bank indonesiabank indonesia the monetary policy report is published quarterly by bank indonesia...

BANK INDONESIAFor further information, please contact:Economic Outlook & Policy DisseminationEconomic Outlook & Policy DisseminationEconomic Outlook & Policy DisseminationEconomic Outlook & Policy DisseminationEconomic Outlook & Policy DisseminationBureau of Monetary PolicyBureau of Monetary PolicyBureau of Monetary PolicyBureau of Monetary PolicyBureau of Monetary PolicyDirectorate of Economic Research and Monetary PolicyDirectorate of Economic Research and Monetary PolicyDirectorate of Economic Research and Monetary PolicyDirectorate of Economic Research and Monetary PolicyDirectorate of Economic Research and Monetary Policy

Telephone : +62 61 3818163+62 21 3818206

Fax. : +62 21 3452489E-mail : [email protected] : http://www.bi.go.id

i

MONETARY POLICY REPORTBANK INDONESIA

The Monetary Policy Report is published quarterly by Bank Indonesia after the Board of

Governors» Meetings in January, April, July, and October. In addition to fulfilling the

mandate of article 58 of Act Number 23 of 1999 concerning Bank Indonesia, amended

by Act No. 3 of 2004, the report has two main purposes: (i) to function as a tangible

product of a forward-looking working framework in which formulation of monetary

policy is based on economic and inflation forecasts; and (ii) as a medium for the Board of

Governors of Bank Indonesia to present to the public the various policy considerations

underlying its monetary policy decisions.

The Board of Governors

Boediono Governor

Miranda S. Goeltom Senior Deputy Governor

Hartadi A. Sarwono Deputy Governor

Siti Ch. Fadjrijah Deputy Governor

S. Budi Rochadi Deputy Governor

Muliaman D. Hadad Deputy Governor

Ardhayadi Mitroatmodjo Deputy Governor

Budi Mulya Deputy Governor

MONETARY POLICY REPORTQUARTER III-2008

ii


iii


Monetary Policy Strategy

Basic Principles

• With the ITF, inflation target is the overriding objective and nominal anchor of monetary policy. In this regard, BankIndonesia will apply a forward-looking strategy to steer present monetary policy towards achievement of the medium-term inflation target.

Inflation

• Application of the ITF does not mean that monetary policy will not take account of economic growth. This policy willretain the fundamental paradigm of monetary policy in striking an optimal balance between inflation and economicgrowth in both the establishment of the inflation target and in monetary policy response, which will be targetedtowards low, stable inflation in the medium and long-term.

The Inflation Target

• The Government, after consultation with Bank Indonesia, has established and announced targets for CPI inflationtargets at 8%±1%, 6%±1%, and 5%±1% for 2006, 2007, and 2008 (Based on press release on 17 March 2006from the Coordinating Ministry for Economic Affairs. These inflation targets are consistent with the process ofgradual disinflation towards a medium to long-term inflation target of about 3%, competitive with other nations.

Instruments and Monetary Operations

• The BI Rate is used to convey the monetary policy stance and operational targets. The BI Rate is a one-month interestrate regularly announced by Bank Indonesia for a specific time frame.

• The BI Rate is implemented through open market operations (OMO) using 1-month SBIs. To strengthen theeffectiveness of liquidity control on the market, Fine Tune Operations (FTO) will be carried out on a daily basis usingSBIs and Government Securities as underlying instruments.

Policymaking Process

• The BI Rate is determined by the Board of Governors in the quarterly Board of Governors» Meeting held eachJanuary, April, July, and October. Under certain conditions, if necessary, the BI Rate may be adjusted in the Board ofGovernors» Meeting convened in other months. Changes in the BI Rate are indicative of Bank Indonesia»s assessmentof the inflation forecast in relation to the established inflation target.

Transparency

• From time to time, monetary policy will be communicated through customary media communications, such asstatements to the press and market players, the website, and the publication of the Monetary Policy Report (MPR).This transparency is intended to strengthen understanding and build public expectations of the economic outlookand future inflation as well as the monetary policy response pursued by Bank Indonesia.

Coordination with the Government

• To provide coordination in inflation targeting, monitoring, and control, the Government and Bank Indonesia haveset up a team made up of officials from various relevant agencies. In the course of its work, the Team deliberatesand issues recommendations concerning the necessary policies for both the Government and Bank Indonesia incurbing inflationary pressure to achieve the established inflation target.

Enhanced Monetary Policy MeasuresUnder Inflation Targeting Framework

In July 2005, Bank Indonesia implemented and enhanced monetary policy measures within the Inflation Targeting Framework(ITF) which encompasses four main areas: the use of the BI rate as an operational target, enhanced decision making process,more transparent communications strategy, and strengthened policy coordination with the Government. The measures isintended to strengthen the effectiveness and to provide good governance to its monetary policy making to achieve the pricestability needed to support suistainable economic growth and attain social welfare.

iv


Monetary Policy Report - Quarter III-2008Contents


vii

Contents

1. General Review ........................................................................... 1

2. Latest Macroeconomic Indicators .............................................. 5

Economic Growth .......................................................................... 5

The Balance of Payments ............................................................... 11

3. Monetary Indicators and Policy, Q3/2008 ................................. 14

Inflation ......................................................................................... 14

Rupiah Exchange Rate.................................................................... 16

Monetary Policy ............................................................................. 18

4. Outlook for the Indonesian Economy ....................................... 23

Assumptions and Scenarios ............................................................ 24

Economic Growth Outlook ............................................................. 25

Inflation Forecast ........................................................................... 29

Risks .............................................................................................. 30

5. Monetary Policy Response Q3-2008 .......................................... 31

Statistics .......................................................................................... 32

General Review

1

1. General Review

Inflationary pressure in Indonesia remained strong during Q3/2008. Driving this

were high public expectations of inflation, buoyant domestic demand and the impact

of imported inflation related to the potential for rupiah depreciation brought about

by the US financial crisis. In their policy response to these developments, the Bank

Indonesia Board of Governors sees the need for curbing of inflationary pressure to

achieve the medium-term inflationary target and safeguard the stability of the

economy as a whole.

Q3/2008 was dominated by global financial markets woes and the fallout of these

problems on the Indonesian economy. The world economic slowdown has now

taken hold in several industrialised nations and begun spreading to emerging

markets, including Indonesia. The turmoil on global markets has spread inexorably

further, with the Indonesian economy also affected. Despite Indonesia»s robust

economic fundamentals, the negative sentiment engendered by the crisis prompted

a new wave of capital outflows. This has put pressure on both the stock market

and the rupiah exchange rate. The stock index plunged dramatically alongside

depreciation in the exchange rate. Both developments augur for a pessimistic outlook

for the domestic economy. In response, Bank Indonesia and the Government have

maintained close policy coordination and continue to monitor developments in the

economy on a regular basis.

With conditions still shrouded in these problems, inflation and economic stability

remain the primary focus of Bank Indonesia. Efforts to strike an overall balance

between inflation control and the risk of instability on the money market are

ongoing. To curb inflation, Bank Indonesia has pursued a tight bias monetary stance

by raising the BI Rate 75 bps during Q3/2008 and optimising the use of all monetary

policy instruments at its disposal. The upward movement in the BI Rate was followed

by higher rates for bank time deposit and lending rates. As of August 2008, time

deposit rates had climbed faster than the BI Rate, with rates for working capital

credit and investment credit following suit. Rates for consumption credit, however,

were relatively stable.

Bank Indonesia has kept a close watch on money market liquidity, with several

banks caught in a liquidity squeeze. This tightening was triggered by disparities in

liquidity held by banks, given that liquidity in the banking system was still adequate

overall. Added to this, high-paced bank credit expansion not balanced by sufficient

growth in depositor funds led to a liquidity crunch at some banks. The cautious

stance taken by banks to anticipate the surge in demand in advance of the religious

festivities and low rate of expansion in the government account put added pressure

on liquidity in the banking system. Nevertheless, this tightening of liquidity is

predicted to be temporary. The liquidity squeeze is forecasted to ease after the end

of the Eid-ul-Fitr period, when cash begins returning to the banking system. Added

Monetary Policy Report - Quarter III-2008

2

to this will be the expansionary trend in government accounts during Q4/2008. To

resolve the problem of tight liquidity, Bank Indonesia has pursued a series of measures

through improvements in monetary operations.

Amid the global financial turmoil of Q3/2008 and slowing world economic growth,

the Indonesia economy still managed to chart healthy growth. In preliminary figures,

the GDP grew by 6.3% (yoy) in Q3/2008, following 6.4% growth (yoy) in Q2/

2008. Household consumption was again indicated as the main driving force for

this growth. Vigorous growth in consumption was bolstered by continued strength

of purchasing power and increased availability of consumer finance. Investment,

another component of domestic demand, also recorded high growth, particularly

for non-construction activities. Nevertheless, the slowdown in the world economy

has also taken the edge off Indonesia»s export growth, although growth remains

strong. Alongside this, imports are forecasted to expand rapidly as suggested by

the strength of domestic demand and export production needs.

Global economic developments subsequently put pressure on Indonesia»s balance

of payments in Q3/2008. Export growth is lagging behind that of imports. Imports

maintained a rapid pace of expansion, driven by heavy domestic demand and also

price increases. The combination of the economic slowdown in the developed world

and falling world commodity prices is set to bear down on Indonesia»s export

performance. However, this decline is not expected to be excessive, given that

Indonesia»s exports are natural resource-based and therefore less sensitive to an

economic slowdown in the developed world. In addition, international trade in the

Asia-Pacific region, led by rapid expansion in China and India in recent years, is

adequate to keep exports from steeper decline.

Analysis of the composition of imports reveals that import growth has taken place

mainly in raw materials and capital goods. This in turn will spur growth in domestic

production and production capacity, which will benefit the economy in the medium

to long-term. Leading importers were the industry sector (specifically the chemical

industry subsector, the base metals, iron and steel subsector and the transportation

equipment, machinery and tools subsector) and the transport and communications

sector, both of which have substantial backward and forward linkages.

In the capital and portfolio account, negative sentiment spurred by the turbulence

on global financial markets prompted a wave of capital outflows. In portfolio

investments, foreign capital recorded net outflows. To cover the costs of rising

imports, domestic economic actors have drawn on assets placed overseas and some

have availed foreign financing, as indicated by the other investment component

that recorded net inflows. In the upshot of these developments, international reserves

reached USD57.1 billion, equivalent to 4.2 months of imports and servicing of

official debt.

The outflows of foreign capital put downward pressure on the rupiah during Q3/

2008. Nevertheless, Bank Indonesia kept a close watch on movement in the

General Review

3

exchange rate under the forex market stabilisation policy aimed at mitigating

pressures and easing rupiah volatility. As a result, the average value of the rupiah in

Q3/2008 appreciated further over the earlier period. Measured as a quarterly average,

the rupiah gained 0.47% from Rp 9,259 to the USD to Rp 9,216 to the USD.

Downward pressure began to set in near the end of Q3/2008 as foreign investor

behaviour came under the influence of global economic developments. Risk aversion

among investors led to pressure on the rupiah. Downward pressure was also

sustained by regional currencies that weakened from the spillover effects of external

turbulence. On the other hand, the rupiah still offered attractive investment yields,

reflected in the broad interest rate differential. This in turn eased pressures and

helped stem further capital outflows from rupiah instruments.

In related developments, the Indonesian Composite Index (IDX) closed at 1,832 at

the end of the period under review (September 2008), a drop of 21.9% compared

to end Q2/2008. The disappointing Q3/2008 performance of the IDX Index is

explained more by the influence of deteriorating global financial markets as more

and more international financial institutions faced bankruptcy.

Looking forward, economic growth is predicted to remain at a healthy 6.2%-6.4%

amid the turmoil besetting the world economy in 2008 before tapering off slightly

in 2009. The continued strength of economic growth is driven primarily by domestic

demand. In turn, domestic demand is not only supported by availability of financing,

but also the continued strength of public purchasing power. Household consumption

is forecasted to maintain momentum. At the same time, investment growth is

being fuelled mainly by non-construction investment. Externally, the fast-rising

imports of capital goods and raw materials are expected to boost the future capacity

of the Indonesian economy. Underlying this optimism are the substantial multiplier

effects on the economy in the industry sectors importing these capital goods and

raw materials. On the other hand, growth in exports of goods and services is

forecasted to decline in keeping with the slowdown in the world economy and

falling international commodity prices. Inflationary pressure is also predicted to

remain high during the coming months. CPI inflation in 2008 is forecasted in the

range of 11.5%-12.5% (yoy). In 2009, inflationary pressure is expected to ease

midway through the year in response to the current monetary policy stance and

falling imported inflation as international commodity prices maintain a downward

trend. Accordingly, inflation in 2009 is forecasted in the range of 6.5%-7.5% (yoy).

Looking forward, the Indonesian economy is also confronted by various risks. These

risks are explained largely by developments in the world economy, and most

importantly the outworking of the global financial crisis. Economic growth may

take a downward bias due to the crisis, which is also likely to affect balance of

payments performance given the potential for falling international commodity prices.

Within the future policy framework, Bank Indonesia will focus on efforts to curb

the risk of inflation while avoiding excessive disruption to the upward trend in

economic growth. To this end, Bank Indonesia will continue to implement a prudent,


4

measured monetary policy stance while sustaining the momentum for economic

growth. The decision of the BI Board of Governors to raise the BI Rate a further 25

bps to 9.5% in October 2008 was based primarily on this reasoning. In regard to

financial stability, the Bank Indonesia policy is also expected to safeguard the stability

of the domestic financial system. The policy will also be reinforced by more optimum

use of other monetary instruments, such as forex market interventions to minimise

volatility in the rupiah exchange rate and maintain adequate liquidity on the money

market. Bank Indonesia will maintain a close watch and monitor global economic

developments and make immediate policy adjustments if necessary to safeguard

macroeconomic stability and achievement of the medium to long-term inflation

target.

Latest Macroeconomic Indicators

5

2. Latest Macroeconomic Indicators

Amid the uncertainties of global economic developments, the Indonesian economy

continued to chart high growth in Q3/2008, albeit down slightly from the preceding

quarter. The high rate of growth was bolstered by vigorous domestic demand and

especially household consumption. Household consumption maintained reasonably

brisk growth, albeit slightly less than in the preceding quarter. Supporting this was

relative stability in public purchasing power and an upswing in consumer confidence.

However, preliminary figures for exports suggest that growth was held back by

weakening economic conditions in key developed nations. Consistent with slowing

export performance, figures also point to modest decline in investment growth

momentum. However, this slowdown is not expected to have excessive impact,

given the continued robust growth in household consumption and improving

business optimism for future economic conditions. On the other hand, indicators

suggest that import growth was curbed to some extend by the effects of slowing

exports and investment.

On the supply side, key sectors driving the economy maintained relatively stable

growth in preliminary figures with the exception of agriculture, which shed some

growth. Nevertheless, the slowing growth in agriculture was adequately offset by

high growth in non-tradable sectors such as transport and telecommunications

and services and resumption of positive growth in the mining sector. Based on this

assessment, third quarter growth in the Gross Domestic Product (GDP) reached an

estimated 6.3% (yoy).

ECONOMIC GROWTH

Indonesia charted another quarter of strong growth in preliminary figures for Q3/

2008, consistent with the high growth outcome for the preceding quarter. Despite

this, various indicators point to slowing growth, even though

significant downturn is not suggested. Accordingly, GDP growth

in Q3/2008 is estimated at 6.3% (yoy) (Graph 2.1).

Aggregate Demand

On the demand side, Q3/2008 GDP growth was again high,On the demand side, Q3/2008 GDP growth was again high,On the demand side, Q3/2008 GDP growth was again high,On the demand side, Q3/2008 GDP growth was again high,On the demand side, Q3/2008 GDP growth was again high,

bolstered to strong domestic demand and especially consumptionbolstered to strong domestic demand and especially consumptionbolstered to strong domestic demand and especially consumptionbolstered to strong domestic demand and especially consumptionbolstered to strong domestic demand and especially consumption

(Table 2.1). (Table 2.1). (Table 2.1). (Table 2.1). (Table 2.1). The relative stability in public purchasing power,

improving consumer optimism and seasonal factors with the

religious festivities provided an added boost to household

consumption growth. However, the accelerated export growth

in the preceding quarter is expected to let up slightly in the figures

for Q3/2008 due to the slowdown in the global economy and

falling prices for oil and other commodities. Consistent with this

Graph 2.1

Growth of Gross Domestic Product (GDP)

% y-o-y

2005 2006 2007 2008I II III IV

5.0

6.0

7.0

6.5

5.5

4.5I II III IV I II III IV I II III*


6

Graph 2.2

Leading Indicators of Private Consumption

%Y-o-Y, Base Year 2000

2005

I II III IV I II III IV I II III IV I II III*I t e m

Table 2.1

Economic Growth - Demand Side

20052007

* Bank Indonesia Projection figures

Total Consumption 2.0 2.6 5.5 6.7 4.3 3.8 5.6 2.8 3.5 3.9 4.6 4.6 5.3 5.1 4.9 5.6 4.9 5.0

Private Consumption 3.4 3.8 4.4 4.2 4.0 2.9 3.0 3.0 3.8 3.2 4.7 4.7 5.1 5.6 5.0 5.7 5.3 5.1

Government Consumption -9.6 -6.7 14.7 24.9 6.6 11.5 28.8 1.7 2.2 9.6 3.7 3.8 6.5 2.0 3.9 4.7 2.2 4.5

Total Investment 14.9 16.7 10.4 2.7 10.9 1.4 0.9 0.8 6.8 2.5 7.0 6.9 10.4 12.1 9.2 15.4 12.8 12.0

Domestic Demand 5.0 5.9 6.7 5.7 5.8 3.2 4.4 2.3 4.3 3.5 5.2 5.2 6.6 6.8 6.0 8.0 6.9 6.8

Export of Goods and Services 22.0 17.6 12.3 15.6 16.6 11.8 11.4 8.3 6.6 9.4 8.1 9.8 6.9 7.3 8.0 15.5 16.1 15.8

Import of Goods and Services 22.2 23.6 17.7 8.9 17.8 4.8 9.3 10.9 9.2 8.6 8.5 6.5 7.0 13.6 8.9 17.8 16.7 16.0

GDPGDPGDPGDPGDP 6.06.06.06.06.0 5.95.95.95.95.9 5.85.85.85.85.8 5.15.15.15.15.1 5.75.75.75.75.7 5.15.15.15.15.1 5.05.05.05.05.0 5.95.95.95.95.9 6.06.06.06.06.0 5.55.55.55.55.5 6.16.16.16.16.1 6.46.46.46.46.4 6.56.56.56.56.5 6.36.36.36.36.3 6.36.36.36.36.3 6.36.36.36.36.3 6.46.46.46.46.4 6.36.36.36.36.3

200720082006

2006

trend, some slackening is also expected in investment growth

and import growth.

In estimates, household consumption maintained robustIn estimates, household consumption maintained robustIn estimates, household consumption maintained robustIn estimates, household consumption maintained robustIn estimates, household consumption maintained robust

expansion, although down slightly from the preceding quarterexpansion, although down slightly from the preceding quarterexpansion, although down slightly from the preceding quarterexpansion, although down slightly from the preceding quarterexpansion, although down slightly from the preceding quarter

as suggested by leading indicators (Graph 2.2). In Q3/2008,

growth in household consumption reached 5.1% (yoy) in

preliminary figures on the strength of relative stability in public

purchasing power and improved consumer confidence. Also

contributing to the strong growth in household consumption

was expanded consumer financing extended by banks and other

finance institutions. Consumption of durable goods, such as

electronics and motor vehicles, maintained vigorous expansion.

