia
Fuel price hikes 2005:Mar 33%; Oct 100%
17.1%
6.6%6.6%
11.1%
2.8%
7.0%
3.8%4.3%
8.4%8.4%
3.4%4.7%
0%
3%
6%
9%
12%
15%
18%
21%
Budgetary Note - Dec 15
Fuel Price Hike :May 2008 -33%
18 Nov 14 +30.77%; 1 Jan 15 -10.59% 7.0%
6.4%
7.2%
6.3%
3.4%4.14% 4.5%
3.6%
0%
2%
3%
5%
6%
8%
9%
Jan 15
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 16
Feb Mar Apr2015 2016
Rupiah vs.US$January 2011 – 29 April 2016
Source: Bank Indonesia
Rp hit 8,495 in July 2011, strongest level since 2004
29 April 16US$ = 13,204
8,976
11,644
11,498
12,900
12,625
13,237 13,211
13,481
14,128
14,728
13,288 13,795
8,400
8,900
9,400
9,900
10,400
10,900
11,400
11,900
12,400
12,900
13,400
13,900
14,400
3-Ja
n31
-Jan
2-M
ar30
-Mar
28-A
pr30
-May
28-J
un27
-Jul
25-A
ug29
-Sep
27-O
ct24
-Nov
22-D
ec20
-Jan
20-F
eb19
-Mar
18-A
pr15
-May
14-J
un12
-Jul
9-Au
g12
-Sep
10-O
ct8-
Nov
10-D
ec11
-Jan
11-F
eb11
-Mar
10-A
pr8-
May
7-Ju
n5-
Jul
2-Au
g6-
Sep
4-O
ct6-
Nov
4-De
c6-
Jan
5-Fe
b5-
Mar
3-Ap
r6-
May
6-Ju
n4-
Jul
11-A
ug8-
Sep
6-O
ct3-
Nov
1-De
c31
-Dec
29-J
an27
-Feb
27-M
ar27
-Apr
27-M
ay25
-Jun
29-J
ul27
-Aug
25-S
ep28
-Oct
25-N
ov29
-Dec
27-J
an25
-Feb
28-M
ar25
-Apr
2011 2012
Rp/US$ 2 Aug 118,460
2014
30 Dec 11 9,068
30 May 129,570
28 Dec 129,670
2013
22 Jun 13, fuel price hiked
9,960
15 Jul 1310,024
30 Sep 1311,613
30 Dec 13 12,270
28 Oct11,018
14 Mar 14Jokowi presidential candidate, 11,421
21 Aug Jokowi-JK win, 11,717
18 Nov 14, fuel price hiked
30.77%; 12,146
2015
1 Apr 16, fuel decrease 8.5%;
IDX 13,200
29 Sep 15
2016
1 Jan 15, fuel decrease
10.59%; 12,440
Foreign Exchange Reserves
Sources: BI, CastleAsia
22.129.4
36.242.6
57.051.6
66.1
96.2
110.1 112.8
99.4
111.9105.9107.5
0
20
40
60
80
100
120
1998 2000 02 2004 06 08 2010 12 14 Mar 16
US$ Billion
Banking: Credit Growth -Commercial Banks (y/y % change)
2010 2011 2012 2013 2014 2015 Feb 16
Working capital 26.4% 21.6% 23.4% 20.2% 10.6% 8.5% 4.9%
Investment 16.8% 33.3% 27.6% 34.4% 12.5% 14.6% 12.7%
Consumption 22.9% 24.3% 19.8% 13.8% 11.6% 9.1% 9.2%
Property* 12.8% 24.7% 24.0% 26.5% 17.3% 11.9% 11.4%
Total Credits 23.3% 24.7% 23.2% 21.4% 11.3% 10.1% 8.0%
Total NPL to total Credit 2.6% 2.2% 1.9% 1.8% 2.2% 2.5% 2.9%
*working capital, investment and consumption credits
Source: Bank Indonesia
Trade & Real Sector
2009 – 2016
Trade
2014 - 2016
Sources: CBS, CastleAsia
36,427 33,350
30,136
7,8725,701
3,451
32,229 30,630 28,064
11,003 6,103
3,874
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Oil/Gas Imp Non-Oil Imp Oil/Gas Exp Non-Oil Exp
US$ Million
Jan-Mar 14 Jan-Mar 15 Jan-Mar 16
44,299 43,232
39,051
33,58636,733
31,938
0306090
120150180210
Oil/Gas Imports Non-Oil ImportsOil/Gas Exports Non-Oil Exports
US$ Billion
20132009 10 122011 14 2015
Top Five Non-Oil Exports Markets
Total Non-Oil Exports : 2013-2015 : US$ 427.6 billion
Non-oil Exports 2013 2014 2015
USA 15,082 15,857 15,307 China 21,282 16,459 13,260 Japan 16,084 14,566 13,090 India 13,010 12,224 11,584 Singapore 10,386 10,066 8,661 Other 74,075 76,790 69,829 TOTAL NON-OIL EXPORTS 149,919 145,961 131,730
US$ Million
Sources: CBS, CastleAsia
USA
China
Japan
IndiaSingapore
Other
51.6%
10.8%
11.9%
10.2%
8.6%6.8%
Exports
Top Five Non-Oil Import Sources
Sources: CBS, CastleAsia
Total Non-Oil Imports :2013-2015 : US$ 394.2 billionNon-oil Imports 2013 2014 2015
China 29,570 30,462 29,225 Japan 19,054 16,938 13,233 Singapore 10,159 10,151 8,975 Thailand 10,614 9,695 8,019 USA 8,874 8,102 7,551 Other 63,091 59,371 51,079 TOTAL NON-OIL IMPORTS 141,362 134,719 118,082
US$ Million
China
Japan
SingaporeThailand
USA
Other
44.0% 22.7%
12.5%
7.4%7.2%
6.2%
Investment as % GDP
Source: Gov’t Budgetary Note 2016 – 14 Jan 2016
31.4 31.3 31.0
31.3
32.7
32.0
32.6
33.2
33.8
30
30
31
31
32
32
33
33
34
34
35
2008 09 2010 11 2012 13 2014 2015 2016#
%
# Budgetary Note 2016, 14 Jan 16
Investment as % of GDP
Greenfield Investment 2015
Source: fDi Report 2016, fDi Intelligence ; Financial Times, Apr 2016
* Top countries per region by capital investment
** includes estimates
Selected Emerging Markets**
India leads China. Indonesia in 3rd place
Country Capex, $bn** Projects India 63 697 China 56.6 789 Indonesia 38.5 166 Mexico 24.3 351 Brazil 17.3 268 Russia 11.6 179 Turkey 5.8 147 Egypt 14.5 59 Saudi Arabia 9.8 78
Total Direct Investment Realization by Sector (BKPM)
Based on Capex in 2010-2015, not including financial, oil & gas sectorsRank Business Field Total Rank Business Field Total
(US$ Million) (Rp Billion)
1 Mining 23,556 1 Electricity, gas, water supply 101,936
2 Transport, warehouse, telecom 19,420 2 Food industry 94,724
3 Metal, machinery, electronic inds. 13,679 3 Transport, warehouse, telecom 80,757
4 Chemical & pharmaceutical inds. 12,452 4 Food corps and plantation 59,063
5 Electricity, gas, water supply 11,305 5 Non metallic mineral inds. 57,486
Others 66,266 Others 298,586
TOTAL FDI 146,677 TOTAL DDI 692,552
Source: BKPM
FOREIGN INVESTORS DOMESTIC INVESTORS
Total FDI Realization by Country(US$ Million)
Rank Country 2010 2011 2012 2013 2014 2015 1st Q 16 TOTAL
1 Singapore 5,565 5,123 4,856 4,671 5,832 5,901 2,863 34,8112 Japan 713 1,516 2,457 4,713 2,705 2,877 1,590 16,5713 United States 931 1,488 1,238 2,436 1,299 893 11 8,2964 South Korea 329 1,219 1,950 2,205 1,127 1,214 189 8,2325 Malaysia 472 618 530 711 1,776 3,077 102 7,2866 Netherlands 608 1,354 967 928 1,726 1,308 267 7,1587 British Virgin Islands 1,616 517 856 786 624 731 172 5,3018 United Kingdom 276 419 934 1,076 1,588 503 55 4,8519 Hongkong 566 135 310 376 657 937 507 3,48810 China 174 128 141 297 800 628 465 2,63311 Mauritius 23 73 1,059 780 541 44 4 2,52512 Australia 214 90 744 226 647 168 60 2,149
TOTAL (Top 12 Countries) 11,487 12,680 16,042 19,205 19,322 18,281 6,283 103,301TOTAL (90 Countries) 16,215 19,475 24,565 28,618 28,530 29,276 6,917 153,594
2004 – 2015 January - March
Capital Goods Imports
Sources: CBS, CastleAsia
7.3 7.06.3
5.1
1
3
5
7
9
Jan-Mar 13 Jan-Mar 14 Jan-Mar 15 Jan-Mar 16
US$ Billion
6.2 8.0 8.911.1
20.8 20.0
26.0
32.1
36.6
30.328.3
23.9
0
5
10
15
20
25
30
35
40
2004 05 2006 07 2008 09 2010 11 2012 13 2014 2015
US$ Billion
Still Capital Goods imports continue to
decline . . .