Growth in consumer goods imports was also quite strong early

in Q3/2008. At the same time, the findings of the Bank Indonesia

Consumer Survey point to an upsurge in consumer confidence

(Graph 2.3), largely attributable to rising income expectations

and availability of jobs. This indicates that the public has begun

to recover from the impact of the fuel price hike, despite the

looming threat of diminished sources of income. Also pointing

to relatively stable conditions was the upward movement in the

retail sales index. The stable index growth is largely the result of

real sales growth in the household articles and the clothing and

accessories categories.

Estimated investment growth in Q3/2008 is slightly down fromEstimated investment growth in Q3/2008 is slightly down fromEstimated investment growth in Q3/2008 is slightly down fromEstimated investment growth in Q3/2008 is slightly down fromEstimated investment growth in Q3/2008 is slightly down from

the preceding quarter, in line with the trend in investment leadingthe preceding quarter, in line with the trend in investment leadingthe preceding quarter, in line with the trend in investment leadingthe preceding quarter, in line with the trend in investment leadingthe preceding quarter, in line with the trend in investment leading

indicators (Graph 2.4). indicators (Graph 2.4). indicators (Graph 2.4). indicators (Graph 2.4). indicators (Graph 2.4). However, no significant decline is expected

in view of the relatively stable public purchasing power and

growing business optimism for future economic conditions.

Reinforcing this confidence were developments in several leading

Graph 2.3

Consumer Confidence Index √ BI Consumer Survey

Expectation ConsumerPresent Situatuions Index (PSI)

Consumer Confidence Index

Index

60

70

80

90

100

110

120

2005 2006 2007 20081 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9

optimistic

pessimistic

gGDPHousehold Consumer2 (Reference Series) and Cli1

Import of Consumer Goods, Real M1, CPI

99

99

99

100

100

100

100

100

101

gGDPHousehold Consumer2 CLI97.50

98.00

98.50

99.00

99.50

100.00

100.50

101.00

101.50

2002 2003 2004 2005 2006 2007 2008 2009I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I


7

investment indicators, such as relatively strong imports of capital

goods and investment credit expansion (Graph 2.5). Investment

in Q3/2008 is therefore estimated to have charted 12% growth

(yoy).

Analysed by component, Q3/2008 investment growth wasAnalysed by component, Q3/2008 investment growth wasAnalysed by component, Q3/2008 investment growth wasAnalysed by component, Q3/2008 investment growth wasAnalysed by component, Q3/2008 investment growth was

supported by vigorous growth in non-construction investmentsupported by vigorous growth in non-construction investmentsupported by vigorous growth in non-construction investmentsupported by vigorous growth in non-construction investmentsupported by vigorous growth in non-construction investment

(Graph 2.6)(Graph 2.6)(Graph 2.6)(Graph 2.6)(Graph 2.6). Indications of this are evident in renewed increase

in the production index for the domestic machinery industry

alongside high growth in imports of capital goods. In contrast,

cement consumption, a key indicator relevant to construction

investment, showed some decline.

On the other hand, indications of business interest in investmentOn the other hand, indications of business interest in investmentOn the other hand, indications of business interest in investmentOn the other hand, indications of business interest in investmentOn the other hand, indications of business interest in investment

remain strongremain strongremain strongremain strongremain strong. The business tendency index published in a survey

by the Central Statistics Agency (BPS) points to improvement,

reflected in rising orders for input goods and domestic and foreign

orders in Q3/2008 (Graph 2.7). The findings of the Business

Confidence Survey (SKDU) also point to a growing number of

business actors interested in investing during the second half of

2008. Even so, investment continues to be hampered by such

factors as interest rates, licensing and access to bank credit.

Exports again recorded high growth in preliminary figures forExports again recorded high growth in preliminary figures forExports again recorded high growth in preliminary figures forExports again recorded high growth in preliminary figures forExports again recorded high growth in preliminary figures for

Q3/2008, albeit down slightly from the preceding quarter.Q3/2008, albeit down slightly from the preceding quarter.Q3/2008, albeit down slightly from the preceding quarter.Q3/2008, albeit down slightly from the preceding quarter.Q3/2008, albeit down slightly from the preceding quarter.

Weakening export growth was closely linked to the world

economic slowdown and falling international commodity prices,

particularly for agricultural and mining products. In the preceding

quarter, export demand from emerging market countries such

as China and India contributed significantly to Indonesia»s export

growth, but this demand gradually slackened due to depressed

growth in advanced economies. Nevertheless, the cumulative

measure of exports for January-August 2008 was still high at

USD95.45 billion, representing 29.87% growth (yoy) over the

same period in 2007. Accordingly, preliminary figures for Q3/

2008 suggest export growth at 15.8% (yoy), buoyed mainly by

agricultural and mining products (Graph 2.8).

Imports are expected to show slightly less vigorous expansion inImports are expected to show slightly less vigorous expansion inImports are expected to show slightly less vigorous expansion inImports are expected to show slightly less vigorous expansion inImports are expected to show slightly less vigorous expansion in

Q3/2008 in keeping with the softening performance of exportsQ3/2008 in keeping with the softening performance of exportsQ3/2008 in keeping with the softening performance of exportsQ3/2008 in keeping with the softening performance of exportsQ3/2008 in keeping with the softening performance of exports

and investment (Graph 2.9). and investment (Graph 2.9). and investment (Graph 2.9). and investment (Graph 2.9). and investment (Graph 2.9). Despite this, no major downturn in

import growth is expected, given the continued strength of

household consumption and improving business optimism for

future economic conditions. Preliminary figures for Q3/2008 place

import growth at 16.0% (yoy), down from the earlier quarter.

Analysed by category of goods, import growth was driven mainly

Graph 2.4

Investment Leading Indicators

Graph 2.5

Real Investment Credit Growth

Gross Fixed Capital Formation2 (Reference Series) and Cli1

IPI, Sales Commercial Car, IPI Machinery and Equipment, IndustrialElectricity Consumption, Cement Consumption

99

99

100

100

101

101

102

102

2002 2003 2004 2005 2006 2007 2008I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I

Gross Fixed Capital Formation2 CLI

II III IV

(%)

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0(%)

2005 2006 2007 20081 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9

Gross Fixed Capital Formation (y-o-y)Real Invesment Credit_Seasonal Adjusted_CMA (m-t-m)Real Invesment Credit (y-o-y)

Graph 2.6

Construction and Non-Construction

Investment Growth

(%,yoy)

0

2

4

6

8

10

12

14

16

18

-30

-20

-10

0

10

20

30

40

50

2005 2006* 2007** 2008***

(%,yoy)

I II III IV I II III IV I II III IV I II III

Manufacturing

Non Manufacturing

Gross Fixed Capital Formation (rhs)


8

by raw materials and capital goods. In the latest data released

by BPS, cumulative imports for the January-August 2008 period

reached USD89.83 billion, an increase of 91.19% (yoy) over the

same period in 2007.

Government Financial Operations

Government financial operations in Q3/2008 (July-August) againGovernment financial operations in Q3/2008 (July-August) againGovernment financial operations in Q3/2008 (July-August) againGovernment financial operations in Q3/2008 (July-August) againGovernment financial operations in Q3/2008 (July-August) again

produced a budget surplus. produced a budget surplus. produced a budget surplus. produced a budget surplus. produced a budget surplus. In Q3/2008 (July-August), the budget

surplus reached Rp 20 trillion (0.5% of GDP), which compares

to the deficit of 0.1% of GDP recorded for the same period one

year before. Accordingly, realised Government financial

operations during the first eight months of 2008 charted a surplus

at Rp 81.8 trillion, equal to 1.8% of GDP. This was considerably

higher than the surplus for the same period in 2007 at Rp 14

trillion (0.1% of GDP).

The hefty surplus came as the result of considerably improved

revenue performance compared to the same period last year. At

end-Q3/2008, total revenues and grants stood 67.9% of the

Revised 2008 Budget target, well ahead the same period in 2007

when revenues and grants came to 57.9% of the Revised 2007

Budget. The improvement in state revenues was achieved mainly

in taxation, non-tax revenues from oil and natural gas resources,

profit share from SOEs and other non-tax revenues.

On the expenditures side, Budget implementation has justOn the expenditures side, Budget implementation has justOn the expenditures side, Budget implementation has justOn the expenditures side, Budget implementation has justOn the expenditures side, Budget implementation has just

reached 53.2% of the Revised 2008 Budget, largely on par withreached 53.2% of the Revised 2008 Budget, largely on par withreached 53.2% of the Revised 2008 Budget, largely on par withreached 53.2% of the Revised 2008 Budget, largely on par withreached 53.2% of the Revised 2008 Budget, largely on par with

the outcome for the same period one year earlier at 51.5% ofthe outcome for the same period one year earlier at 51.5% ofthe outcome for the same period one year earlier at 51.5% ofthe outcome for the same period one year earlier at 51.5% ofthe outcome for the same period one year earlier at 51.5% of

the Revised 2007 Budgetthe Revised 2007 Budgetthe Revised 2007 Budgetthe Revised 2007 Budgetthe Revised 2007 Budget. Budget expenditure absorption in Q3/

2008 was again dominated by transfer payments with subsidies

at Rp 52.1 trillion, including Rp 31.3 trillion for the fuel subsidy.

Line ministry/government agency expenditure items, i.e.

personnel expenditures, material expenditures and capital

expenditures, did not undergo significant expansion. Concerning

regional expenditures, Transfers to the Regions were lower during

the period under review compared to the same period one year

before. These funds were derived mainly from Profit Sharing

Funds, Special Allocation Funds and Special Autonomy and Fiscal

Balance Funds. Measured for the whole year, Transfers to the

Regions reached only 55.2% of target in the Revised 2008

Budget. This was down from the same period in 2007, when

these transfers reached 61.2% of target.

Concerning budget financing, the less conducive conditions onConcerning budget financing, the less conducive conditions onConcerning budget financing, the less conducive conditions onConcerning budget financing, the less conducive conditions onConcerning budget financing, the less conducive conditions on

financial markets have exacerbated the constraints on issuingfinancial markets have exacerbated the constraints on issuingfinancial markets have exacerbated the constraints on issuingfinancial markets have exacerbated the constraints on issuingfinancial markets have exacerbated the constraints on issuing

Graph 2.7

Business Sentiment - BPS

Graph 2.8

Export Growth by Sector

0

5

10

15

20

25

(%) (%)

I II III IV I II III IV I II III IV I II III IV I II III2004 2005 2006 2007 2008

-50

-20

10

40

70

100

130gExport (yoy) rhs agriculture export

industry export mineral export

Graph 2.9

Leading Import Indicators

imp_gdp (Reference Series) and Cli1

98

99

99

100

100

101

101

102

102

2002 2003 2004 2005 2006 2007 2008I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II

imp_gdp

CLI

99.2

99.4

99.6

99.8

100.0

100.2

100.4

100.6

100.8

III IV

Industrial Production Index, Volume of Industrial Electricity, Automotive Production,Japan Manufacturing Index, Paper/Paper Products Production Index, Clothing and, Rp toAccessories Production Index, Korea Production and Services Index, Rp to USD,Rp to JPY, Real Consumption Credit, Real M1

Index

2005 2006 2007 2008

80

90

100

110

120

130

140

80

90

100

110

120

130Index

2004I* II* III* IV* I* II* III* IV* I* II* III* IV* I* II* III* IV* I* II* III*

BTI Real Sales Price (Rhs)Input Goods OrderForeign OrderDomestic Order


9

Government Securities.Government Securities.Government Securities.Government Securities.Government Securities. The increased yield on Government Securities, all to be

expected in the present conditions of global financial market turmoil and tight

liquidity since mid-way through the period under review, have impacted issuances

of Government Securities. For year-to-date, net issuance of Government Securities

is only at 87% of the targeted level in the Revised 2008 Budget.1

Government consumption and investment is estimated to have charted moreGovernment consumption and investment is estimated to have charted moreGovernment consumption and investment is estimated to have charted moreGovernment consumption and investment is estimated to have charted moreGovernment consumption and investment is estimated to have charted more

vigorous growth in Q3/2008 compared to Q2/2008vigorous growth in Q3/2008 compared to Q2/2008vigorous growth in Q3/2008 compared to Q2/2008vigorous growth in Q3/2008 compared to Q2/2008vigorous growth in Q3/2008 compared to Q2/2008. In July-August 2008, Central

Government expenditures and Transfers to the Regions measured 65.5% against

projections, indicating that the targeted Government consumption for Q3/2008

was achievable. However, the low rate of capital expenditures, only at 53% of the

budget projection, indicates that Government investment in Q3/2008 will fall short

of projects even though Transfers to the Regions are estimated to be on track.

Nevertheless, the overall rate of realised Government investment in Q3/2008 is

expected to surpass the levels reached in Q2/2008.

Aggregate Supply

Consistent with supply-side developments, the economy is estimated to haveConsistent with supply-side developments, the economy is estimated to haveConsistent with supply-side developments, the economy is estimated to haveConsistent with supply-side developments, the economy is estimated to haveConsistent with supply-side developments, the economy is estimated to have

maintained strong supply-side growth during Q3/2008. maintained strong supply-side growth during Q3/2008. maintained strong supply-side growth during Q3/2008. maintained strong supply-side growth during Q3/2008. maintained strong supply-side growth during Q3/2008. In preliminary figures, most

economic sectors charted high growth (Table 2.2). The leading growth sectors,

manufacturing and trade, hotels and restaurants, maintained relatively stable

performance with growth at 4.0% (yoy) and 7.8% (yoy). Despite this, the agriculture

sector recorded lower estimated growth at 2.1% (yoy) as expected with the passing

of the harvest season. On the other hand, estimated growth in other sectors, such

as transport and communications, the electricity, gas and water utilities sector and

construction, was again strong at 19.5% (yoy), 11.0% (yoy) and 8.1% (yoy).

Supporting these sectoral growth estimates were various sectoral indicators generally

pointing to improvement, such as the capacity utilisation based on the Bank Indonesia

Production Survey and the machinery and tools production index. The findings of

the Business Tendencies Survey conducted by BPS also indicate positive sentiment

in business expectations during Q3/2008, fuelled by increased domestic and foreign

orders and orders of input goods. Alongside this, capacity utilisation in the Business

Survey was relatively stable. Analysis of sectoral distribution shows that

manufacturing, the trade, hotels and restaurants sector and agriculture were again

the dominant areas of economic activity. However, when analysed by contribution

to GDP growth, the leading sectors were transport and communications, the trade,

hotels and restaurants sector and manufacturing.

Manufacturing maintained relatively stable growth in Q3/2008 at 4.0% (yoy). Manufacturing maintained relatively stable growth in Q3/2008 at 4.0% (yoy). Manufacturing maintained relatively stable growth in Q3/2008 at 4.0% (yoy). Manufacturing maintained relatively stable growth in Q3/2008 at 4.0% (yoy). Manufacturing maintained relatively stable growth in Q3/2008 at 4.0% (yoy). Rising

demand driven by the religious festive season at end-Q3/2008 was on factor spurring

growth, particularly in the food, beverages and tobacco industry subsector and the

textile industry subsector. In addition, some leading indicators for industry, such as

1 Based on cash proceeds paid into the Government account at Bank Indonesia.


10

the Manufacturing Production Index released by BPS, maintained stable movement.

Also reflecting this was the stable level of vehicle production. In contrast, the

Production and Capacity Utilisation Index in the Bank Indonesia Production Survey

showed a rising trend. Financial statements of several industrial companies reported

improvement, with sales growth matched by increased inventory. As regards

financing, the industry sector continued to show credit expansion. Another leading

indicator, the high level of bank lending to industry as of mid-Q3/2008, offers

further confirmation of industry sector growth.

The trade, hotels and restaurants sector recorded another quarter of strong growthThe trade, hotels and restaurants sector recorded another quarter of strong growthThe trade, hotels and restaurants sector recorded another quarter of strong growthThe trade, hotels and restaurants sector recorded another quarter of strong growthThe trade, hotels and restaurants sector recorded another quarter of strong growth

at an estimated 7.8% (yoy) for Q3/2008. at an estimated 7.8% (yoy) for Q3/2008. at an estimated 7.8% (yoy) for Q3/2008. at an estimated 7.8% (yoy) for Q3/2008. at an estimated 7.8% (yoy) for Q3/2008. Vigorous household consumption,

especially in advance of the religious festivities at the end of Q3/2008, was one

factor driving growth in the trade, hotels and restaurants sector. Furthermore, some

leading indicators for trade, hotels and restaurants also provide confirmation of

high growth. As of early Q3/2008, the Bank Indonesia Retail Index maintained

stable growth. Similar upward trends were also visible in the corporate sales and

inventory within the trade sector to the end of Q2/2008. The indicator for the

hotels subsector, i.e. hotel occupancy rates in Jakarta and Bali, showed relatively

stable growth as of end-Q2/2008. In regard to financing, bank lending to the trade

sector maintained brisk expansion in activity until mid-Q3/2008.

Growth in the agriculture sector slowed from the preceding quarter to an estimatedGrowth in the agriculture sector slowed from the preceding quarter to an estimatedGrowth in the agriculture sector slowed from the preceding quarter to an estimatedGrowth in the agriculture sector slowed from the preceding quarter to an estimatedGrowth in the agriculture sector slowed from the preceding quarter to an estimated

2.1% (yoy) in Q3/2008. 2.1% (yoy) in Q3/2008. 2.1% (yoy) in Q3/2008. 2.1% (yoy) in Q3/2008. 2.1% (yoy) in Q3/2008. The less vigorous growth in the agriculture sector is

explained, among others, by the end of the rice harvest. Added to this, the slowdown

in the estates subsector caused by falling export demand put further brakes on

agriculture sector performance. Nevertheless, the foodcrops subsector remained

stable as demonstrated by the relatively stable figures released by BPS for rice

production (ARAM II - 2008) compared to the preceding year. Reinforcing this was

the high growth in agriculture sales and inventory as of Q2/2008. In the financing


I II III IV I II III IV I II III*S e c t o r

Table 2.2

Economic Growth - Supply Side

2007


Agriculture 6.6 1.6 2.6 2.6 3.4 -1.7 4.7 7.6 3.1 3.5 6.1 4.6 2.1

Mining and Quarrying 2.3 3.6 1.1 0.0 1.7 6.2 3.2 1.0 -2.1 2.0 -1.9 -0.9 1.0

Manufacturing 3.0 3.6 5.9 5.8 4.6 5.2 5.1 4.5 3.8 4.7 4.2 4.1 4.0

Electricity, Gas and Water Supply 5.1 4.5 5.8 7.7 5.8 8.2 10.2 11.3 11.8 10.4 12.6 11.2 11.0

Construction 7.7 8.5 8.5 8.6 8.3 8.4 7.7 8.3 9.9 8.6 7.9 8.0 8.1

Trade, Hotels and Restaurants 4.9 5.9 7.9 7.0 6.4 9.2 7.6 7.9 9.1 8.5 7.1 7.9 7.8

Transportation and Communication 12.0 13.8 14.5 17.0 14.4 13.0 12.7 14.1 17.4 14.4 20.3 19.6 19.5

Financial, Rental and Business Services 5.6 5.2 4.5 6.5 5.5 8.1 7.6 7.6 8.6 8.0 8.2 8.7 8.5

Services 5.8 6.0 6.7 6.2 6.2 7.0 7.0 5.2 7.2 6.6 5.6 6.5 7.3

GDPGDPGDPGDPGDP 5.15.15.15.15.1 5.05.05.05.05.0 5.95.95.95.95.9 6.06.06.06.06.0 5.55.55.55.55.5 6.16.16.16.16.1 6.46.46.46.46.4 6.56.56.56.56.5 6.36.36.36.36.3 6.36.36.36.36.3 6.36.36.36.36.3 6.46.46.46.46.4 6.36.36.36.36.3

200720082006

2006


11

area, indications of slowing agriculture performance were also reflected in the

downturn in agriculture sector lending during mid-Q3/2008.

Q3/2008 growth in the mining sector is estimated at a positive 1.0% (yoy), evenQ3/2008 growth in the mining sector is estimated at a positive 1.0% (yoy), evenQ3/2008 growth in the mining sector is estimated at a positive 1.0% (yoy), evenQ3/2008 growth in the mining sector is estimated at a positive 1.0% (yoy), evenQ3/2008 growth in the mining sector is estimated at a positive 1.0% (yoy), even

though not fully reflected in leading indicators. though not fully reflected in leading indicators. though not fully reflected in leading indicators. though not fully reflected in leading indicators. though not fully reflected in leading indicators. Mining performance was bolstered

by exports of coal, metal ores, clinker and concentrates, alongside indications of

rising aluminium exports. However, mining sales and inventory still showed a

downward trend. As regards financing, lending growth in the mining sector was

marked by slowing momentum.

The transport and communications sector again forged ahead in Q3/2008 withThe transport and communications sector again forged ahead in Q3/2008 withThe transport and communications sector again forged ahead in Q3/2008 withThe transport and communications sector again forged ahead in Q3/2008 withThe transport and communications sector again forged ahead in Q3/2008 with

growth estimated at 19.5% (yoy). growth estimated at 19.5% (yoy). growth estimated at 19.5% (yoy). growth estimated at 19.5% (yoy). growth estimated at 19.5% (yoy). The continued strength of growth in this sector

is attributable largely to performance in the communications subsector, reflected in

ongoing growth trend in cellular telephone subscribers during Q2/2008. Alongside

this, the transportation subsector also showed signs of an upward trend, reflected

in rising numbers of rail passengers. Financing in the transport and communications

sector maintained growth with credit expansion on the rise. The high rate of credit

expansion in this sector was driven mainly by the telecommunications subsector,

where strong prospects are underpinned by the still enormous potential market.

The construction sector achieved estimated Q3/2008 growth at 8.1% (yoy).The construction sector achieved estimated Q3/2008 growth at 8.1% (yoy).The construction sector achieved estimated Q3/2008 growth at 8.1% (yoy).The construction sector achieved estimated Q3/2008 growth at 8.1% (yoy).The construction sector achieved estimated Q3/2008 growth at 8.1% (yoy).

Confirming the growth in this sector were various indicators, such as growth in

commercial property construction. From the financing side, loan disbursements for

property credit and construction credit maintained stable growth, even surpassing

the averages of 2007.

THE BALANCE OF PAYMENTS

Strong economic growth and the onset of decline in world commodity prices led toStrong economic growth and the onset of decline in world commodity prices led toStrong economic growth and the onset of decline in world commodity prices led toStrong economic growth and the onset of decline in world commodity prices led toStrong economic growth and the onset of decline in world commodity prices led to

changes in performance of the balance of payments, most importantly in the currentchanges in performance of the balance of payments, most importantly in the currentchanges in performance of the balance of payments, most importantly in the currentchanges in performance of the balance of payments, most importantly in the currentchanges in performance of the balance of payments, most importantly in the current

account. account. account. account. account. The current account began to record a deficit as a result of continued

strength of imports. Leading in import growth were imports of capital goods and

raw materials in support of investment and production. In a similar vein, the capital

and financial account sustained pressure from the shift in investor interest in response

to the turbulence on global financial markets. In the final outcome, international

reserves reached USD57.1 billion, equivalent to 4.2 months of imports and servicing

of official debt. Measured annually, indicators of external vulnerability showed further

improvement with the continued positive performance in exports and subdued

foreign debt indicators. Like before, the condition of external balances was conducive

to Indonesia»s economic performance.

The Current Account

In preliminary figures for Q3/2008, the current account came under pressure fromIn preliminary figures for Q3/2008, the current account came under pressure fromIn preliminary figures for Q3/2008, the current account came under pressure fromIn preliminary figures for Q3/2008, the current account came under pressure fromIn preliminary figures for Q3/2008, the current account came under pressure from

accelerated import growth that outpaced the rise in exportsaccelerated import growth that outpaced the rise in exportsaccelerated import growth that outpaced the rise in exportsaccelerated import growth that outpaced the rise in exportsaccelerated import growth that outpaced the rise in exports. Driving the high rate

of import growth was strong inflation in trading partners, in addition to the continued


12

robust domestic demand. Leading in import growth were imports of capital goods

and raw materials in support of investment and production. On the other hand,

despite indications of slowdown, exports maintained positive performance.

Indonesia»s exports to several developed nations continued to rise, as to be expected

with the nature of Indonesia»s resource-based and low-end technology exports

that are less sensitive to changing incomes in developed countries. The slowing

trend in export growth resulted mainly from the downward trend in international

commodity prices.

Based on data for the January-August 2008 period, non-oil and gas exports

reached USD72.9 billion, representing growth of 19.3% (yoy) over the same period

one year before. The high rate of export growth was driven by growth in

agricultural and industrial exports at 37.5% and 22.8%. In contrast, mining

commodities slowed considerably, with export growth at a mere 0.8% over the

same period last year. This is explained by a drop in coal exports brought on by

the shift to meeting growing domestic energy needs and the onset of decline in

international metal prices. On the other hand, non-fossil fuel imports for January-

August 2008 mounted 42.6% (yoy) to USD67.5 billion, with import growth for

consumer goods, raw materials and capital goods recorded at 29.9%, 41.6%

and 55.6% respectively. The growth in non-fossil fuel imports is expected to

benefit the domestic economy, given that since 2006, positive trends in import

growth have been positively correlated with growth in consumption and

investment.

In the oil and gas sector, the trade balance was strengthened by gas exports. During

January-July 2008, oil and natural gas exports reached US$10.4 billion and US$10.1

billion, up 64.0% and 58.2% over the same period one year earlier. On the other

hand, soaring prices resulted in spiralling oil imports during January-July 2008 (up

72.7%, yoy), pushing Indonesia»s oil trade deficit for that period to USD6.2 billion.

Despite this, with the solid performance in gas exports, the oil and gas sector still

managed a surplus of USD3.9 billion.

The Capital and Financial Account

In preliminary figures, the capital and financial account recorded yet another surplusIn preliminary figures, the capital and financial account recorded yet another surplusIn preliminary figures, the capital and financial account recorded yet another surplusIn preliminary figures, the capital and financial account recorded yet another surplusIn preliminary figures, the capital and financial account recorded yet another surplus

in Q3/2008in Q3/2008in Q3/2008in Q3/2008in Q3/2008. The primary source of the capital and financial account surplus is the

withdrawal of corporate assets held overseas and drawing on private foreign

borrowings to finance rising imports. Besides this, the relative domestic

macroeconomic stability amid turbulence on global financial markets and the

incentive of high yields paved the way for inflows of foreign capital on the

Government Securities market. Offsetting this was the shift in foreign investor

preferences and flight to quality triggered by the global financial market woes,

which put mounting pressure on the capital and financial account.


13

International Reserves

In response to the developments in the current account and the capital and financial

account, international reserves at end-Q3/2008 stood at USD57.1 billioninternational reserves at end-Q3/2008 stood at USD57.1 billioninternational reserves at end-Q3/2008 stood at USD57.1 billioninternational reserves at end-Q3/2008 stood at USD57.1 billioninternational reserves at end-Q3/2008 stood at USD57.1 billion, equivalent

to 4.2 months of imports and servicing of official debt.


14

3. Monetary Indicators and Policy,Q3/2008

Developments in the Indonesian economy were marked by a series of external and

internal shocks during Q3/2008. Inflationary pressure remained high, fuelled by

robust domestic demand and high inflation expectations. The annual measure of

CPI inflation was again markedly higher in comparison to Q2/2008. Q3/2008 CPI

inflation was recorded at 2.88% (qtq) or 12.14% (yoy). Despite the increase in

annual CPI inflation (yoy), quarterly inflation (qtq) in the CPI showed some movement

in return to the normal trend. The average rupiah exchange rate for Q3/2008

appreciated 0.47% from Rp 9,259/USD to Rp 9,216/USD albeit with a build-up of

downward pressure at the end of the period. Stable macroeconomic conditions,

the continued attractiveness of rupiah-denominated yields and broad interest rate

differential proved adequate to rein in capital outflows from rupiah instruments

and prevent the rupiah from steeper decline.

To safeguard macroeconomic stability, Bank Indonesia decided to raise the BI Rate

75 bps to 9.25% at end-Q3/2008. This rate policy was bolstered by a range of

actions to maintain rupiah stability and other measures designed to reinforce

monetary control operations.

INFLATION

Monthly inflation maintained a rising trend during Q3/2008, mainly in response toMonthly inflation maintained a rising trend during Q3/2008, mainly in response toMonthly inflation maintained a rising trend during Q3/2008, mainly in response toMonthly inflation maintained a rising trend during Q3/2008, mainly in response toMonthly inflation maintained a rising trend during Q3/2008, mainly in response to

heavy domestic demand and the seasonal factor of religious festivities (Eid-ul-Fitr)heavy domestic demand and the seasonal factor of religious festivities (Eid-ul-Fitr)heavy domestic demand and the seasonal factor of religious festivities (Eid-ul-Fitr)heavy domestic demand and the seasonal factor of religious festivities (Eid-ul-Fitr)heavy domestic demand and the seasonal factor of religious festivities (Eid-ul-Fitr).

Measured annually, CPI inflation at end-Q3/2008 reached 12.14% (yoy), up from

11.03% (yoy) in the preceding quarter (Graph 3.1). In September 2008, monthly

inflation came to 0.97% (mtm). Analysed by expenditure category, inflation in Q3/

2008 was driven primarily by the foodstuffs category; housing, water, electricity,

gas and fuels; and the processed foods, beverages, cigarettes

and tobacco category (Graph 3.2).

The CPI inflation rate is explained by the non-fundamentals ofThe CPI inflation rate is explained by the non-fundamentals ofThe CPI inflation rate is explained by the non-fundamentals ofThe CPI inflation rate is explained by the non-fundamentals ofThe CPI inflation rate is explained by the non-fundamentals of

rising pressure in volatile foods and administered prices,rising pressure in volatile foods and administered prices,rising pressure in volatile foods and administered prices,rising pressure in volatile foods and administered prices,rising pressure in volatile foods and administered prices,11111 and and and and and

fundamental factor of core inflation made up of inflationfundamental factor of core inflation made up of inflationfundamental factor of core inflation made up of inflationfundamental factor of core inflation made up of inflationfundamental factor of core inflation made up of inflation

expectations, demand-side pressure and the output gap.expectations, demand-side pressure and the output gap.expectations, demand-side pressure and the output gap.expectations, demand-side pressure and the output gap.expectations, demand-side pressure and the output gap. Pressure

from volatile foods inflation was commensurate with the high

international food commodity prices and the seasonal trends

associated with the Ramadan fasting month and Eid-ul-Fitr

festivities. Administered prices inflation, which mounted due to

the ongoing shortages of energy commodities in some regions,Graph 3.1

CPI Inflation

%, mtm %, yoy

0

1

2

3

4

5

2006 2007 20081 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9

-3

2

7

12

17

22

MtM

YoY (RHS)

1 Aggregated inflation (core, volatile foods and administered prices) calculated by BankIndonesia based on sub-category approach.

Monetary Indicators and Policy, Q3/2008

15

also exacerbated Q3/2008 CPI inflation. At the same time,

inflationary pressure from fundamentals, as reflected in the trend

in core inflation, also remained high. The main factors influencing

core inflation were persistently high inflation expectations and

imported inflation and swelling aggregate demand.

Volatile foods inflation mounted higher in Q3/2008 in bothVolatile foods inflation mounted higher in Q3/2008 in bothVolatile foods inflation mounted higher in Q3/2008 in bothVolatile foods inflation mounted higher in Q3/2008 in bothVolatile foods inflation mounted higher in Q3/2008 in both

quarterly and annual figures.quarterly and annual figures.quarterly and annual figures.quarterly and annual figures.quarterly and annual figures. The surge in volatile foods inflation

is related to high international foodstuff prices and escalating

seasonal demand at the time of the fasting month and Eid-ul-

Fitr festivities. Commodities in this category that underwent

inflation in Q3/2008 included eggs and broiler chicken. In the

case of broiler chicken and eggs, prices increases resulted mainly

from increased international market prices for corn and soy beans,

used as raw material for domestic animal feeds. On the other

hand, prices for other volatile food items, such as cooking oil,

rice and seasonings, helped to mitigate the surge in inflationary pressure. The drop

in international CPO prices in line with the drastic fall in world crude oil prices to

below USD100 per barrel prompted manufacturers to hold back from raising

domestic cooking oil prices. Furthermore, despite the end of the harvest, rice prices

were relatively stable due to the maintenance of adequate rice buffer stocks by the

National Logistics Agency (Bulog) for market operations in the event of price increases

beyond reasonable limits. Positive developments were also evident in the seasonings

category (shallots, red chilli peppers and tomatoes), which underwent deflation as

a result of plentiful supply.

Monthly administered prices inflation showed an upward trend in Q3/2008, butMonthly administered prices inflation showed an upward trend in Q3/2008, butMonthly administered prices inflation showed an upward trend in Q3/2008, butMonthly administered prices inflation showed an upward trend in Q3/2008, butMonthly administered prices inflation showed an upward trend in Q3/2008, but

was lower in the quarterly measure compared to Q2/2008was lower in the quarterly measure compared to Q2/2008was lower in the quarterly measure compared to Q2/2008was lower in the quarterly measure compared to Q2/2008was lower in the quarterly measure compared to Q2/2008. The increased

administered prices inflation resulted largely from increases in bottled LPG and

kerosene prices, due to shortages. Teething troubles in the conversion programme

caused by shortages of LPG and kerosene supplied by Pertamina

were exploited by some parties to sell LPG and kerosene at

marked-up prices. Besides kerosene and LPG, prices mounted

for clove cigarettes and filter clove cigarettes, although the impact

was minimal. Despite the prevailing upward trend, the quarterly

measure of administered prices inflation (qtq) was well below

that of the earlier quarter, due to the absence of lingering impact

from the past fuel price hike.

Core inflation was again strong in Q3/2008.Core inflation was again strong in Q3/2008.Core inflation was again strong in Q3/2008.Core inflation was again strong in Q3/2008.Core inflation was again strong in Q3/2008. The most important

factors influencing core inflation during the quarter originated

from external pressures comprising heightened inflation in trading

partner countries (Graph 3.3) and high international foodstuff

prices. In a similar trend, public expectations generally remained

high during Q3/2008 (Graph 3.4). Expectations were not only

Graph 3.2

Inflation and Contribution to Inflation by Category,

Goods and Services Q3/2008 (q-t-q)

0 1 2 3 4 5 6

2.62

3.58

1.64

3.77

0.92

0.77

4.75

%

Share (m-t-m)Inflation (m-t-m)

Proccesed Food

Food, Beverages, Cigarattes& Tobacco

Housing, Electricity, Water,Gas, and Fuel

Clothing

Health

Education, Recreation& Sport

Transportation, Communication& Financial Service

Graph 3.3

Exchange Rate and Trade Partner Countries Inflation

Trade Partner Countries Inflation (RHS)

%,yoy

CPI (LHS)

%,yoy

12.14

0.45

3.89

-12

-7

-2

3

8

13

18

23

0

1

2

3

4

5

2004 2005 2006 2007 2008

1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9

Depreciation/Appreciation Rp/USD (LHS)


16

Graph 3.6

Rupiah Exchange Rate Volatility

Graph 3.5

Rupiah Exchange Rate

2006 2007 2008

9385

9,216

9700

10000

9400

9100

8800

85002

Jan15Feb

31Mar

16May

29Jun

14Aug

27Sep

10Nov

26Dec

8Feb

26Mar

9May

22Jun

7Aug

20Sep

5Nov

19Dec

1Feb

18Mar

1May

16Jun

30Jul

12Sep

Daily Exchange rate Quarterly Average

Exchange Rate, Rp/USD Volatility, %

8,000

8,500

9,000

9,500

10,000

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

9385

1.51

1.420.61

1.11

2Jan

2006 2007 2008

13Feb

27Mar

8May

19Jun

31Jul

11Sep

23Oct

4Dec

15Jan

26Feb

9Apr

21May

2Jul

13Aug

24Sep

5Nov

17Dec

28Jan

10Mar

21Apr

2Jun

14Jul

25Aug

Daily Exchange RateVolatilityQuarterly Average Volatility

fuelled by external pressures, but also by the hike in domestic

fuel prices in the preceding quarter. Analysed by demand-supply

interaction, inflationary pressure from the output gap is

forecasted to be negative due to the continued supply-side

responsiveness to rising demand. Even so, the steadily rising

demand-side pressures call for continued vigilance.

Analysed by contribution, price increases in the categories of

processed foods, beverages, cigarettes and tobacco and

education, recreation and sports accounted for the strongest

rise in core inflation. This is to be expected with the pattern of

the Eid-ul-Fitr festive season, marked by soaring demand. On

the other hand, falling prices for gold jewellery as world gold

prices slipped to a low of USD779 per ounce helped keep core

inflation from climbing higher.

RUPIAH EXCHANGE RATE

Despite downward pressure at the end of the period under

review, the average value of the rupiah exchange rate appreciatedthe rupiah exchange rate appreciatedthe rupiah exchange rate appreciatedthe rupiah exchange rate appreciatedthe rupiah exchange rate appreciated

further during Q3/2008further during Q3/2008further during Q3/2008further during Q3/2008further during Q3/2008. Measured as an average, the rupiah

gained 0.47% in Q3/2008, climbing from Rp 9,259 in Q2/2008

to Rp 9,216 to the USD (Graph 3.5). Due to strong depreciating

pressure at the end of the quarter, the rupiah closed 1.76%

down from Rp 9,220 to the USD at end-Q2/2008 at the end-

Q3/2008 position of Rp 9,385 to the USD. During Q3/2008,

movement in the rupiah maintained a fluctuating trend due to

the escalation of pressure at the end of the period. Rupiah

volatility widened in Q3/2008 to 1.11% from 0.61% in the

preceding quarter (Graph 3.6).

The mounting risk of global economic slowdown, theThe mounting risk of global economic slowdown, theThe mounting risk of global economic slowdown, theThe mounting risk of global economic slowdown, theThe mounting risk of global economic slowdown, the

intensifying financial crisis in the US and perceptions of theintensifying financial crisis in the US and perceptions of theintensifying financial crisis in the US and perceptions of theintensifying financial crisis in the US and perceptions of theintensifying financial crisis in the US and perceptions of the

balance of payments outlook all affected movement in the rupiahbalance of payments outlook all affected movement in the rupiahbalance of payments outlook all affected movement in the rupiahbalance of payments outlook all affected movement in the rupiahbalance of payments outlook all affected movement in the rupiah

during Q3/2008during Q3/2008during Q3/2008during Q3/2008during Q3/2008. The global economic slowdown and the

strengthening of the dollar prompted a slide in international

commodity prices, which also affected Indonesia»s mainstay

export commodities. This has led to perceptions of deterioration

in the balance of payments outlook for Indonesia, with focus

on the current account. The US slide into financial crisis has also

triggered capital flight from emerging market assets prompted

by renewed risk aversion among foreign investors. These jitters

set off a round of capital reversal from assets in countries in the

region accompanied by downward pressure on regional

currencies. Despite the considerable pressure on the rupiah, on

Graph 3.4

Inflation Expectation - Consensus Forecast

%, yoy

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 92007 2008

2008 2009


17

the regional level the rupiah maintained relative stability in

comparison to other currency rates in the region. Conducive

factors in the domestic economy in tandem with the tight bias

monetary policy stance and Bank Indonesia»s stabilisation of the

forex market helped to fend off pressure for steeper depreciation

in the rupiah.