Crude Oil – Production Realization 2004-2015
Source: Gov’t Budgetary Note 2016 – 14 Jan 2016
0
200
400
600
800
1,000
1,200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 APBN 16
1,037 1,003959
899 931 944 954898 860
826 794 778830
Budget Note -14 Jan 16
thousand barrels per day
Palm Oil and Coal Price Trends
3,840
1,937
90.1
59.1
40
50
60
70
80
90
100
110
120
130
140
1,700
2,000
2,300
2,600
2,900
3,200
3,500
3,800
Jan-
10 Mar
May
July
Sep
Nov
Jan-
11 Mar
May
July
Sep
Nov
Jan-
12 Mar
May
July
Sep
Nov
Jan-
13 Mar
May
July
Sep
Nov
Jan-
14 Mar
May
July
Sep
Nov
Jan-
15 Mar
May
July
Sep
Nov
Jan-
16 Mar
Palm Oil (LHS)Coal (RHS)
US$/tonMS/metric ton
MAJOR DEALS -- Mar-Apr 2016
Ø GARUDA INDONESIA WILL BUY 14 NEW AIRBUS A330-900NEO PLANES WITH ROLLS ROYCE TRENT 7000 ENGINES FOR US$5.2 BILLION.
Ø ENERGY GIANT BP HAS SIGNED A MULTI-BILLION DOLLAR CONTRACT WITH STATE POWER UTILITY PLN TO SUPPLY THE LATTER WITH LNG UP TO 2033
Ø STATE ALUMINUM PRODUCER INALUM AND STATE MINER ANTAM HAVE SIGNED A JOINT VENTURE AGREEMENT TO BUILD A US$1.8 BILLION SMELTER GRADE ALUMINA REFINERY
Ø STATE MINER ANEKA TAMBANG (ANTAM) HAS SIGNED A PROJECT DEVELOPMENT AGREEMENT (PDA) WITH GERMANY’S CRONIMET HOLDING AND FERROSTAAL INDUSTRIAL PROJECTS TO BUILD A US$800 MILLION FERRONICKEL PRODUCTION FACILITY IN POMALAA, SOUTH SULAWESI
Ø ASTRA INTERNATIONAL SAID IT WILL RAISE RP10.1 TRILLION (US$765 MILLION) FROM RIGHTS ISSUES BY THREE OF ITS SUBSIDIARIES
Ø AN INDONESIAN CONSORTIUM SEEKING TO BUY NEWMONT’S BATU HIJAU COPPER MINE IN WEST NUSA TENGGARA HAS SECURED A US$750 MILLION LOAN FROM TWO STATE BANKS FOR THE PURCHASE
Ø STATE TOLL ROAD OPERATOR JASA MARGA HAS SECURED A RP7.7 TRILLION (US$583 MILLION) SYNDICATED LOAN FROM THREE STATE-OWNED BANKS
Ø THE WORLD BANK WILL PROVIDE US$500 MILLION IN LOANS TO STATE POWER UTILITY PLN TO EXPAND ELECTRICITY ACCESS IN SUMATRA
Source: CastleAsia’s Executive Highlights, 30 April 2016
Source: ASI
2010 – 2016* 2014 - 2016
Cement Consumption
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016*
40.8
48.755.1
58.0 59.9 60.464.8
(Million ton)
19.4%13.1%
5.3%3.3%
0.9%
7.2%
14.1 13.8 14.4
0
2
4
6
8
10
12
14
16
Jan-Mar 14 Jan-Mar 15 Jan-Mar 16
(million ton)
-1.7% 4.3%
ASEAN Motor Vehicle Sales2012 – 2015
% ChangeCountry 2012 2013 2014 2015 2015/14
Singapore 37,247 34,111 47,443 78,609 65.7
Vietnam 80,453 98,649 133,588 209,267 56.7
Philippines 156,654 181,738 234,747 288,609 22.9
Malaysia 627,753 655,793 666,487 666,674 0.03
Thailand 1,436,335 1,330,672 881,832 799,632 (9.3)
INDONESIA 1,116,212 1,229,901 1,208,019 1,013,291 (16.1)