Risks have escalated in the wake of external developments nearRisks have escalated in the wake of external developments nearRisks have escalated in the wake of external developments nearRisks have escalated in the wake of external developments nearRisks have escalated in the wake of external developments near

the end of Q3/2008the end of Q3/2008the end of Q3/2008the end of Q3/2008the end of Q3/2008. The global repricing of risk brought on by

the weakening in the global economy and the financial crisis in

the US has dampened the risk appetite for emerging market

assets. Reflecting this is the widening in the yield spread between

Indonesia global bonds and US T-notes from 370 bps in Q2/

2008 to 411 bps at end Q3/2008 (Graph 3.7). Another risk

indicator pointing in a similar direction was the renewed increase

in the EMBIG (Emerging Market Bond Index Global) spread and

the persistently high level of the swap premium at the end of

the period under review (Graph 3.8).

The tight bias policy stance adopted by Bank Indonesia at a timeThe tight bias policy stance adopted by Bank Indonesia at a timeThe tight bias policy stance adopted by Bank Indonesia at a timeThe tight bias policy stance adopted by Bank Indonesia at a timeThe tight bias policy stance adopted by Bank Indonesia at a time

of declining interest rates in advanced economies has widenedof declining interest rates in advanced economies has widenedof declining interest rates in advanced economies has widenedof declining interest rates in advanced economies has widenedof declining interest rates in advanced economies has widened

the yield spread for the rupiah.the yield spread for the rupiah.the yield spread for the rupiah.the yield spread for the rupiah.the yield spread for the rupiah. This has become one incentive

for investing in rupiah-denominated assets. Yield on rupiah

investments, indicated by the interest rate differential and the

yield spread of government bonds (domestic currency) over US

T-Notes, widened further, placing Indonesia ahead of all other

countries in the region (Graph 3.9). Uncovered interest parity

widened from 6.38% at end-Q2/2008 to 7.05% in the quarter

under review, and was the highest among countries in the region.

With this yield adjusted for risk,2 the covered interest rate parity

came to 3.27% for the quarter, still ahead of the region. At the

same time, the other yield indicator, the yield spread between

Government Securities and US T-Notes, retained its edge in the

region.

The escalation in external risks linked to the spreading impact ofThe escalation in external risks linked to the spreading impact ofThe escalation in external risks linked to the spreading impact ofThe escalation in external risks linked to the spreading impact ofThe escalation in external risks linked to the spreading impact of

the global economic slowdown and uncertainty in the conditionthe global economic slowdown and uncertainty in the conditionthe global economic slowdown and uncertainty in the conditionthe global economic slowdown and uncertainty in the conditionthe global economic slowdown and uncertainty in the condition

of the US financial sector prompted foreign investors to pull theirof the US financial sector prompted foreign investors to pull theirof the US financial sector prompted foreign investors to pull theirof the US financial sector prompted foreign investors to pull theirof the US financial sector prompted foreign investors to pull their

money out of SBIs, even in spite of ongoing gains in Governmentmoney out of SBIs, even in spite of ongoing gains in Governmentmoney out of SBIs, even in spite of ongoing gains in Governmentmoney out of SBIs, even in spite of ongoing gains in Governmentmoney out of SBIs, even in spite of ongoing gains in Government

Securities and stocks. Securities and stocks. Securities and stocks. Securities and stocks. Securities and stocks. However, efforts to sustain foreigner

confidence in macro policy management and the high yields on

Government Securities encouraged inflows of capital into

Graph 3.7

Yield Spread between Global Bond RI and UST-Note

%

2007 2008

Yield Global Bond Indonesia

Yield UST-Note

514 bpsSpread

2.50

3.50

4.50

5.50

6.50

7.50

8.50

9.50

Mar Apr May Jun Jul Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jun Aug Sep

Graph 3.8

Swap Premium in Various Tenors

Source : Reuters (processed)

%

2007 2008

Jan Mar May Jul Sep NovFeb Apr Jun Aug Oct Dec Jan Mar May Jul SepFeb Apr Jun Aug-2.0

0.0

2.0

5.0

6.0

8.0

9.0

7.0

4.0

3.0

1.0

-1.0

6-Months Premium 12-Months Premium

1-Month Premium 3-Months Premium

2 In this regard, the risk indicator used is yield spread between Indonesian Government foreigncurrency bonds and US T-Notes.

Graph 3.9

Comparison of Yields Across Various Countries

2006 20082007

Indonesia Malaysia Philippines

Thailand Singapore

-4

-2

0

2

4

6

8

10

12

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep

8.982

0.923

3.778

0.795

-0.669


18

Government Securities. Foreign ownership of Government

Securities mounted Rp 10.13 trillion (USD1.11 billion) to the end-

quarter position of Rp 104.23 trillion (USD11.15 billion), bringing

total foreign placements in SBIs and Government Securities to

Rp 124.6 trillion (USD13.33 billion). On the stock market, foreign

investors again recorded a net purchase in Q3/2008 at Rp 2.16

trillion (USD230.35 million). In the outcome of these

developments, Q3/2008 recorded a net outflow of foreign capital

at USD1.9 billion.

Domestic demand for foreign currencies was again dominatedDomestic demand for foreign currencies was again dominatedDomestic demand for foreign currencies was again dominatedDomestic demand for foreign currencies was again dominatedDomestic demand for foreign currencies was again dominated

by corporate demand. by corporate demand. by corporate demand. by corporate demand. by corporate demand. Rising imports led to increased foreign

currency demand from the corporate sector, led by SOEs (Graph

3.10). Average corporate forex demand during the quarter edged

upwards to about USD354 million per day from the preceding

quarter when daily demand averaged USD329 million.

MONETARY POLICY

Policy Strategy

During Q3/2008, Bank Indonesia raised the BI Rate by 75 bps to 9.25% at the endDuring Q3/2008, Bank Indonesia raised the BI Rate by 75 bps to 9.25% at the endDuring Q3/2008, Bank Indonesia raised the BI Rate by 75 bps to 9.25% at the endDuring Q3/2008, Bank Indonesia raised the BI Rate by 75 bps to 9.25% at the endDuring Q3/2008, Bank Indonesia raised the BI Rate by 75 bps to 9.25% at the end

of the quarterof the quarterof the quarterof the quarterof the quarter. These decisions were taken to safeguard the achievement of the

medium-term inflation target while monitoring a range of developments and taking

account of overall macroeconomic conditions and financial system stability. This

level of the BI Rate was subsequently reflected in rate movement on the overnight

interbank market.

In view of recent developments on the global financial market, Bank Indonesia

decided to lower the overnight Repo Rate from the former BI Rate plus 300 bps to

the BI Rate plus 100 bps and to raise the FASBI Rate from the BI Rate minus 200 bps

to the BI Rate minus 100 bps. This decision was taken to ensure adequate banking

liquidity while safeguarding monetary policy effectiveness in inflation control.

Accordingly, the overnight interest rate corridor will move symmetrically with the BI

rate at ± 100 bps. In addition, on 23 September 2008, Bank Indonesia decided to

extend the term of fine tune operations (FTO) from 1-14 days to 1 day-3 months.

The extension of the FTO tenor is intended to provide greater room for liquidity

management, which comprises part of the Open Market Operations (OMO)

conducted by Bank Indonesia. More flexible management of liquidity on the

interbank money market will improve the effectiveness of Bank Indonesia»s actions

to safeguard the proper functioning of the market. Accordingly, interest rate stability

and unimpeded liquidity flows will be maintained on the interbank money market

in the event of any heightened uncertainties, such as has happened on global

money markets in recent times.

During the third quarter, transmission of the BI Rate to the financial sector operated

through several channels. On the money marketOn the money marketOn the money marketOn the money marketOn the money market, rates for various tenors tracked

Graph 3.10

Forex Demand and Supply

Million USD IDR/USD

8600

8700

8800

8900

9000

9100

9200

9300

9400

9500

2007 2008

Excess Supply

Excess Demand

-1000

-5000

-3000

1000

3000

5000

Jun Aug OctAprFeb DecJan Mar May Jul Sep Nov Jun AugAprFebJan Mar May Jul Sep

Net S(+)/D(-) from domestic actors Net S(+)/D(-) from foreign actorsNet S(+)/D(-) Total foreign and domestic actors Exchange Rate (rhs)


19

movement in the BI Rate and forward perceptions. Alongside this, the BI Rate was

transmitted more strongly to bank deposit and lending rates. However, the increases

in the BI Rate were not transmitted into funding growth and credit expansion.

Growth in depositor funds continued to slide, while credit expansion gathered

momentum. On the stock marketOn the stock marketOn the stock marketOn the stock marketOn the stock market, IDX Index performance was heavily influenced

by the fallout from escalating global risks, resulting in 21.9% correction. On theOn theOn theOn theOn the

Government Securities marketGovernment Securities marketGovernment Securities marketGovernment Securities marketGovernment Securities market, the global turmoil drove up yields on short-term

tenors. During Q3/2008, yields on short-term Government Securities continued to

rise. However, on the mutual funds marketmutual funds marketmutual funds marketmutual funds marketmutual funds market, NAV faltered in keeping with the weaker

performance of underlying assets.

Concerning the exchange rate, Bank Indonesia steadily pursued a series of measuresConcerning the exchange rate, Bank Indonesia steadily pursued a series of measuresConcerning the exchange rate, Bank Indonesia steadily pursued a series of measuresConcerning the exchange rate, Bank Indonesia steadily pursued a series of measuresConcerning the exchange rate, Bank Indonesia steadily pursued a series of measures

to maintain stability in the rupiah.to maintain stability in the rupiah.to maintain stability in the rupiah.to maintain stability in the rupiah.to maintain stability in the rupiah. Key actions focused on implementation of prudent

monetary policy and consistent sterilisation of the exchange rate to prevent excessive

volatility by maintaining international reserves at a level commensurate to the

fundamental needs of the economy. Other actions in support of this policy included

a revamped communications strategy, improved effectiveness in prudential

regulations and continual monitoring of forex payments.

Interest Rates

In Q3/2008, the 75 bps increase in the BI Rate to 9.25% at end-September 2008In Q3/2008, the 75 bps increase in the BI Rate to 9.25% at end-September 2008In Q3/2008, the 75 bps increase in the BI Rate to 9.25% at end-September 2008In Q3/2008, the 75 bps increase in the BI Rate to 9.25% at end-September 2008In Q3/2008, the 75 bps increase in the BI Rate to 9.25% at end-September 2008

was reflected in stable movement in overnight money market rates at around thewas reflected in stable movement in overnight money market rates at around thewas reflected in stable movement in overnight money market rates at around thewas reflected in stable movement in overnight money market rates at around thewas reflected in stable movement in overnight money market rates at around the

level of the BI Ratelevel of the BI Ratelevel of the BI Ratelevel of the BI Ratelevel of the BI Rate. At the same time, the interbank rate for > 30 day tenors

reached 11.13%, consistent with the strong perceptions of tight bank liquidity and

spillover from global conditions. Under these conditions, Bank Indonesia responded

with more intensive actions in open market operations employing the FTO

instrument, adjustments in liquidity absorption in SBI auctions and adjustments to

the interest rate corridor.

The decisions to raise the BI Rate were followed by increases in bank time depositThe decisions to raise the BI Rate were followed by increases in bank time depositThe decisions to raise the BI Rate were followed by increases in bank time depositThe decisions to raise the BI Rate were followed by increases in bank time depositThe decisions to raise the BI Rate were followed by increases in bank time deposit

rates.rates.rates.rates.rates. In the first two months of Q3/2008, the hikes in the BI Rate were transmitted

mainly to increases in the weighted average 1-month and 3-month deposit rates

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug SepInterest rate (%)

BI Rate 8.25 8.25 8.25 8.25 8.25 8.00 8.00 8.00 8.0 8.00 8.25 8.50 8.75 9.00 9.25

1-month Dep. Guarantee 8.25 8.25 8.25 8.25 8.25 8.25 8.25 8.00 8.00 8.00 8.25 8.25 8.25 8.75 8.75

1-month Dep. (Weight Avg) 7.26 7.16 7.13 7.16 7.18 7.19 7.07 6.95 6.88 6.86 6.98 7.19 7.51 8.04 n.a

1-month Dep. (Counter Rate) 7.36 7.20 7.15 7.15 7.13 7.09 6.97 6.9 6.84 6.85 6.84 7.01 7.18 7.42 7.74

Base Lending Rate 13.62 13.42 13.31 13.21 13.13 13.12 13.14 12.92 12.83 12.75 12.77 12.80 12.95 13.21 13.26

Working Capital Credit 13.71 13.66 13.31 13.16 13.16 13.00 12.99 12.96 12.88 12.93 12.92 12.99 13.14 13.42 n.a

Investment Credit 13.82 13.75 13.45 13.28 13.19 13.01 12.81 12.71 12.59 12.47 12.36 12.51 12.61 12.86 n.a

Consumption Credit 16.68 16.7 16.47 16.33 16.39 16.13 16.04 15.96 15.83 15.74 15.67 15.71 15.73 15.78 n.a

Table 3.1

Interest Rate Movements

Quarter III-2007 Quarter IV-2007 Quarter I-2008 Quarter II-2008 Quarter III-2008


20

Graph 3.11

Funding vs Credit

Credit Interest Rate and Deposits (%)(%, y-o-y)

6

9

12

15

18

21

24

27

30

33

6

8

10

12

14

16

18

Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug

2005 2006 2007 2008

Total Deposits

Total of Credit rDeposits (average)

rCredit (average)

(Table 3.1). In contrast to historical trends, these increases in short-term time deposit

rates surpassed that of the BI Rate. This points to vigorous efforts of banks to boost

their funding base to keep pace with the ongoing acceleration in credit expansion,

as evident in the steady rise in the LDR. These developments suggest a growing

strength in response to increases in the BI Rate since May 2008, led by foreign and

joint venture banks. Regional development banks, on the other hand, did not begin

adjusting their rates until July. Data on counter rates indicates that during September,

the upward movement in time deposit rates was sustained, extending across all

tenors.

The rise in the BI was also increasingly transmitted to loan interest rates.The rise in the BI was also increasingly transmitted to loan interest rates.The rise in the BI was also increasingly transmitted to loan interest rates.The rise in the BI was also increasingly transmitted to loan interest rates.The rise in the BI was also increasingly transmitted to loan interest rates. In the first

two months of Q3/2008, the hikes in the BI Rate were transmitted to the weighted

average for all lending rates. The largest increase was recorded in interest rates for

working capital credit, followed by investment credit and consumption credit.

Accordingly, transmission of increases in the BI Rate since May 2008 has taken

place mainly at foreign and joint venture banks, while regional development banks

were the slowest to respond to increases in the BI Rate.

Funds, Credit and the Money Supply

The BI Rate hikes have not influenced funding growthThe BI Rate hikes have not influenced funding growthThe BI Rate hikes have not influenced funding growthThe BI Rate hikes have not influenced funding growthThe BI Rate hikes have not influenced funding growth. As of the first two months

of Q3/2008, increases in the BI Rate were not reflected in growth of depositor

funds. In August 2008, depositor funds recorded 9.7% expansion (yoy), down

from the previous quarter»s level of 14.6% (yoy) (Graph 3.11). Contributing to this

delayed response was lag across almost all components except fixed deposits. The

slow response in demand deposits occurred for funds held by Government-related

institutions. At the same time, indications suggest that the lag in the growth response

in personal savings deposits is related to the increased attractiveness of time deposit

interest and the public need for cash transactions. Time deposits were up in August

for almost all depositors, led by individuals and private companies.

The increases in the BI Rate were in fact followed by acceleratedThe increases in the BI Rate were in fact followed by acceleratedThe increases in the BI Rate were in fact followed by acceleratedThe increases in the BI Rate were in fact followed by acceleratedThe increases in the BI Rate were in fact followed by accelerated

credit expansion.credit expansion.credit expansion.credit expansion.credit expansion. The credit market continued to feel the effect

of the monetary policy lag, as evident in the 32.5% (yoy) annual

rate of credit expansion recorded in August 2008, up slightly

from the previous month»s rate of 32.3% (yoy) (Graph 3.11).

Analysed by purpose of use, the leading component in the annual

credit expansion was again working capital credit, followed by

consumption and investment credit. Analysed by debtor, credit

expansion was driven primarily by private companies and

Government-related institutions.

Economic liquidity grew at a slower pace, dipping below theEconomic liquidity grew at a slower pace, dipping below theEconomic liquidity grew at a slower pace, dipping below theEconomic liquidity grew at a slower pace, dipping below theEconomic liquidity grew at a slower pace, dipping below the

historical level.historical level.historical level.historical level.historical level. In August 2008, M1 and M2 registered 12.5%

(yoy) and 12.6% (yoy) growth, down slightly from 22.4% (yoy)

and 17.1% (yoy) in the preceding quarter. Accordingly, average


21

M1 and M2 growth reached 13.9% (yoy) and 13.3% (yoy), also

slower than one quarter earlier. In real terms,3 M1 and M2 growth

in August 2008 came to 0.7% (yoy) and 0.8% (yoy), having

narrowed due to the effect of rising inflation (Graph 3.12). As a

result, economic liquidity measured in nominal and real terms

recorded expansion at below historical average for the past 7

years (2000-2006), with the exception of nominal M2.

Financial Markets

Stock market performance in Q3/2008 was again overshadowedStock market performance in Q3/2008 was again overshadowedStock market performance in Q3/2008 was again overshadowedStock market performance in Q3/2008 was again overshadowedStock market performance in Q3/2008 was again overshadowed

by global risks.by global risks.by global risks.by global risks.by global risks. Liquidity injections by the US authorities produced

only temporary respite on global stock markets and did not

completely dispel worries among global market actors of further

financial market turmoil. This in combination with weak domestic

sentiment plunged the IDX Composite to 1,832 at end-Q3/2008,

down 21.9% from the Q2/2008 position (Graph 3.13).

The IDX Composite was also confronted with domestic risksThe IDX Composite was also confronted with domestic risksThe IDX Composite was also confronted with domestic risksThe IDX Composite was also confronted with domestic risksThe IDX Composite was also confronted with domestic risks.

These included an escalation in the risks to the IDX Composite

from commodity price movements, among others due to the

large capitalisation of mining and agribusiness stocks and the

linkages to non-mining and agribusiness sectors exposed to

commodity price risks. In addition, commodity-based stocks were

also most actively traded with a tendency towards large-scale

speculation. On the other hand, movement in the IDX Composite

that at times ran counter to global markets suggested hit and

run behaviour by foreign market players.

The stock market downturn was in fact exploited by foreigners,The stock market downturn was in fact exploited by foreigners,The stock market downturn was in fact exploited by foreigners,The stock market downturn was in fact exploited by foreigners,The stock market downturn was in fact exploited by foreigners,

who bought up cheap stocks.who bought up cheap stocks.who bought up cheap stocks.who bought up cheap stocks.who bought up cheap stocks. Foreign investors continued with

their selective buying of IDX shares, albeit at reduced intensity.