Brunei 18,634 18,642 18,114 14,406 (20.5)
TOTAL 3,473,288 3,549,506 3,190,230 3,070,488 (3.8)
Source: Asean Automotive Federation
(unit)
ASEAN Motorcycle Sales2012 – 2015
% Change
Country 2012 2013 2014 2015 2015/14
Philippines 702,599 752,835 790,245 850,509 7.6
Thailand 2,130,067 2,004,498 1,701,535 1,639,090 (3.7)
Singapore 9,923 11,650 8,145 7,459 (8.4)
Malaysia 537,753 546,719 442,749 380,802 (14.0)
INDONESIA 7,141,586 7,771,014 7,908,941 6,708,384 (15.2)
TOTAL 10,521,928 11,086,716 10,851,615 9,586,244 (11.7)
Source: Asean Automotive Federation
(unit)
Employment & Poverty
Maluku, Papua2.37%
GRDP Contribution By Area 2015
Java58.29%
Sumatra22.21%
Kalimantan8.15%
Sulawesi5.92%
Source: CBS, CastleAsia
Bali, Nusa Tenggara
3.06%
August 2015 = 114.8 million
Employment By Main Industry
43%
12%21%
6%11% 7%
2004 = 93.7 million
Sources: CBS, CastleAsia
32.9%
22.4%15.6%
13.3%
4.5% 11.4%
Agric'r, fishery
Trade, Restraurant
Public services
Manufacturing
Transp'n, Comm.
Other(construction, mining, elect, water)
The role of agriculture and public services in employment is
declining. The role trade and manufacturing is growing
Provinces With Highest Economic Growth2014
Growth 6.0–6.25%
Growth 5.0-5.5%
Growth <5.0%
PROVINCE GDP AGRIC'R MANFG'R OTHER1 West Sulawesi 8.73 6.00 35.88 6.17 2 North Kalimantan 8.16 7.39 4.88 8.76 3 Jambi 7.76 13.23 4.05 6.25 4 South Sulawesi 7.57 9.99 9.41 6.37 5 Riau Island 7.32 7.61 7.93 6.89 6 Gorontalo 7.29 6.43 5.98 7.93 7 Bali 6.72 4.68 8.81 6.94 8 Maluku 6.70 6.44 8.29 6.67 9 North Sulawesi 6.31 3.46 3.42 7.72 10 S/E. Sulawesi 6.26 9.12 7.69 5.15
INDONESIA 5.02 3.85 5.47 5.39
Growth 2014 (%)
Growth of Outstanding Credits by Province, 2014-2015
>15%
>10%<10%
Rp Billion % ChgDec 2015 2015-14
D.K.I. Jakarta 1,307,199 10.4 West Java 536,702 8.1 East Java 444,402 10.5 Central Java 277,609 13.3 Banten 235,444 12.6 North Sumatera 173,662 6.8 East Kalimantan 104,880 (1.8) South Sulawesi 102,555 13.8 South Sumatera 95,362 10.1 Bali 87,467 11.6
TEN LARGESTRp Billion % ChgDec 2015 2015-14
Central Sulawesi 30,010 23.3 West Papua 11,193 20.7 Riau 85,963 15.0 East Nusa Tenggara 1) 20,650 14.6 West Kalimantan 55,743 14.3 South Sulawesi 102,555 13.8 West Sulawesi 6,570 13.8 Central Java 277,609 13.3 North Sulawesi 32,980 13.1 Banten 235,444 12.6
TEN WITH HIGHEST PERCENT GROWTH
Number Poor People by AreaSeptember 2015
Maluku, Papua # poor people 1,53 mn
(22.1%)
Sumatera # poor people 6.31 mn
(11.4%)
JAVA # poor people 15.31
mn (10.5%)Bali, Nusa Tenggara# poor people 2.18 mn
(15.4%)
Kalimantan # poor people 0.99 mn
(6.5%)