The net foreign purchase reached Rp 2.2 trillion in Q3/2008,

down from the Q2/2008 net purchase recorded at Rp 4.8 trillion

(Graph 3.14). This decline was commensurate with the fall from

Rp 5.7 trillion share trading in Q2/2008 to Rp 3.8 trillion in Q3/

2008. Conditions in Q3/2008 were also marked by a shift in

foreign-held portfolios to financial sector stocks, which

underwent more modest correction. This condition was closely

linked to the increased risk of commodity-based shares.

On the Government Securities market, the upswing in July 2008On the Government Securities market, the upswing in July 2008On the Government Securities market, the upswing in July 2008On the Government Securities market, the upswing in July 2008On the Government Securities market, the upswing in July 2008

was again followed by downward pressure in August 2008was again followed by downward pressure in August 2008was again followed by downward pressure in August 2008was again followed by downward pressure in August 2008was again followed by downward pressure in August 2008 in

response to heightened domestic and external risks. On the

Graph 3.12

Real Growth in M1 and M2

%, y-o-y

(12)

(9)

(6)

(3)

0

3

69

12

15

18

21

24

27

30

2000 2001 2002 2003 2004 2005 2006 2007 2008

1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7

M1 Real

Currency Real

M2 Real

3 Calculated against current inflation.

Graph 3.13

IDX Composite

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

2006 2007 2008

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep

Graph 3.14

Net Foreign Buying

Aug 08-Sept 08 (-19.87%), Dec 07-Aug 08 (-21.12%)

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

(1,000)

(500)

-

500

1,000

1,500

2,000

2,500

3,000

Dec Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jun Jul Jul Aug Aug Sep

2007 2008

Foreign Net Buying (Billion Rp)IDX Composite


22

Graph 3.15

Trading Activity in Government Securities

Vol (Rp t) Frequency

2005 2006 2007 2008

Avg FrequencyAvg Vol

0.0

2.0

4.0

6.0

8.0

10.0

0

100

200

300

400

500

Jan Mar May Jul Sep Nov Jan MarMay Jul Sep Nov Jan MarMay Jul Sep Nov Jan Mar May Jul Sep

domestic market, increased yields on Government Securities at

end-Q3/2008 were driven by perceptions of tightening bank

liquidity, adjustment on yields to inflation and substantial added

supply of domestic Government Securities. At the same time,

on the externals side, the increased global risks triggered a flight

to quality, with investors shunning emerging markets. As a result,

the monthly average yield on Government Securities rebounded

with an increase of 87 bps, even through still below the end-Q2/

2008 position. At the same time, the quarterly average yield on

Government Securities for Q3/2008 narrowed further by 27 bps.

In view of global market conditions, global market actors are

exercising greater caution in their trading activities, as reflected

in the decline in daily average trading of Government Securities

(Graph 3.15).

Despite the lack of improvement in Government Securities performance, foreignDespite the lack of improvement in Government Securities performance, foreignDespite the lack of improvement in Government Securities performance, foreignDespite the lack of improvement in Government Securities performance, foreignDespite the lack of improvement in Government Securities performance, foreign

investor confidence in these instruments remained strong.investor confidence in these instruments remained strong.investor confidence in these instruments remained strong.investor confidence in these instruments remained strong.investor confidence in these instruments remained strong. Underpinning this

confidence was the subdued condition of various factors, including the reduced

fiscal risk associated with the steadier movement in fuel prices compared to 2005,

as to be expected with the downward trend in oil prices. Added to this, the sustained

high yields on Government Securities provided incentive for increased foreign buying.

In the outcome, foreigners booked a net purchase at Rp 6.29 trillion, mainly in

long-term Government Securities.

Mutual funds NAV has sustained correction.Mutual funds NAV has sustained correction.Mutual funds NAV has sustained correction.Mutual funds NAV has sustained correction.Mutual funds NAV has sustained correction. This is the result of deteriorating

performance in the underlying assets, i.e. stocks and Government Securities, in

addition to net redemptions from fixed income funds, mixed funds, money market

funds, index funds and fixed income ETFs. Despite this, the impact of the turbulence

on global and domestic financial markets was still minimal in comparison to the

NAV losses in 2005. Shoring up NAV performance was the expanding role of

institutional investors (pension funds and insurance companies) in mutual funds

with a long-term horizon and diversified products, keeping conditions on the mutual

funds market relatively subdued in comparison to 2005.

Outlook for the Indonesian Economy

23

4. Outlook for the IndonesianEconomy

In 2008, the Indonesian economy is forecasted to chart brisk growth in the rangeIn 2008, the Indonesian economy is forecasted to chart brisk growth in the rangeIn 2008, the Indonesian economy is forecasted to chart brisk growth in the rangeIn 2008, the Indonesian economy is forecasted to chart brisk growth in the rangeIn 2008, the Indonesian economy is forecasted to chart brisk growth in the range

of 6.2%-6.4%. of 6.2%-6.4%. of 6.2%-6.4%. of 6.2%-6.4%. of 6.2%-6.4%. The main driving factors will be exports - which recorded healthy

performance in the first half of the year on the strength of rising commodity

prices and sustained high growth in emerging market countries - and buoyant

household consumption. The fuel price hike has not impacted private consumption

to the extent originally forecasted. Investment growth is expected to improve

further, driven by non-construction investment in keeping with vigorous growth

in private consumption and exports. On the supply side, the trade, hotels and

restaurants sector and the transport and communications sector are predicted to

grow ahead of earlier growth forecasts as private consumption gathers

momentum. In 2009, the outlook for Indonesian economy is reduced growth.In 2009, the outlook for Indonesian economy is reduced growth.In 2009, the outlook for Indonesian economy is reduced growth.In 2009, the outlook for Indonesian economy is reduced growth.In 2009, the outlook for Indonesian economy is reduced growth.

Slowing growth will result mainly from slipping performance in exports of goods

and services, due to adverse external conditions. Despite this, domestic demand

will remain strong. Private consumption is forecasted to surge ahead of 2008,

buoyed by the activities for the national elections, lower inflation and government

measures to cut income taxes. Analysed by sector, economic growth is predicted

to be driven again by performance in the trade, hotels and restaurants sector,

manufacturing and the transport and communications sector. Economic growth

could potentially reach the lower limit of the projected range if economic

conditions in the US tumble in excess of forecasts.

Concerning prices, inflation in 2008 is forecasted to reach 11.5%-12.5% (y-o-y)inflation in 2008 is forecasted to reach 11.5%-12.5% (y-o-y)inflation in 2008 is forecasted to reach 11.5%-12.5% (y-o-y)inflation in 2008 is forecasted to reach 11.5%-12.5% (y-o-y)inflation in 2008 is forecasted to reach 11.5%-12.5% (y-o-y),

spurred by core inflation and administered prices. Inflationary pressure is predicted

to ease in Q4/2008. Key to this will be high levels of rice procurement by the

National Logistics Agency (Bulog) expected to bring volatile foods inflation to

below the historical average. To subdue inflation, Bank Indonesia will take further

actions to optimise the use of all monetary instruments at its disposal. In 2009,In 2009,In 2009,In 2009,In 2009,

CPI inflation is predicted to drop to the 6.5%-6.7% (y-o-y) rangeCPI inflation is predicted to drop to the 6.5%-6.7% (y-o-y) rangeCPI inflation is predicted to drop to the 6.5%-6.7% (y-o-y) rangeCPI inflation is predicted to drop to the 6.5%-6.7% (y-o-y) rangeCPI inflation is predicted to drop to the 6.5%-6.7% (y-o-y) range, again mainly

on account of core inflation and administered prices. The lower inflation is

predicted in response to monetary policy operations and reduced imported

inflation. Falling inflationary pressure is also related to Government policies

predicted to emphasise maintenance of stable prices around election time. Only

minimum inflationary pressure is expected from volatile foods while inflationary

pressure from administered prices will remain strong due to the effects of the

kerosene to bottled LPG conversion programme. Regarding core inflation, the

considerable demand-side inflationary pressures that have reared their head in

2008 are forecasted to carry over into 2009.


24

ASSUMPTIONS AND SCENARIOS

International Economic Conditions

World economic growth is predicted to slump in figures for 2008 overall.World economic growth is predicted to slump in figures for 2008 overall.World economic growth is predicted to slump in figures for 2008 overall.World economic growth is predicted to slump in figures for 2008 overall.World economic growth is predicted to slump in figures for 2008 overall. The

weakening performance in the world economy is largely the result of turmoil on

global financial markets. The main factor responsible is the subprime mortgage

crisis in the United States that has led to spiralling losses and bankrupted financial

institutions and banks across the globe and subsequently unfolded into a liquidity

crisis on most interbank markets worldwide. The liquidity crunch on financial markets

has dealt even further blows with a general tightening of lending criteria. As a

result, credit lines have tightened up for banks, which has put added pressure on

household purchasing power. Household consumption has come under increasing

pressure from the impact of falling selling prices for household assets. In response

to slowing household demand, industry has cut back production and employment.

The gloomy prospects for advanced economies are reflected in the ongoing

deteriorating trend in consumer and business confidence surveys. Overall world

economic growth in 2008 is forecasted at 3.9% (Table 4.1). However, because of

the substantial impact of the financial market crisis in Q3/2008, the world GDP

forecast for 2008 is biased downwards.

In other areas, the slowing growth in the world economy has prompted a slide inIn other areas, the slowing growth in the world economy has prompted a slide inIn other areas, the slowing growth in the world economy has prompted a slide inIn other areas, the slowing growth in the world economy has prompted a slide inIn other areas, the slowing growth in the world economy has prompted a slide in

world commodity prices - including non-fossil fuel products as well as oil and naturalworld commodity prices - including non-fossil fuel products as well as oil and naturalworld commodity prices - including non-fossil fuel products as well as oil and naturalworld commodity prices - including non-fossil fuel products as well as oil and naturalworld commodity prices - including non-fossil fuel products as well as oil and natural

gasgasgasgasgas. During January-August 2008, non-fossil fuel commodity prices climbed 51.3%

(y-o-y). However, the latest monthly figures point to the onset of a downward trend.

Prices for non-fossil fuel commodities are predicted to show overall increases for

2008 in the range of 15% (y-o-y). Similarly, world oil prices are forecasted to decline.

This development is influenced by various factors

including fundamentals and non-fundamentals. The

fundamentals driving down oil prices stem from falling

world oil demand, particularly from advanced nations

and China, as domestic economies shed growth, in

addition to slower consumption in Asian economies

in the wake of the increases in fuel pump prices in

those countries. Added to this, non-fundamentals

ranging from dollar appreciation to climatic factors

such as the Ike and Gustav storms did not in fact have

major impact on US oil refining capacity. This,

alongside the easing of geopolitical tensions, has put

downward pressure on oil prices.

Fiscal Policy Scenario

Consistent with historical trends, Government

financial operations are expected to peak during in

the last quarter of 2008. Accordingly, growth in

Government consumption and investment is also

World GDPWorld GDPWorld GDPWorld GDPWorld GDP 5.15.15.15.15.1 5.05.05.05.05.0 3.93.93.93.93.9 3.03.03.03.03.0

DevelopedDevelopedDevelopedDevelopedDeveloped 3.03.03.03.03.0 2.62.62.62.62.6 1.51.51.51.51.5 0.50.50.50.50.5

US 2.8 2.0 1.6 0.1

Europe 2.8 2.6 1.3 0.2

Japan 2.4 2.1 0.7 0.5

Others Dev. 4.5 4.7 3.1 2.5

DevelopingDevelopingDevelopingDevelopingDeveloping 7.97.97.97.97.9 8.08.08.08.08.0 6.96.96.96.96.9 6.16.16.16.16.1

Africa 6.1 6.3 5.9 6.0

East and Central Europe 6.7 5.7 4.5 3.4

Commonwealth Nations 8.2 8.6 7.2 5.7

Asian Developing 9.9 10.0 8.4 7.7

China 11.6 11.9 9.7 9.3

India 9.8 9.3 7.9 6.9

Middle 5.7 5.9 6.4 5.9

Latin 5.5 5.6 4.6 3.2

Table 4.1

World GDP Projection

Sources: IMF, WEO October 2008

2006Projection

20072008 2009


25

forecasted to reach a high during this period. The overall deficit for the year is

forecasted at 1.7% of GDP, below the Revised 2008 Budget deficit set at 2.1% of

GDP. The reduction in the deficit projection is explained mainly by the effect of

lower oil prices on the 2008 Budget assumptions and realised tax revenues forecasted

to exceed target. Given this deficit, indications suggest that the fiscal impulse for

2008 will again have an expansionary effect on economic growth, supported by

the secure outlook for fiscal sustainability.

On the financing side, the deficit reduction will lower the need for raising debt through

issues of Government/Sharia Government Securities. The planned issues of Sharia

Government Securities are expected to support this target, due to the less than

favourable conditions still prevailing on the domestic market for Government Securities.

In 2009, the budget deficit is forecasted to reach only 1.4% of GDP, below the

Government planned level of 1.7% of GDP. The reduced deficit is explained by lower

forecasted oil prices in comparison to Government assumptions and the tendency

for absorption of some central government expenditures to fall short of target.

ECONOMIC GROWTH OUTLOOK

In 2008, the Indonesian economy is predicted to grow at about 6.2%-6.4%In 2008, the Indonesian economy is predicted to grow at about 6.2%-6.4%In 2008, the Indonesian economy is predicted to grow at about 6.2%-6.4%In 2008, the Indonesian economy is predicted to grow at about 6.2%-6.4%In 2008, the Indonesian economy is predicted to grow at about 6.2%-6.4%. The

current economic growth is bolstered by exports - due to significant growth during

the first half of 2008 - forecasted to deliver a contribution surpassing private

consumption and investment. Exports in January-June 2008 were boosted by

spiralling prices for non-fossil fuel commodities and vigorous economic growth in

the developing world. Private consumption is also expected to chart higher growth

with the impact of the fuel price hike on private consumption less than originally

expected. In addition, the series of election processes that commenced in mid-

2008 will also have multiplier effects on private consumption, which is set to climb

in the final quarter of 2008.

In 2009, economic growth is predicted lower than in 2008In 2009, economic growth is predicted lower than in 2008In 2009, economic growth is predicted lower than in 2008In 2009, economic growth is predicted lower than in 2008In 2009, economic growth is predicted lower than in 2008, a result of less vigorous

export growth brought on by weaker prices for non-fossil fuel commodities and

falling demand due to the slowdown in world economic growth. On the domestic

side, private consumption will again serve as the engine of growth due to the

growing purchasing power of the public and continued multiplier effects from

election activities. Other factors auguring for positive impact on private consumption

are the widening of the tax-free income band, reductions in tax rates for MSMEs,

personal and corporate taxpayers and taxes on dividends and salary increases for

civil servants, police and military. The strength of private consumption will encourage

further vigorous investment growth in 2009, albeit down slightly from 2008 due to

slowing growth in exports.

Outlook for Aggregate Demand

Household consumption in 2008 is forecasted to expand at the rate of 5.3%-Household consumption in 2008 is forecasted to expand at the rate of 5.3%-Household consumption in 2008 is forecasted to expand at the rate of 5.3%-Household consumption in 2008 is forecasted to expand at the rate of 5.3%-Household consumption in 2008 is forecasted to expand at the rate of 5.3%-

5.5%5.5%5.5%5.5%5.5%, up from growth in 2007. This accelerated growth in private consumption is


26

driven by a number of factors. First, the faster than expected growth in exports of

goods and services will produce a stronger income effect on private consumption.

Second, relatively low interest rates will encourage faster expansion in consumer

lending. Third, the May 2008 fuel price hike has not had the impact on private

consumption growth as originally expected. The effect of the higher fuel prices

announced in May 2008 on private consumption is different from that of the hike

in October 2005 (see Monetary Policy Review, Q2/2008).

The continued strength of private consumption is borne out in several indicators.

During Q3/2008, consumer lending maintained an upward trend. In August 2008,

consumption credit recorded 35% expansion. Another indicator was car sales with

growth at 49% (y-o-y) in July-August 2008.

Government consumption is forecasted to chart 5.9%-6.1% growth in 2008Government consumption is forecasted to chart 5.9%-6.1% growth in 2008Government consumption is forecasted to chart 5.9%-6.1% growth in 2008Government consumption is forecasted to chart 5.9%-6.1% growth in 2008Government consumption is forecasted to chart 5.9%-6.1% growth in 2008. This

is a more modest rate of growth compared to the earlier forecast published in the

Q2/2008 edition of the Monetary Policy Review. The low rate of Government

consumption is the result of a drop in central government consumption related to

the larger than expected spending on direct cash transfers. Added to this is

tightened regional government consumption as a result of the capping of the

assumed oil price used for calculating Profit Sharing Funds transferred to regional

governments.

Forecasted investment growth in 2008 is 12.9%-13.1%Forecasted investment growth in 2008 is 12.9%-13.1%Forecasted investment growth in 2008 is 12.9%-13.1%Forecasted investment growth in 2008 is 12.9%-13.1%Forecasted investment growth in 2008 is 12.9%-13.1%, up from 2007 and also

from earlier projections. Disaggregated by investor category, this growth will be

driven by private investment. In analysis by category of business, investment

performance will ride on the strength of non-construction investment. Robust growth

in private consumption will stimulate growth in non-construction investment.

Confirming this are several indicators pointing to brisk investment growth trend.

The high rate of FDI and domestic investment approvals and significant growth in

capital goods imports offer indications of future investment prospects. Another

indicator of the investment outlook is investment credit expansion, recorded in

August 2008 at 30%.


2006

I II III IV I II III IV I II III*I t e m

Table 4.2

Economic Growth Projections √ Demand Side

20062007


Total Consumption 3.8 5.6 2.8 3.5 3.9 4.6 4.6 5.3 5.1 4.9 5.6 4.9 5.0 5.3 - 5.5

Private Consumption 2.9 3.0 3.0 3.8 3.2 4.7 4.7 5.1 5.6 5.0 5.7 5.3 5.1 5.2 - 5.4

Government Consumption 11.5 28.8 1.7 2.2 9.6 3.7 3.8 6.5 2.0 3.9 4.7 2.2 4.5 5.9 - 6.1

Total Investment 1.4 0.9 0.8 6.8 2.5 7.0 6.9 10.4 12.1 9.2 15.4 12.8 12.0 12.9 - 13.1

Domestic Demand 3.2 4.4 2.3 4.3 3.5 5.2 5.2 6.6 6.8 6.0 8.0 6.9 6.8 7.2 - 7.4

Export of Goods and Services 11.8 11.4 8.3 6.6 9.4 8.1 9.8 6.9 7.3 8.0 15.5 16.1 15.8 14.3 - 14.5

Import of Goods and Services 4.8 9.3 10.9 9.2 8.6 8.5 6.5 7.0 13.6 8.9 17.8 16.7 16.0 16.4 - 16.6

PDBPDBPDBPDBPDB 5.15.15.15.15.1 5.05.05.05.05.0 5.95.95.95.95.9 6.06.06.06.06.0 5.55.55.55.55.5 6.16.16.16.16.1 6.46.46.46.46.4 6.56.56.56.56.5 6.36.36.36.36.3 6.36.36.36.36.3 6.36.36.36.36.3 6.46.46.46.46.4 6.36.36.36.36.3 6.2 - 6.46.2 - 6.46.2 - 6.46.2 - 6.46.2 - 6.4

20072008

2008*


27

Concerning external performance, exports of goods and services are forecasted toexports of goods and services are forecasted toexports of goods and services are forecasted toexports of goods and services are forecasted toexports of goods and services are forecasted to

climb 14.3%-14.5% in 2008climb 14.3%-14.5% in 2008climb 14.3%-14.5% in 2008climb 14.3%-14.5% in 2008climb 14.3%-14.5% in 2008, up from 2007. Key to this strong showing in exports

are the high international commodity prices in the first half of 2008 and the ongoing

diversification of Indonesia»s export destinations in favour of developing nations,

particularly in Asia. Buoyant growth in commodity exports will be underpinned by

primary commodities. Assurance of continued supply of these export goods is

provided by the high rate of investment in the primary sector. At the same time,

imports of goods and services in 2008 are forecasted to expand by 16.4%-16.6%imports of goods and services in 2008 are forecasted to expand by 16.4%-16.6%imports of goods and services in 2008 are forecasted to expand by 16.4%-16.6%imports of goods and services in 2008 are forecasted to expand by 16.4%-16.6%imports of goods and services in 2008 are forecasted to expand by 16.4%-16.6%,

up from 2007 and earlier predictions. Key to this import growth is more vigorous

expansion in domestic demand and exports.

Outlook for Aggregate Supply

Analysed by sector, growth in 2008 will again be driven by the three leading sectorsAnalysed by sector, growth in 2008 will again be driven by the three leading sectorsAnalysed by sector, growth in 2008 will again be driven by the three leading sectorsAnalysed by sector, growth in 2008 will again be driven by the three leading sectorsAnalysed by sector, growth in 2008 will again be driven by the three leading sectors

of transport and communications, trade, hotels and restaurants and manufacturing.of transport and communications, trade, hotels and restaurants and manufacturing.of transport and communications, trade, hotels and restaurants and manufacturing.of transport and communications, trade, hotels and restaurants and manufacturing.of transport and communications, trade, hotels and restaurants and manufacturing.

The transport and communications sector still has room for strong growth. The

vigorous expansion in this sector will be contributed mainly by the communications

subsector. Technological advances in the communications subsector have made

communications services more affordable for the general public. Given the relatively

buoyant levels of private consumption, the market has considerable capacity to

absorb growth in the communications subsector. In similar developments,

performance in the trade, hotels and restaurants sector and in manufacturing will

be bolstered by public purchasing power, forecasted to remain strong. In 2009,

further improvement in public purchasing power will spur growth in manufacturing

and the trade, hotels and restaurants sector. However, a steeper than predicted

downturn in the US economy may cause economic growth to drop below the

projected range.

Manufacturing, the sector representing the largest share of the economy, isManufacturing, the sector representing the largest share of the economy, isManufacturing, the sector representing the largest share of the economy, isManufacturing, the sector representing the largest share of the economy, isManufacturing, the sector representing the largest share of the economy, is

forecasted to grow 4.0%-4.2% in 2008.forecasted to grow 4.0%-4.2% in 2008.forecasted to grow 4.0%-4.2% in 2008.forecasted to grow 4.0%-4.2% in 2008.forecasted to grow 4.0%-4.2% in 2008. Major contributions to non-fossil fuel

% Y-o-Y, Tahun Dasar 2000

2006

I II III IV I II III IV I II III*S e c t o r

Tabel 4.3

Economic Growth Projections - Supply Side

20062007


Agriculture 6.6 1.6 2.6 2.6 3.4 -1.7 4.7 7.6 3.1 3.5 6.1 4.6 2.1 3.7 - 3.9

Mining & Quarrying 2.3 3.6 1.1 0.0 1.7 6.2 3.2 1.0 -2.1 2.0 -1.9 -0.9 1.0 (-0.2) - (-0.4)

Manufacturing 3.0 3.6 5.9 5.8 4.6 5.2 5.1 4.5 3.8 4.7 4.2 4.1 4.0 4.0 - 4.2

Electricity, Gas & Water Supply 5.1 4.5 5.8 7.7 5.8 8.2 10.2 11.3 11.8 10.4 12.6 11.2 11.0 11.1 - 11.3

Construction 7.7 8.5 8.5 8.6 8.3 8.4 7.7 8.3 9.9 8.6 7.9 8.0 8.1 7.9 - 8.1

Trade, Hotels & Restaurants 4.9 5.9 7.9 7.0 6.4 9.2 7.6 7.9 9.1 8.5 7.1 7.9 7.8 7.5 - 7.7

Transportation & Communication 12.0 13.8 14.5 17.0 14.4 13.0 12.7 14.1 17.4 14.4 20.3 19.6 19.5 19.3 - 19.5

Financial, Rental & Business Services 5.6 5.2 4.5 6.5 5.5 8.1 7.6 7.6 8.6 8.0 8.2 8.7 8.5 8.0 - 8.2

Services 5.8 6.0 6.7 6.2 6.2 7.0 7.0 5.2 7.2 6.6 5.6 6.5 7.3 6.3 - 6.5

GDPGDPGDPGDPGDP 5.15.15.15.15.1 5.05.05.05.05.0 5.95.95.95.95.9 6.06.06.06.06.0 5.55.55.55.55.5 6.16.16.16.16.1 6.46.46.46.46.4 6.56.56.56.56.5 6.36.36.36.36.3 6.36.36.36.36.3 6.36.36.36.36.3 6.46.46.46.46.4 6.36.36.36.36.3 6.2 - 6.46.2 - 6.46.2 - 6.46.2 - 6.46.2 - 6.4

20072008

2008*


28

industry growth will come from the transportation equipment, machinery and

machine tools subsector and the food and beverages subsector. The growing market

for the shipbuilding industry and brisk demand in the automotive and related

industries and in manufacturing of heavy equipment, such as tractors, are factors

contributing to increased production in the transportation equipment, machinery

and machine tools subsector. Activities in preparation for the national elections are

expected to boost activity in the food and beverages industry, paper and printed

goods and the textiles, leather goods and footwear subsectors. Confirmation of

increased growth in the food and beverages subsector also comes from the upward

trend in raw material imports for this industry.

Growth in the trade, hotels and restaurants sector is predicted at about 7.6%-Growth in the trade, hotels and restaurants sector is predicted at about 7.6%-Growth in the trade, hotels and restaurants sector is predicted at about 7.6%-Growth in the trade, hotels and restaurants sector is predicted at about 7.6%-Growth in the trade, hotels and restaurants sector is predicted at about 7.6%-

7.8% in 20087.8% in 20087.8% in 20087.8% in 20087.8% in 2008. Strengthened public purchasing power has provided positive

momentum for performance in goods manufacturing sectors. This in turn will

generate increased activity in wholesale and retail trading. Also bolstering turnover

will be the onset of election-related activities. The general upswing in business

activity will also generate added value in the hotels and restaurants subsector.

Agriculture sector growth in 2008 is forecasted at about 3.7%-3.9%Agriculture sector growth in 2008 is forecasted at about 3.7%-3.9%Agriculture sector growth in 2008 is forecasted at about 3.7%-3.9%Agriculture sector growth in 2008 is forecasted at about 3.7%-3.9%Agriculture sector growth in 2008 is forecasted at about 3.7%-3.9%. In the

agriculture sector, the food crops subsector - led by rice cultivation - plays a major

role. Second Forecast figures by the Central Statistics Agency (BPS) point to

increases in production, harvested area and productivity. The government policy

for food self-sufficiency in 2009 is an important factor driving growth in the food

crops subsector. To realise this policy, the Government plans significant funding

increases for fertiliser and seed subsidies. The forecast for the estates subsector is

continued high production, driven mainly by output from oil palm estates. At this

time, most oil palm plantings have reached optimum maturity for production.

Although international CPO prices have begun to ease in line with crude oil prices,

increased quantity of production is expected to shore up performance in the

estates subsector.

The transport and communications sectorThe transport and communications sectorThe transport and communications sectorThe transport and communications sectorThe transport and communications sector is set for another year of high growth inis set for another year of high growth inis set for another year of high growth inis set for another year of high growth inis set for another year of high growth in

19.3%-19.5% in 200819.3%-19.5% in 200819.3%-19.5% in 200819.3%-19.5% in 200819.3%-19.5% in 2008. Transport and communications is one of the highest growth

sectors, propelled mainly by the performance of the communications subsector,

buoyed by adequate purchasing power coupled with more extensive coverage of

lower cost cellular telephone services. Although growth remains strong, the growth

trend in the transport and communications sector could potentially see some

slowing. This is expected from the escalating competition in the cellular telephone

industry in line with the growing number of operators in this sector. As more

companies join the fray, margins earned by individual cellular operators will decline

over time.

The construction sector is forecasted to chart reduced growth in 2008 at 7.9%-The construction sector is forecasted to chart reduced growth in 2008 at 7.9%-The construction sector is forecasted to chart reduced growth in 2008 at 7.9%-The construction sector is forecasted to chart reduced growth in 2008 at 7.9%-The construction sector is forecasted to chart reduced growth in 2008 at 7.9%-

8.1%.8.1%.8.1%.8.1%.8.1%. This downturn is explained primarily by the lack of significant progress in

infrastructure construction. Work on various infrastructure projects is expected to

slow down due to unexpectedly steep increases in construction material prices.


29

Soaring prices of construction materials have eaten into contractor profit margins

and many are running losses. In toll road construction, the most important obstacle

involves the long-drawn out process of land expropriation.

In 2008, the financial sector is predicted to grow at 8.0%-8.2%.In 2008, the financial sector is predicted to grow at 8.0%-8.2%.In 2008, the financial sector is predicted to grow at 8.0%-8.2%.In 2008, the financial sector is predicted to grow at 8.0%-8.2%.In 2008, the financial sector is predicted to grow at 8.0%-8.2%. At this time,

banks face a liquidity crunch. To attract more depositor funds, banks are competing

with each other to raise their deposit rates, a move that will narrow the interest

rate spread. Under conditions of tight liquidity, banks will be more selective in their

lending decisions, resulting in more limited credit expansion.

INFLATION FORECAST

Inflation in 2008 is forecasted in the range of 11.5%-12.5% (y-o-y).Inflation in 2008 is forecasted in the range of 11.5%-12.5% (y-o-y).Inflation in 2008 is forecasted in the range of 11.5%-12.5% (y-o-y).Inflation in 2008 is forecasted in the range of 11.5%-12.5% (y-o-y).Inflation in 2008 is forecasted in the range of 11.5%-12.5% (y-o-y). Analysed by

component, 2008 inflation is being driven primarily by core inflation and

administered prices. The high rate of core and administered prices inflation in 2008

is explained most importantly by high food and energy prices and secondly the

hike in domestic fuel prices. Inflationary pressure at end-2008 is predicted to remain

strong, albeit on a downward trend. This year, fourth quarter inflationary pressure

- usually driven by foodstuffs inflation as the planting season gets under way - is

expected to be low. Key to this is the large-scale procurement of rice by the National

Logistics Agency (Bulog). In addition, the downward trend in international

commodity prices followed by falling inflation in trading partner countries is expected

to have a positive effect on reduced domestic inflation.

In 2009, inflation is projected to drop to the 6.5%-7.5% range.In 2009, inflation is projected to drop to the 6.5%-7.5% range.In 2009, inflation is projected to drop to the 6.5%-7.5% range.In 2009, inflation is projected to drop to the 6.5%-7.5% range.In 2009, inflation is projected to drop to the 6.5%-7.5% range. The main factors

driving inflation will again be core inflation and administered prices. Concerning

core inflation, substantial demand-side pressures from 2008 are predicted to carry

forward into 2009, mainly in regard to the preparations for the national elections.

Inflation from administered prices is forecasted to stay high due to the ongoing

conversion from household kerosene to bottled LPG and the possibility of hikes in

other administered prices following the formation of a new government. In 2009,

inflationary pressure from volatile foods is forecasted to be minimal, in part due to

large-scale Bulog rice procurements.

In regard to inflation-forming components, inflation expectations are expected to

lighten, although remaining high. The improvement in public inflation expectations

is linked mainly to the downward trend in inflation. The improvement in inflation

expectations has taken place mainly among consumers and traders.

In regard to supply-demand interaction, there are indications of rising demand

although the impact on inflation is reportedly still minimal. Nevertheless, the high

rate of investment growth since Q3/2007 is expected to enable a supply-side

response to increased demand, keeping the impact on inflation to a minimum.

Inflationary pressure from external developments is predicted to ease. Key to the

softening of inflationary pressure from externals are falling prices for oil and other

commodities. Lower international commodity prices will reduce inflationary pressure


30

in trading partner countries, which in turn will mitigate domestic inflationary pressure

through imported inflation.

Inflationary pressure from administered prices is forecasted to remain strong. This

high pressure is related mainly to the kerosene to LPG conversion programme slated

to carry forward into 2009. Otherwise, the government is not expected to raise

prices for administered items until the formation of a new elected government in

Q3/2009. Reinforcing this, inflationary pressure from volatile foods is expected to

be minimal. As of September 2008, Bulog had built up a buffer stock of 2.3 million

tons of rice in a move expected to bring volatile foods inflation to below historical

levels. At end-2008, Bulog»s rice stocks are targeted to reach 2.8-3.0 million tons.

This represents the highest ever level of rice procurement in the history of the

agency. In addition, the downward trend in oil and other commodity prices will

also have a positive effect on control of volatile foods inflation. In 2009, domestic

food production is expected to be maintained at high levels in response to the

agricultural productivity improvement programme operating through provision of

hybrid seeds, subsidised fertilisers and improvements in agricultural infrastructure.

RISKS

Overshadowing the economic growth outlook are external risks. Overshadowing the economic growth outlook are external risks. Overshadowing the economic growth outlook are external risks. Overshadowing the economic growth outlook are external risks. Overshadowing the economic growth outlook are external risks. The most important

risk lies with the condition of the US economy if the various policy actions by the

fiscal and monetary authorities prove ineffective in turning around the nation»s

financial crisis. Any further downturn in US economic growth will spill over to slowing

growth in the Eurozone economies and from there to growth in the developing

world. If world economic growth drops further, the result will be reduced growth in

volume of world trade. The consequences of this may be further blows to growth

in exports of goods and services.

Inflation risks are likely to arise mainly from administered prices components, suchInflation risks are likely to arise mainly from administered prices components, suchInflation risks are likely to arise mainly from administered prices components, suchInflation risks are likely to arise mainly from administered prices components, suchInflation risks are likely to arise mainly from administered prices components, such

as fuel pricesas fuel pricesas fuel pricesas fuel pricesas fuel prices. In the Draft Law on Regional Taxes and User Charges, provincial

governments are given power to set the level of automotive fuel taxes in the range

of 0%-10%. The draft law also contains provisions concerning cigarette taxes and

parking taxes that will also have some effect in stoking inflationary pressure. The

hefty subsidies for fuel, electricity billing rates and LPG underscore the potential for

increases in the selling prices for these commodities. Such developments will also

work directly and indirectly to boost future inflationary pressures.

Monetary Policy Response Q3/2008

31

5. Monetary Policy Response Q3-2008

The Indonesian economic growth is projected to stay high and arrive at 6,3%(yoy).The Indonesian economic growth is projected to stay high and arrive at 6,3%(yoy).The Indonesian economic growth is projected to stay high and arrive at 6,3%(yoy).The Indonesian economic growth is projected to stay high and arrive at 6,3%(yoy).The Indonesian economic growth is projected to stay high and arrive at 6,3%(yoy).

For the whole 2008, up until the completion of general election in 2009, the

economic growth is projected to remain in a sound condition. It is mainly supported

by private consumption and government expenditure. Related to inflation,

inflationary pressure in 2008 mostly sourced from the impact of fuel price hike and

the rise of international commodity prices. In addition, Bank Indonesia also considers

strong demand pressure along with higher credit growth and money supply up to

Q3-2008. Furthermore, Bank Indonesia also closely watches on the recent

development in global money market, particularly US, and its impact on domestic

economic performance.

Bank Indonesia»s key focus is to bring down future inflationary pressure. Moving

forward, inflationary pressure is predicted to be driven by public expectation on

inflation, domestic demand, and imported inflation. Therefore, the Bank IndonesiaTherefore, the Bank IndonesiaTherefore, the Bank IndonesiaTherefore, the Bank IndonesiaTherefore, the Bank Indonesia

Board of Governor»s Meeting in October 2008 decided to raise BI Rate by 25 bps toBoard of Governor»s Meeting in October 2008 decided to raise BI Rate by 25 bps toBoard of Governor»s Meeting in October 2008 decided to raise BI Rate by 25 bps toBoard of Governor»s Meeting in October 2008 decided to raise BI Rate by 25 bps toBoard of Governor»s Meeting in October 2008 decided to raise BI Rate by 25 bps to

9,50%.9,50%.9,50%.9,50%.9,50%.

In an attempt to manage inflation, Bank Indonesia will optimize the use of all

monetary policy instruments available. Moreover, Rupiah stabilisation policy will be

directed to reduce excessive Rupiah volatility. The current pressures on Rupiah is in

line with the current development of regional currency. With those policies, Bank

Indonesia projected inflation in 2008 will be within 11,5% √ 12,5% range and go

down to 6,5% √ 7,5%.range in 2009.

The momentum of Indonesian economic growth remains stable while facing the

US financial crisis. Furthermore, the stability and reliability of Indonesian financial

system is predicted to remain sound. Moving forward, Bank Indonesia will continue

its close coordination with Government in examining all the developments and

taking steps when considered necessary.