Sulawesi# poor people 2,19 mn
(11.7%)
Source: CBS
Indonesia’s Poor 2008 - 2015
Source: CBS
12.8
22.2
35.0
11.1
19.9
31.0
10.7
18.5
29.1
10.5
17.8
28.3
10.6
17.9
28.5
0
5
10
15
20
25
30
35
40
URBAN RURAL TOTALMarch 08 March 10 March 12 March 14 Sep 15
(million people)
Poverty and Unemployment rate
Sources: CBS, CastleAsia
9.16.1 6.2
38.7
46.442.2
17.8
12.4
11.2
0
2
4
6
8
10
12
14
16
18
20
0
5
10
15
20
25
30
35
40
45
50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Unemployment rate-LHSFormal employment rate-LHSPovety rate-RHS
Subsidies vs Education and Health CareTough Choices 2014 - 2016
Source: Budgetary Note 2016 – 14 Jan 2016, CastleAsia
246
104123
4726
65 73
156
24 26
64 38
150
67
35
0
50
100
150
200
250
300
Fuel Subsidy Electricity Subsidy
Education Spending
Health Spending Housing, communities
amenities
2014 2015
2016
Rp. Trillion
NationalBudget
Appraisal of Current SituationJanuary 2011 thru March 2016
Source: Danareksa Research Institute
76.2
103.6
68.0
45
55
65
75
85
95
105
Jan-
11 MM
ay Jul S
Nov
J-12 M M Ju
l S NJa
n-13 Mar M Ju
l S NJ 1
4M
ar M Jul S
Nov
J-15 Mar M Ju
l SNo
vJ-
16 M
Index
Economic Conditions
Local Area Econ Conditions
Empl't Conditions
2015 20162011 2012 2013 2014
The Political Landscape
Mid 2015 polls looked bad for President …
2.5
25.8
33.5 31.2
1.45.7
1.4
30.1
39.1
22.4
1.95.0
05
1015202530354045
Much worse Worse No change Better Much better Don't know
Oct'14
Jun'15
Source: Saiful Mujani Research & Consulting, June 2015
%In mid-2015, fewer saw economic conditions getting better, more saw them getting worse
Current economic conditions compared to last year…
Public confidence in Jokowi’s competency… June 2015
21.7
52.8
17.5
1.96.15.6
49.3
33.8
4.1 7.2
0
10
20
30
40
50
60
Very sure Sure Not so sure Not at all Don't know
Oct'14Jun'15
%
Source: Saiful Mujani Research & Consulting, June 2015
Confidence in Jokowi’s competence had declined
Source: Saiful Mujani Research & Consulting, June 2015
40.7
55.7
3.6
70
26
4
66
32
20
1020304050607080
Very satisfied/satisfied
Not satisfied Don't know
Jokowi - Jun'15
SBY - Jun'05
SBY - Aug'10
%
Jokowi vs SBY: Satisfaction … June 2015
Voters were much less satisfied with Jokowi than SBY at similar points in their terms
PDI-P (109)
PKB (47)
NasDem (35)
Hanura (16)
PAN (49) PD (61)Golkar (91)
PPP (39)
PKS (40)
Gerindra (73)
KIH vs. KMP -- DPR Seats
TOTAL = 560
Source: Compiled from DPR website & The Jakarta Post, 2015
KIH / PDI-P Coalition (256 = 46%)
Neutral(61 = 11%)
Disputed(130 = 23%)
KMP / Gerindra Coalition (113 = 20%)
August 2015 – Something Old, Something New...