32

Statistics

12.70 11.40 11.90 12.90 13.22 14.16 17.98 18.08 17.85

8.95 9.53 10.31 11.55 12.21 12.93 17.95 17.41 17.43

4.89 8.66 7.67 8.58 10.47 11.90 17.27 16.07 16.53

4.65 8.31 6.62 7.14 8.25 10.39 16.13 15.07 15.44

5.87 7.42 5.86 6.11 6.79 8.93 14.49 14.61 15.12

4.24 7.34 6.23 6.31 6.36 7.68 9.31 14.10 14.64

4.13 7.39 6.31 6.61 6.89 7.27 8.94 13.80 14.33

3.76 7.43 6.43 6.71 7.12 7.07 8.12 13.41 14.05

5.95 7.44 6.50 6.93 7.35 8.04 9.42 13.31 13.78

6.95 8.25 6.98 7.19 7.11 7.11 8.05 13.36 13.65

6.92 10.00 9.16 8.51 8.01 8.65 8.82 14.51 14.47

9.44 12.75 11.98 11.75 10.17 10.95 12.39 16.23 15.66

10.28 12.73 11.61 12.19 12.10 12.02 12.64 16.35 15.90

10.23 12.50 11.34 11.70 12.09 12.28 12.61 16.15 15.94

8.90 11.25 10.47 11.05 11.52 12.36 12.47 15.82 15.66

5.97 9.75 8.96 9.71 10.70 11.63 11.84 15.07 15.10

7.52 9.00 8.13 8.52 9.29 10.17 11.73 14.49 14.53

5.58 8.75 7.46 7.87 8.40 9.54 11.73 13.88 13.99

6.83 8.25 7.13 7.44 7.80 8.91 11.24 13.31 13.45

4.33 8.00 7.19 7.42 7.65 8.24 10.83 13.00 13.01

8.01 7.96 6.88 7.26 7.57 7.79 10.06 12.88 12.59

8.43 8.73 7.19 7.49 7.79 7.78 9.91 12.99 12.51

9.37 9.71 8.04 8.40 8.43 8.51 9.93 13.42 12.86

2003Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2004Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2005Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2006Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2007Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2008Qtr. I

Qtr. II

Qtr. III

* August 2008

Table 1

Interest Rate of Money Market, Deposits, and Credit

(Percent per Annum)

PeriodInterbank

MoneyMarket

SBIDiscount

Rate

Time Deposit Interest Rate* Credit Interest Rate*

1month

3months

6months

12months

24months

WorkingCapital

Investment

Statistics

33

2003

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2004

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2005

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2006

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2007

Qtr. I

Qtr. II

Qtr. III

Qtr.IV

2008

Qtr. I

Qtr. II

Qtr. III*

104,122 283,754 242,833 119,948

136,517 289,478 285,929 123,496

118,181 350,175 340,437 133,234

125,166 321,710 347,918 107,026

142,003 354,841 321,477 140,390

87,082 283,275 304,891 118,776

165,064 252,542 339,339 31,979

204,336 293,933 252,929 103,825

216,381 369,495 415,784 57,536

237,571 362,770 315,996 101,058

250,610 230,026 289,657 41,427

264,348 183,663 150,534 74,632

310,175 415,638 356,471 133,799

280,836 517,853 483,967 167,685

286,958 599,495 586,715 180,464

329,312 665,673 636,381 209,756

495,786 774,866 740,951 243,671

362,339 846,655 832,325 258,002

413,527 895,562 887,411 266,152

313,544 777,247 795,475 247,926

368,429 858,289 905,499 212,463

246,462 481,412 537,580 163,103

217,134 313,979 327,188 149,893

Table 2

Money Market Transactions

(Billions of Rupiah)

* August 20081) Morning Transaction2) Transaction between Bank Indonesia and Commercial Banks only. Since March 1994 includes Repo SBPU

Bank Indonesia Certificate (SBI) 2)

Period Interbank

Transaction1) Issuance Repayment Outstanding


34

I II III IV I II III IV I II III IV I II III*

1 State Bank

- Agriculture

- Mining

- Industry

- Trade

- Services

- Others

2 Private National Foreign Bank

- Agriculture

- Mining

- Industry

- Trade

- Services

- Others

3 Regional Government Bank

- Agriculture

- Mining

- Industry

- Trade

- Services

- Others

4 Foreign and Joint Bank

- Agriculture

- Mining

- Industry

- Trade

- Services

- Others

5 Sub total (1 until 4)

- Agriculture

- Mining

- Industry

- Trade

- Services

- Others

223,025223,025223,025223,025223,025 235,274235,274235,274235,274235,274 243,678243,678243,678243,678243,678 250,319250,319250,319250,319250,319 247,331247,331247,331247,331247,331 256,267256,267256,267256,267256,267 264,735264,735264,735264,735264,735 282,784282,784282,784282,784282,784 282,633282,633282,633282,633282,633 301,186301,186301,186301,186301,186 314,427314,427314,427314,427314,427 348,973348,973348,973348,973348,973 350,232350,232350,232350,232350,232 394,065394,065394,065394,065394,065 414,617414,617414,617414,617414,617

20,340 20,411 20,797 21,908 21,649 22,110 23,012 25,816 24,222 26,805 28,433 30,281 30,711 32,381 33,585

4,292 4,338 3,932 3,249 3,007 3,428 3,485 4,771 7,414 9,006 6,556 10,647 13,371 14,922 13,908

60,466 60,985 63,507 65,781 63,402 64,567 64,265 71,165 71,600 69,959 69,450 72,810 72,706 81,038 83,777

44,881 47,275 48,095 49,809 52,729 57,548 61,031 61,431 63,561 68,172 75,722 85,601 79,209 92,719 97,054

31,966 35,446 37,647 37,448 36,148 37,094 39,269 43,481 39,477 44,868 47,465 55,587 55,271 64,182 71,485

61,080 66,819 69,700 72,124 70,396 71,520 73,673 76,120 76,359 82,376 86,801 94,047 98,964 108,823 114,808

235,224235,224235,224235,224235,224 257,749257,749257,749257,749257,749 284,411284,411284,411284,411284,411 295,013295,013295,013295,013295,013 291,817291,817291,817291,817291,817 302,693302,693302,693302,693302,693 313,651313,651313,651313,651313,651 334,943334,943334,943334,943334,943 335,998335,998335,998335,998335,998 367,168367,168367,168367,168367,168 394,451394,451394,451394,451394,451 432,595432,595432,595432,595432,595 451,967451,967451,967451,967451,967 500,718500,718500,718500,718500,718 520,732520,732520,732520,732520,732

8,915 9,015 9,625 9,541 9,693 10,248 10,316 11,430 11,312 12,053 12,467 15,533 15,571 18,298 18,231

2,376 2,694 3,409 3,267 2,935 3,414 3,775 6,460 5,409 7,321 7,076 10,678 9,621 10,137 10,714

45,627 48,206 53,904 55,185 53,304 57,119 58,125 61,525 59,826 63,319 68,670 73,840 77,952 84,610 86,953

57,560 63,736 67,300 71,098 70,729 74,997 78,679 85,628 86,783 95,549 100,883 108,726 111,756 123,057 124,659

56,553 61,358 65,925 68,660 69,006 71,371 74,729 78,963 80,252 90,497 98,503 110,144 115,400 131,115 139,169

64,193 72,740 84,248 87,262 86,150 85,544 88,027 90,937 92,416 98,429 106,852 113,674 121,667 133,501 141,006

38,97638,97638,97638,97638,976 42,02442,02442,02442,02442,024 44,51044,51044,51044,51044,510 44,90944,90944,90944,90944,909 47,23547,23547,23547,23547,235 51,14151,14151,14151,14151,141 55,00955,00955,00955,00955,009 55,95955,95955,95955,95955,959 58,85158,85158,85158,85158,851 65,12365,12365,12365,12365,123 70,93770,93770,93770,93770,937 71,92171,92171,92171,92171,921 75,06575,06575,06575,06575,065 85,33985,33985,33985,33985,339 91,52591,52591,52591,52591,525

1,406 1,514 1,557 1,640 1,729 1,860 1,922 2,030 2,090 2,130 2,248 2,274 2,379 2,710 3,107

36 41 52 54 57 56 54 58 58 58 55 43 53 182 196

439 504 451 421 430 471 476 457 487 520 543 631 710 770 783

6,683 7,269 7,546 7,532 7,668 8,058 8,312 8,239 8,386 8,762 9,295 9,617 10,191 11,504 11,722

5,108 5,260 6,058 5,633 5,851 6,561 7,531 6,915 6,776 7,747 9,850 8,879 8,615 10,831 12,895

25,304 27,436 28,846 29,629 31,500 34,135 36,714 38,260 41,054 45,906 48,946 50,477 53,117 59,342 62,822

79,15579,15579,15579,15579,155 87,55587,55587,55587,55587,555 100,643100,643100,643100,643100,643 99,42899,42899,42899,42899,428 95,73095,73095,73095,73095,730 100,003100,003100,003100,003100,003 107,692107,692107,692107,692107,692 113,450113,450113,450113,450113,450 117,232117,232117,232117,232117,232 121,509121,509121,509121,509121,509 127,445127,445127,445127,445127,445 141,622141,622141,622141,622141,622 151,908151,908151,908151,908151,908 161,998161,998161,998161,998161,998 172,117172,117172,117172,117172,117

2,390 2,531 3,093 3,589 3,409 4,124 4,727 5,727 5,395 5,460 5,933 7,817 7,449 6,425 6,118

2,205 2,028 2,036 1,303 1,548 2,173 2,369 2,607 2,287 2,540 2,629 3,972 4,591 3,910 4,590

39,569 43,867 50,268 48,291 45,954 46,847 49,682 49,285 50,219 51,029 51,259 56,527 60,265 65,896 68,292

4,671 5,061 6,337 5,669 5,357 5,865 6,663 7,098 7,691 9,035 10,379 11,726 11,383 13,022 13,806

17,920 20,044 22,881 23,202 21,258 21,721 24,726 28,279 30,709 31,540 34,679 37,831 43,878 46,763 52,597

12,400 14,024 16,028 17,374 18,204 19,273 19,525 20,454 20,931 21,905 22,566 23,749 24,342 25,982 26,714

576,380576,380576,380576,380576,380 622,602622,602622,602622,602622,602 673,242673,242673,242673,242673,242 689,669689,669689,669689,669689,669 682,113682,113682,113682,113682,113 710,104710,104710,104710,104710,104 741,087741,087741,087741,087741,087 787,136787,136787,136787,136787,136 794,714794,714794,714794,714794,714 854,986854,986854,986854,986854,986 907,260907,260907,260907,260907,260 995,111995,111995,111995,111995,111 1,029,1721,029,1721,029,1721,029,1721,029,172 1,142,1201,142,1201,142,1201,142,1201,142,120 1,198,9911,198,9911,198,9911,198,9911,198,991

33,051 33,471 35,072 36,678 36,480 38,342 39,977 45,003 43,019 46,448 49,081 55,905 56,110 59,814 61,041

8,909 9,101 9,429 7,873 7,547 9,071 9,683 13,896 15,168 18,925 16,316 25,340 27,636 29,151 29,408

146,101 153,562 168,130 169,678 163,090 169,004 172,548 182,432 182,132 184,827 189,922 203,808 211,633 232,314 239,805

113,795 123,341 129,278 134,108 136,483 146,468 154,685 162,396 166,421 181,518 196,279 215,670 212,539 240,302 247,241

111,547 122,108 132,511 134,943 132,263 136,747 146,255 157,638 157,214 174,652 190,497 212,441 223,164 252,891 276,146

162,977 181,019 198,822 206,389 206,250 210,472 217,939 225,771 230,760 248,616 265,165 281,947 298,090 327,648 345,350

2005 2006 2007 2008

* August 20081) Excluded central government, non-resident, foreign counter part value, and managable credit.

Table 3

Outstanding of Credits in Rupiah and Foreign Currency of Commercial Banks by Group of Banks and Economic Sector 1)


Statistics

35

877,776 181,239 72,323 108,916 696,537 249,736 510,307 22,364 377,989 -282,620

894,213 194,537 77,091 117,787 699,335 236,660 506,218 24,436 393,439 -266,540

911,224 207,234 81,118 126,469 703,637 240,781 481,552 24,248 416,534 -251,891

955,692 223,799 94,542 129,257 731,893 271,785 479,013 24,087 442,741 -261,969

935,247 219,086 86,881 132,205 716,161 275,819 443,440 22,803 454,663 -261,518

975,166 233,726 97,574 136,152 741,440 280,070 468,907 27,806 522,161 -323,778

986,806 240,911 99,505 141,406 745,895 258,684 476,451 25,261 551,562 -325,152

1,033,528 253,818 109,265 144,553 779,710 263,647 498,019 26,919 588,885 -343,940

1,020,693 250,492 98,584 151,908 770,201 268,482 456,274 28,257 612,463 -344,783

1,073,746 267,635 106,125 161,510 806,111 256,058 468,004 28,237 659,129 -337,682

1,150,451 273,954 114,998 158,956 876,497 280,369 488,483 29,805 708,018 -356,224

1,203,215 281,905 124,316 157,589 921,310 313,082 498,901 28,059 710,783 -347,610

1,195,067 277,293 112,625 164,668 917,774 347,970 470,048 25,557 705,321 -353,829

1,253,757 313,153 123,761 189,392 940,604 345,457 481,654 29,746 729,609 -332,709

1,291,396 333,905 129,969 203,936 957,491 401,065 481,641 31,858 758,261 -381,429

1,382,074 361,073 151,009 210,064 1,021,001 413,265 506,488 38,946 798,125 -374,750

1,375,947 341,833 129,618 212,215 1,034,114 457,382 447,655 35,032 810,996 -375,118

1,451,974 381,376 146,715 234,661 1,070,598 496,522 430,956 44,185 865,144 -384,833

1,512,756 411,281 160,327 250,954 1,101,475 519,360 439,649 45,496 916,657 -408,406

1,643,203 460,842 183,419 277,423 1,182,361 524,703 497,478 56,152 984,844 -419,974

1,586,795 419,746 164,995 254,751 1,167,049 549,049 375,976 49,644 1,025,856 -413,730

1,699,480 466,708 189,453 277,255 1,232,772 562,636 359,645 57,304 1,131,796 -411,901

1,675,431 452,445 191,866 260,579 1,222,986 534,841 306,411 57,974 1,188,306 -412,101

2003

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2004

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2005

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2006

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2007

Qtr. I

Qtr. II

Qtr. III

Qtr. IV

2008

Qtr. I

Qtr. II

Qtr. III*

* August 20081) M1 plus Quasi Money2) Currency Outside Banks plus Demand Deposits3) Including government special of bill

Table 4

Money Supply and Its Affecting Factors

(Billion of Rupiah)

M2 Affecting Factors

End ofPeriod

Total 1) Total 2)

M1

CurrencyOutsideBanks

DemandDeposits

QuasiMoney

Net ForeignAssets

NetClaims On

CentralGovt.3)

Claims OnOfficial

Entities andState

Enterprises

Claims OnPrivate

Enterprisesand

Individuals

NetOtherItems


36

184,878 198,427 224,414 239,781 233,878 247,742 257,843 297,080 272,239 289,727 310,265 379,582 325,044 349,649 392,136

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

116,376 124,427 134,871 144,869 135,005 145,666 153,569 178,572 155,498 173,888 189,221 220,785 198,940 224,342 270,243

98,584 106,125 114,998 124,316 112,625 123,761 129,969 151,009 129,618 146,715 160,327 183,419 164,995 189,453 222,945

17,792 18,302 19,873 20,553 22,380 21,905 23,600 27,563 25,880 27,173 28,894 37,366 33,945 34,889 47,298

67,798 73,446 89,079 94,531 98,544 101,751 104,061 118,417 116,558 115,524 120,740 158,452 125,705 124,811 121,302

704 554 464 381 329 325 213 91 183 315 304 345 399 496 591

173,283 163,760 141,548 173,806 213,530 213,143 255,182 274,694 305,744 330,295 337,523 356,883 351,874 351,561 355,967

11,595 34,667 82,866 65,975 20,348 34,599 2,661 22,386 -33,505 -40,569 -27,258 22,699 -26,830 -1,912 36,169

187,988 197,653 210,909 239,148 209,557 218,033 219,538 265,919 200,460 187,081 184,961 249,069 128,907 117,614 123,797

27,310 27,310 27,307 18,238 18,226 18,226 18,226 18,196 18,186 18,136 18,136 8,847 8,838 8,800 8,800

12,222 11,987 11,800 11,593 11,372 11,165 11,035 10,832 10,598 10,366 10,206 9,994 9,751 9,353 9,227

9,116 10,141 10,169 5,408 5,475 5,491 5,494 5,352 5,366 5,389 5,357 3,074 3,089 3,295 3,155

-130,783 -115,143 -61,917 -121,325 -142,637 -174,258 -189,131 -242,001 -247,525 -264,280 -254,096 -281,164 -219,099 -191,525 -152,563

-57,611 -101,134 -41,503 -74,632 -133,798 -167,685 -180,382 -208,763 -239,977 -257,998 -265,034 -247,688 -212,463 -165,145 -116,967

-73,172 -21,060 -17,603 -57,212 -16,615 -14,241 -16,829 -41,568 -19,298 -21,615 -4,750 -48,933 -5,737 -4,989 -1,403

7,051 10,216 10,519 7,776 7,668 8,080 8,330 11,750 15,333 15,688 15,457 14,356 14,172 15,929

-94,258 -97,281 -115,402 -87,087 -81,645 -68,704 -62,501 -35,912 -20,590 2,739 8,178 32,879 41,684 50,551 43,752

2005 2006 2007 2008

I II III IV I II III IV I II III IV I II III

1) Before June 1997 : NFA, after June 1997 : NIR using constant rate Rp7,000/$Since 1998 up to March 1999 using constant rate Rp10,000/$Since April 1999 using constant rate Rp7,500/$Since 21 November 1999 using constant rate Rp7,000/$Sejak 25 Mei 2000 untuk perhitungan NIR menggunakan konsep IRFCL(Int'l Reserve and Foreign Currency Liquidity)

2) Since March 2000 include SBI Syariah3) including Government Bonds and FTO (Fine Tune Operation)

I.I.I.I.I. Base MoneyBase MoneyBase MoneyBase MoneyBase Money

a. Statutory Reserve Shortfall

b. Currency

- Currency outside bank

- Cash in vaults

c. Commercial Banks Positive Balance

d. Private Sector Demand Deposits

II.II.II.II.II. Factor Affecting Base MoneyFactor Affecting Base MoneyFactor Affecting Base MoneyFactor Affecting Base MoneyFactor Affecting Base Money

a.a.a.a.a. Net International Reserve 1)Net International Reserve 1)Net International Reserve 1)Net International Reserve 1)Net International Reserve 1)

b.b.b.b.b. Net Domestic AssetsNet Domestic AssetsNet Domestic AssetsNet Domestic AssetsNet Domestic Assets

- Net Claims on Central Government

- Liquidity Support

- Liquidity Credits

- Others Claims

- Open Market

- SBI (net) 2)

- FASBI

- Others 3)

- Net Other Items

Table 5

Base Money and Its Affecting Factors


Statistics

37

2005 2006 2007* 2008**

I II III IV Total I II III IV Total I II III IV Total I II

* Temporary figures.** Very Temporary figures.1) New format since January 2004 publication.2) Not included IMF package3) Negative represents surplus and positive represents deficit4) Since1988, reserve assets position is based on Gross Foreign Asset Replacing Official Reserve. Since 2000 reserve assets position is based on International Reserve and

Foreign Currency Liquidity (IRFCL).5) Ratio of external debt service payments to export of goods and services.6) Consists of Government, State Owned Enterprises Except Banks, and Bank Indonesia.