Darmin Nasutionreplaced Sofyan Djalil
as Coordinating Minister of Economic
Affairs
Luhut Panjaitanreplaced Tedjo Edhi
Purdijatno as Coordinating Minister
of Security Affairs
Teten Masdukireplaced Luhut
Panjaitan as Presidential Chief
of Staff
Pramono Anungreplaced Andy
Widjajanto as Cabinet Secretary
Rizal Ramlireplaced Indroyono
Soesilo as Coordinating Minister
of Maritime Affairs
Sofyan Djalilreplaced Adrianof
Chaniago as Head of the National Planning
Agency/Bappenas
Thomas LembongReplaced Rahmat
Gobel as Minister of Trade
Source: Indikator Politik, 18-19 Jan 16
How do you view Economic Conditions over the past 4 months? (% thru Jan 2016)34% said economy was improving in Jan ‘16 vs 23% in Oct ‘15. ”Worse” dropped
from 41% to 28% in the same period.
By Jan 2016 perceptions were improving . . .
Public Satisfaction with Jokowi’s Performance? (% thru Jan 2016)Satisfaction recovered from 41% in June ‘15 to 67% in Jan 16, exceeding
election victory euphoria of 62%
Source: Indikator Politik, 18-19 Jan 16
. . . and satisfaction with President’s performance was trending upwards
President riding high – Latest SMRC Polls (1)
Source: Saiful Mujani Research & Consulting (SMRC) , April 2016
Is Indonesia moving in the right or wrong direction? (% April 2016)
This improvement continued through March this year
President riding high – Latest SMRC Polls (2)
Source: Saiful Mujani Research & Consulting (SMRC) , April 2016
How satisfied are you with President Jokowi’s performance? (% April 2016)
Satisfaction with Jokowi’s performance was up . . .
Jokowi Riding High – Latest SMRC Polls (3)
How confident are you in Jokowi’s ability to lead the nation ? (% April 2016)
Source: Saiful Mujani Research & Consulting (SMRC) , April 2016
. . . And confidence in his leadership has recovered
Decentralization – A Comment
Radical Decentralization in 2000
Bank Deposits:Jakarta vs. rest of country
Sources: Bank Indonesia, CastleAsia
63% 65% 67%
61% 60% 59%55% 55%
52% 50% 50%47% 48% 47% 48% 49% 49% 49%
37% 35%33%
39% 40% 41%45% 45%
48% 50% 50%53% 52% 53% 52% 50% 51% 51%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
DKI Jakarta Other Regions
Bank Credits:Jakarta vs. rest of country
Sources: Bank Indonesia, CastleAsia
65% 67% 68%
72%
61%
44%
39% 39%36% 35% 35% 35% 36% 37% 36%
39%
33% 33%35% 33% 32%28%
39%
56%
61% 61%64% 65% 65% 65% 64% 63% 64%
61%
67% 67%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
DKI Jakarta Other Regions
The Future: Changing Course ?
63
NawaCita
(Economicrelated)
Mentalrevolution
Newmindset
Qualityoflife
RaisingLivingStandards
IncreasingOpportunities
SelfSufficiency (?)
DynamicComparativeAdvantage
Competitiveness
Improvingproductivity
SupporttheNawa Cita Framework(SuccessfulimplementationoftheframeworkiskeytotheMToutlook….)
The Latest Package
Ø Business Start UpsØ Construction PermitsØ EmploymentØ Property RegistrationØ Tax PaymentsØ Closing Businesses
The latest package (#12) aims to reduce the time and cost to meet Govt Regs in various areas including:
For the foreign investor climate, the implementation of the proposed changes in the DNI are the key reform
Some Background
The volatility of change
The Presidency - New Order vs Reformasi
Ø Soekarno – 1945 - 1967Ø Soeharto – 1967 - 1998Ø B. J. Habibie – 1998 - 1999Ø Abdurrahaman Wahid 1999-2001Ø Megawati Soekarnopoetri – 2001 - 2004Ø Susilo Bambang Yudhoyono – 2004 - 2014Ø Joko Widodo – 2014 - present
53 Years – Two Presidents / 6 Years – Four Presidents
The Cabinet – Reformasi Musical Chairs 1998 - 2005
Ø 1967 – 1998 = 5 Finance Minister (New Order)
Ø 1967 – 1998 = 6 Trade Ministers (New Order)
Ø 1998 – 2004 = 5 Finance Ministers (Habibie, Gus Dur, Mega)
Ø 1998 – 2004 = 3 Trade Ministers (Habibie, Gus Dur, Mega)
Ø 2004 – 2016 = 5 Finance Ministers (SBY, Jokowi)
Ø 2004 – 2016 = 4 Trade Ministers (SBY, Jokowi)
v New Order: 30 years –5 Finance & 6 Trade Ministersv Reformasi - Democratic Indonesia: 18 years -- 10
Finance & 7 Trade Ministers
Myth and Policy-Making
CA-
Two important myths have dominated elite political thinking and economic policy-making in the Reformasi Era
q Indonesia has too much foreign investment
q Indonesia imports too much
Myth #1: Indonesia has too much Foreign Investment
Source: World Bank
In Indonesia net FDI equals about 2% of GDP, well behind its ASEAN peers
Vietnam and Malaysia and slightly more than Argentina and India
Foreign Direct Investment, net inflows (2009-2013 - % of GDP)
Myth #2: Indonesia imports too much
Source: World Bank
Imports of Goods & Services as % GDP. The share in Indonesia (22%) is
much less than in other major ASEAN economies, India and China
Imports of Goods and Services (2009–2013 - % of GDP)
Underlying the Mythology
CA-
“Indonesia is a nation brought together by three centuries of Dutch colonization which ended only 69 years ago….the population is largely proud of its country and nation, won by extended wars, costing a huge number of lives…So deep in their collective psyche, Indonesians distrust Western powers which they associate with their colonizers and their then allies, who nearly reseized the country they fought so hard to win….
“Along with this mistrust, there is an ingrained suspicion that, given the slightest opportunity, even today, any Western power would not hesitate to exploit and coerce Indonesia into submission in order to do their bidding. And faced with such situations – perceived or real -- Indonesian tends to become obstinate and often, irrationally so.”
Dewi Anggraeni, Author “The May 1998 Tragedy and the Birth of the National Commission for Women”. Tempo, March 29, 2015
The Unpleasant Impact of Political Myths
ØThese myths also reflect the belief that the international system is inherently unfair to developing countries and that Indonesia is uniquely vulnerable.
ØThese myths are used by crony capitalists to justify protectionism, quotas and cartels and by bureaucrats to build complex and intrusive regulatory regimes to expand their power.
ØThe monetization of these myths by elements of the political, business and bureaucratic elites is the most serious obstacle to reform and growth and the major threat to the Jokowi regime and any serious reforms towards a more open and competitive modern economy and a more equitable distribution of incomes.
The Unpleasant Impact of Political Myths
ØJokowi’s confrontation of with these myths began with the elimination of the fuel subsidies in November 2014 and accelerated with the cabinet reshuffle of August 2015.
ØThe outcome of this confrontation will determine Indonesia’s future. Reasonable success will propel growth and make Indonesia one of the largest economies in the world over the next several decades.
ØFailure will condemn the country to chronic underperformance that is likely to lead to unpleasant social and political consequences over the same period.
Prospects for Change
Ø Progress will be slow and setbacks like the troubling decisions Masela Block gas investment will occur.
ØThe current pattern of frequent minor reform packages that nibble at specific bureaucratic inefficiencies are welcome but inadequate.
ØNevertheless, this is the first Indonesian government in living memory to publicly and persistently acknowledge the need to actively compete in the global economy.
Ø Its ability to stay the course will determine the country’s future.
Today’s Questions
v How real is this change in direction?
v How broadly and deeply is it accepted with in the body politic, bureaucracy and amongst the public at large?
v What are the chances for success?
v The desire of the president and several key ministers is very real
v Unfortunately the political parties and the bureaucracy have not gotten on board
v The chances for major successes in the short term are modest indeed, but if the economy improves over the next several years, the president’s credibility will grow and the momentum for change will increase
Thank You