209209209209209 436436436436436 -1,165-1,165-1,165-1,165-1,165 797797797797797 278278278278278 2,9492,9492,9492,9492,949 1,9591,9591,9591,9591,959 3,7723,7723,7723,7723,772 2,1552,1552,1552,1552,155 10,83610,83610,83610,83610,836 2,5972,5972,5972,5972,597 2,2742,2742,2742,2742,274 2,1422,1422,1422,1422,142 3,3893,3893,3893,3893,389 10,40110,40110,40110,40110,401 2,3282,3282,3282,3282,328 -1,477-1,477-1,477-1,477-1,477

3,177 4,057 3,502 6,799 17,534 6,693 6,986 8,596 7,386 29,660 7,712 8,107 7,487 9,448 32,754 7,526 5,354

20,201 21,663 21,996 23,135 86,995 23,262 25,484 27,604 27,178 103,528 26,626 29,202 30,009 32,177 118,014 34,400 37,255-17,024 -17,607 -18,495 -16,337 -69,462 -16,569 -18,498 -19,008 -19,792 -73,868 -18,914 -21,095 -22,521 -22,729 -85,260 -26,874 -31,901

-1,911 -1,176 -2,305 -3,730 -9,122 -2,289 -2,351 -2,416 -2,831 -9,888 -3,162 -2,962 -2,753 -2,920 -11,797 -2,973 -3,274

-2,168 -3,464 -3,568 -3,726 -12,927 -2,660 -3,873 -3,728 -3,538 -13,800 -3,163 -4,024 -3,810 -4,526 -15,524 -3,536 -4,889

1,111 1,020 1,207 1,455 4,793 1,205 1,198 1,321 1,139 4,863 1,210 1,153 1,218 1,387 4,968 1,312 1,332

-772-772-772-772-772 411411411411411 -3,298-3,298-3,298-3,298-3,298 4,0054,0054,0054,0054,005 345345345345345 2,5072,5072,5072,5072,507 322322322322322 -1,179-1,179-1,179-1,179-1,179 1,2941,2941,2941,2941,294 2,9442,9442,9442,9442,944 1,7991,7991,7991,7991,799 1,9831,9831,9831,9831,983 -945-945-945-945-945 485485485485485 3,3223,3223,3223,3223,322 -337-337-337-337-337 3,7253,7253,7253,7253,725

0 33 100 200 333 72 49 97 132 350 43 127 255 122 546 41 57

-772 377 -3,398 3,805 12 2,435 273 -1,276 1,161 2,594 1,756 1,856 -1,200 363 2,776 -378 3,668

207 3,132 878 1,055 5,271 681 572 -273 1,232 2,211 -225 1,424 778 162 2,139 1,106 958-651 -615 -879 -920 -3,065 -654 -517 -1,328 -204 -2,703 -1,262 390 -1,413 -2,505 -4,790 -1,711 -1,929858 3,747 1,757 1,975 8,336 1,336 1,088 1,055 1,435 4,914 1,037 1,034 2,191 2,667 6,928 2,817 2,887395 -805 1,738 2,862 4,190 3,712 -1,057 207 1,312 4,174 2,491 3,769 463 -1,200 5,523 1,923 4,314

-339 -63 -462 -216 -1,080 -392 -446 -332 -762 -1,933 -497 -1,939 -1,259 -764 -4,459 -823 74734 -742 2,200 3,078 5,270 4,104 -611 539 2,074 6,107 2,988 5,707 1,722 -437 9,981 2,746 4,240

-1,374 -1,949 -6,014 -112 -9,449 -1,959 759 -1,209 -1,382 -3,791 -510 -3,337 -2,441 1,402 -4,885 -3,407 -1,604-631 -1,816 -4,648 -1,551 -8,646 -1,349 1,704 -235 -1,707 -1,588 -162 -2,286 -2,382 234 -4,596 -2,961 -1,215-743 -134 -1,366 1,439 -803 -610 -945 -974 325 -2,204 -348 -1,051 -59 1,168 -289 -446 -389

-563-563-563-563-563 847847847847847 -4,463-4,463-4,463-4,463-4,463 4,8024,8024,8024,8024,802 623623623623623 5,4565,4565,4565,4565,456 2,2822,2822,2822,2822,282 2,5942,5942,5942,5942,594 3,4493,4493,4493,4493,449 13,78013,78013,78013,78013,780 4,3964,3964,3964,3964,396 4,2574,2574,2574,2574,257 1,1971,1971,1971,1971,197 3,8743,8743,8743,8743,874 13,72313,72313,72313,72313,723 1,9921,9921,9921,9921,992 2,2482,2482,2482,2482,248

916916916916916 -2,328-2,328-2,328-2,328-2,328 1,2941,2941,2941,2941,294 -61-61-61-61-61 -179-179-179-179-179 330330330330330 1,0971,0971,0971,0971,097 4343434343 -741-741-741-741-741 729729729729729 -17-17-17-17-17 -620-620-620-620-620 -17-17-17-17-17 -354-354-354-354-354 -1,008-1,008-1,008-1,008-1,008 -959,7758-959,7758-959,7758-959,7758-959,7758 -923,4224-923,4224-923,4224-923,4224-923,4224

352352352352352 -1,480-1,480-1,480-1,480-1,480 -3,169-3,169-3,169-3,169-3,169 4,7424,7424,7424,7424,742 444444444444444 5,7865,7865,7865,7865,786 3,3793,3793,3793,3793,379 2,6372,6372,6372,6372,637 2,7082,7082,7082,7082,708 14,51014,51014,51014,51014,510 4,3794,3794,3794,3794,379 3,6373,6373,6373,6373,637 1,1791,1791,1791,1791,179 3,5203,5203,5203,5203,520 12,71512,71512,71512,71512,715 1,0321,0321,0321,0321,032 1,3241,3241,3241,3241,324

-352-352-352-352-352 1,4801,4801,4801,4801,480 3,1693,1693,1693,1693,169 -4,742-4,742-4,742-4,742-4,742 -444-444-444-444-444 -5,786-5,786-5,786-5,786-5,786 -3,379-3,379-3,379-3,379-3,379 -2,637-2,637-2,637-2,637-2,637 -2,708-2,708-2,708-2,708-2,708 -14,510-14,510-14,510-14,510-14,510 -4,379-4,379-4,379-4,379-4,379 -3,637-3,637-3,637-3,637-3,637 -1,179-1,179-1,179-1,179-1,179 -3,520-3,520-3,520-3,520-3,520 -12,715-12,715-12,715-12,715-12,715 -1032,129-1032,129-1032,129-1032,129-1032,129 -1324,343-1324,343-1324,343-1324,343-1324,343-49 1,729 3,483 -4,500 663 -5,359 354 -2,189 292 -6,902 -4,379 -3,637 -1,179 -3,520 -12,715 -1,032 -1,324

-303 -249 -313 -241 -1,107 -427 -3,733 -448 -3,001 -7,608 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

-303 -249 -313 -241 -1,107 -427 -3,733 -448 -3,001 -7,608 0 0 0 0 0 0 0

36,030 33,865 30,318 34,724 34,724 40,082 40,107 42,353 42,586 42,586 47,221 50,924 52,875 56,920 56,920 58,987 59,4530.1 2.9 2.4

16.8 21.6 17.3 13.6 17.3 17.4 30.6 17.5 33.2 24.8 19.8 21.4 15.2 21.2 19.4 16.4 18.0

8.7 5.8 6.7 5.7 6.7 9.8 21.0 7.1 18.6 14.2 5.6 9.4 5.1 9.0 7.3 4.5 7.8

Table 6

Indonesia Current Account Payment 1)

(Millions of $)

I. Current Account

A.A.A.A.A. Goods, net (Trade Balance)Goods, net (Trade Balance)Goods, net (Trade Balance)Goods, net (Trade Balance)Goods, net (Trade Balance)Export f.o.bImport f.o.b

B.B.B.B.B. Services (net)Services (net)Services (net)Services (net)Services (net)

C.C.C.C.C. Income (net)Income (net)Income (net)Income (net)Income (net)

D.D.D.D.D. Current Transfers (net)Current Transfers (net)Current Transfers (net)Current Transfers (net)Current Transfers (net)

II. Capital and Financial Account

A.A.A.A.A. Capital AccountCapital AccountCapital AccountCapital AccountCapital Account

B.B.B.B.B. Financial AccountFinancial AccountFinancial AccountFinancial AccountFinancial Account

1. Direct InvestmentAbroad (net)Domestic (FDI), (net)

2. Portfolio InvestmentAsset (net)Liability (net)

3. Other InvestmentAsset (net)Liabiliaty (net) 2)

III. Total (I + II)

IV. Errors and Omissions

V. Overall Balance (III + IV)

VI.Monetary Movements 3)

Changes in Reserves Assets 3)

a.l. Transactiona.l. Transactiona.l. Transactiona.l. Transactiona.l. Transaction

IMF:IMF:IMF:IMF:IMF:PurchasesRepurchases

Memorandum:Reserve Assets Posistion 4)

Current Account (% GDP)Debt Service Ratio (%) 5)

a.1. Government Related &Monetary Authorities 6)


38

Notes :

1) Index quarterly changes.

CPI Calculated based on 2002 prices (2002 = 100).

* Started in 1 Juli 2008, CPI Calculated based on 2007 prices (2007 = 100), quarter II-2008 data is mtm inflation data (month to month) June 2008

Sources: BPS-Statistic Indonesia (processed)

4.604.604.604.604.60 0.540.540.540.540.54 1.271.271.271.271.27 6.056.056.056.056.05 3.713.713.713.713.71 -1.21-1.21-1.21-1.21-1.21 4.004.004.004.004.00 4.434.434.434.434.43 5.915.915.915.915.91 1.281.281.281.281.28 4.754.754.754.754.7516.54 -0.58 2.60 8.63 12.16 -6.50 0.69 3.48 2.59 2.11 0.60-0.03 3.50 5.62 -0.25 -2.93 5.12 9.08 -2.04 4.14 0.29 13.941.54 0.29 3.66 1.46 1.37 -2.71 4.65 2.11 5.84 2.01 12.120.16 2.22 2.72 1.64 0.35 0.39 3.06 0.73 7.87 1.84 8.04

-2.18 2.48 1.96 2.55 -1.02 4.05 11.46 0.26 6.88 -0.19 8.943.77 -2.28 1.00 11.87 -0.30 -1.04 2.17 7.39 2.42 1.68 3.790.95 0.11 1.73 1.72 3.81 2.61 4.49 7.90 28.51 1.84 5.933.21 0.16 0.50 4.46 2.21 1.39 2.87 1.79 1.38 0.89 7.303.23 -1.21 -13.98 24.41 -3.70 -8.06 -0.43 25.17 2.85 -0.07 -10.49

-0.65 0.38 1.41 3.65 8.63 12.79 7.09 6.71 15.72 1.47 -1.65-0.63 0.85 4.36 3.13 1.32 1.50 0.75 -1.47 2.02 1.00 3.57

2.192.192.192.192.19 1.001.001.001.001.00 0.800.800.800.800.80 2.242.242.242.242.24 1.891.891.891.891.89 1.191.191.191.191.19 1.331.331.331.331.33 1.851.851.851.851.85 4.024.024.024.024.02 1.331.331.331.331.33 2.622.622.622.622.622.13 0.91 0.96 2.25 1.67 1.00 1.35 2.36 5.50 1.63 2.833.01 0.87 0.31 1.95 1.75 0.20 0.46 -0.20 1.47 1.06 2.151.93 1.23 0.86 2.59 2.24 2.60 1.85 2.28 1.89 0.73 2.60

1.621.621.621.621.62 1.051.051.051.051.05 0.780.780.780.780.78 1.301.301.301.301.30 1.811.811.811.811.81 0.750.750.750.750.75 1.271.271.271.271.27 0.970.970.970.970.97 2.792.792.792.792.79 1.141.141.141.141.14 3.583.583.583.583.582.19 1.40 0.98 1.73 2.12 0.83 1.11 1.58 2.22 1.67 2.160.73 0.58 0.34 0.56 1.69 0.15 1.92 -0.45 4.69 -0.12 8.940.64 0.72 0.67 0.78 1.20 0.52 0.57 1.05 1.45 0.97 1.661.87 0.92 0.99 0.99 1.70 1.79 1.61 1.30 2.71 0.86 1.71

1.611.611.611.611.61 2.662.662.662.662.66 0.570.570.570.570.57 1.841.841.841.841.84 0.720.720.720.720.72 0.390.390.390.390.39 2.342.342.342.342.34 4.784.784.784.784.78 4.304.304.304.304.30 0.490.490.490.490.49 0.770.770.770.770.771.25 0.77 0.80 1.81 0.37 0.29 1.29 1.70 0.81 0.27 3.020.86 0.69 0.69 1.41 0.10 0.71 0.94 1.45 0.68 0.46 2.151.18 0.56 1.00 1.35 0.50 0.32 1.34 0.86 0.56 0.64 2.133.13 8.78 -0.22 2.47 2.09 0.35 5.53 13.60 12.66 0.59 -2.46

1.861.861.861.861.86 1.421.421.421.421.42 0.700.700.700.700.70 1.761.761.761.761.76 1.391.391.391.391.39 0.710.710.710.710.71 1.031.031.031.031.03 1.121.121.121.121.12 3.003.003.003.003.00 0.830.830.830.830.83 1.641.641.641.641.642.08 1.61 0.94 3.70 1.92 0.45 0.32 0.44 5.12 0.47 1.071.03 0.93 -0.19 0.18 1.32 0.82 1.08 1.46 1.96 1.31 2.191.94 1.03 0.84 0.80 1.16 1.85 0.61 0.73 1.15 1.10 2.362.11 1.43 0.77 0.72 1.46 0.80 1.56 1.52 2.32 0.90 1.76

0.030.030.030.030.03 0.410.410.410.410.41 7.447.447.447.447.44 0.200.200.200.200.20 0.360.360.360.360.36 0.010.010.010.010.01 7.977.977.977.977.97 0.430.430.430.430.43 0.140.140.140.140.14 0.440.440.440.440.44 3.773.773.773.773.77-0.76 0.02 11.41 0.12 0.46 0.03 12.73 0.36 0.09 0.18 6.762.40 0.19 2.31 0.23 1.04 0.26 0.87 0.48 0.72 0.45 4.950.45 1.79 3.61 0.27 0.36 0.36 1.58 0.66 0.30 0.72 1.141.70 0.82 0.06 0.28 0.13 -0.23 0.01 0.64 0.20 0.92 0.510.83 0.54 1.19 0.88 0.79 0.36 0.35 2.23 0.47 0.20 0.91

0.240.240.240.240.24 0.350.350.350.350.35 0.080.080.080.080.08 0.350.350.350.350.35 0.220.220.220.220.22 0.460.460.460.460.46 0.150.150.150.150.15 0.420.420.420.420.42 0.370.370.370.370.37 8.728.728.728.728.72 0.920.920.920.920.920.07 0.37 0.02 0.33 0.24 0.60 0.00 0.49 0.27 12.98 1.03

-0.02 0.02 -0.01 -0.01 0.05 0.01 -0.02 0.00 0.01 -0.12 0.021.89 1.09 1.26 1.56 0.50 0.24 2.43 1.27 1.40 0.84 1.345.36 0.45 0.05 0.01 0.01 0.01 0.00 0.00 4.90 0.01 3.89

1.981.981.981.981.98 0.870.870.870.870.87 1.161.161.161.161.16 2.442.442.442.442.44 1.911.911.911.911.91 0.170.170.170.170.17 2.282.282.282.282.28 2.092.092.092.092.09 3.413.413.413.413.41 2.462.462.462.462.46 2.882.882.882.882.88

2006 2007 2008

I II III IV I II III IV I II* III

I. FoodA. Cereal and ProductB. Meat and Meat ProductC. Fresh FishD. Dried FishE. Egg and MilkF. VegetablesG. Beans and NutsH. FruitsI. SpeciesJ. Fat and OilK. Others

II. Prepared Food, Beverage, Cigarettesand ClovesA. Prepared FoodB. Non-alcoholic-BeverageC. Cigarettes. Cloves. and Alcoholic Beverage

III. HousingA. Home Owner CostB. Fuel. Electricity. and WaterC. Household EquipmentD. Household Operation

IV. ClothingA. Clothing for MenB. Clothing for WomenC. Clothing for ChildrenD. Personal Effect and Other Clothing

V. HealthA. Medical Care and MedicineB. MedicineC. Personal CareD. Personal Care and Cosmetics

VI. Education, Culture, Sport, andEntertainmentA. EducationB. Courses and TrainingC. Education EquipmentD. RecreationE. Sport

VII. Transportation and CommunicationA. TransportationB. Communication and DeliveryC. Transport FacilityD. Financial Service

GENERAL

Table 7

Inflation Rate by Group of Goods and Services

(Percent)1)

Sub Group

Statistics

39

4.02 1.49 1.09 4.45 2.16 -2.16 5.34 -1.05 4.84 4.38 2.921.24 2.54 2.64 2.81 4.61 -1.67 5.85 1.94 3.49 2.75 1.361.34 0.71 2.74 4.93 1.92 -2.34 3.76 2.51 4.65 2.53 1.27

-2.17 0.83 1.90 1.07 6.92 -0.29 1.15 2.69 4.63 2.31 3.06-0.10 0.40 1.68 4.01 2.98 -0.55 3.78 1.97 3.07 2.88 1.371.41 0.29 0.85 3.31 1.63 -0.51 1.96 3.23 2.19 2.07 1.211.17 0.71 0.93 5.07 3.68 -1.96 2.06 3.05 4.35 4.09 2.040.73 0.89 1.21 3.36 3.67 -1.49 1.92 3.31 4.15 2.46 3.170.66 -0.40 2.30 1.97 1.40 -0.34 2.15 1.56 2.91 2.29 1.721.38 1.20 1.61 6.14 3.17 -1.22 2.57 2.75 2.16 4.19 1.762.43 0.57 0.96 4.27 0.64 0.85 3.23 3.28 3.11 3.41 3.200.10 1.32 1.23 3.76 1.36 -0.88 3.10 1.37 4.09 4.14 3.612.49 0.43 0.69 2.31 0.71 0.12 3.40 2.22 3.29 2.93 4.953.39 -0.16 2.16 0.93 2.62 -0.98 0.67 0.33 6.53 4.20 4.26

- - - - - - - - - 3.80 3.04- - - - - - - - - 2.45 3.33

2.30 0.33 1.21 2.07 1.95 0.51 1.85 1.61 3.51 1.94 -1.45 0.99 2.23 3.53 3.73 -0.04 1.65 2.20 2.57 2.54 -

- - - - - - - - - 2.21 -- - - - - - - - - 3.04 3.21- - - - - - - - - 2.11 0.88- - - - - - - - - 1.15 2.38- - - - - - - - - 2.80 3.42- - - - - - - - - 1.24 3.82- - - - - - - - - 2.45 3.49

1.53 0.57 1.26 1.87 1.13 -0.26 2.48 1.82 2.81 2.76 2.281.48 -0.12 0.63 4.23 3.24 0.15 2.22 2.06 3.52 3.33 4.042.14 1.36 2.21 2.48 2.22 1.33 2.21 0.26 3.60 2.75 3.532.43 0.85 0.36 2.41 1.19 -0.34 0.99 1.42 2.74 2.13 1.742.03 0.87 1.48 1.57 2.37 0.52 1.98 1.72 4.18 2.40 2.832.15 0.71 1.48 3.19 1.66 1.24 2.84 2.88 2.72 1.82 2.362.54 2.54 2.52 2.42 1.86 0.18 3.17 2.59 2.85 2.51 -1.78 1.52 0.70 2.68 1.26 0.78 2.13 2.91 2.73 3.46 -

- - - - - - - - - 1.62 2.832.48 1.19 0.80 3.11 2.50 -0.11 1.55 2.76 2.94 2.11 3.102.17 1.27 0.60 1.76 1.30 0.13 2.12 2.28 4.06 2.77 2.93

- - - - - - - - - 1.81 3.85- - - - - - - - - 4.05 2.27

2.15 0.99 0.81 2.61 1.09 0.90 2.02 2.12 3.59 2.00 2.562.44 0.56 -0.12 1.37 2.19 0.29 1.36 1.95 3.35 1.78 -1.63 0.61 -0.05 1.93 3.59 1.00 1.14 2.78 3.23 3.21 -

- - - - - - - - - 4.94 3.16- - - - - - - - - 2.24 6.66

4.81 0.46 0.86 3.32 5.29 -0.39 0.90 2.47 3.33 2.31 -2.19 0.98 1.72 1.29 2.56 1.14 2.12 2.49 4.21 2.27 -

- - - - - - - - - 2.94 2.731.59 3.94 0.30 1.74 0.81 0.39 1.84 4.38 1.60 2.87 -0.49 3.68 -0.52 3.94 0.62 -0.14 2.38 4.95 4.48 2.22 -1.31 6.15 0.10 3.14 3.29 -0.66 2.60 2.39 4.12 2.48 -2.53 1.90 -0.06 1.05 0.81 0.39 4.54 1.40 3.75 2.88 -1.43 1.87 2.44 0.61 1.72 0.52 4.84 1.85 3.97 3.32 -

2006 2007 2008

I II III IV I II III IV I II* III

1. Lhokseumawe2. Banda Aceh3. Padang Sidempuan4. Sibolga5. Pematang Siantar6. M e d a n7. Padang8. Pekanbaru9. Batam10. Jambi11. Palembang12. Bengkulu13. Bandar Lampung14. Pangkal Pinang15. Dumai16. Tanjung Pinang17. Jakarta18. Tasikmalaya19. Serang20. Tangerang21. Cilegon22. Bogor23. Sukabumi24. Bekasi25. Depok26. Bandung27. Cirebon28. Purwokerto29. Surakarta30. Semarang31. Tegal32. Yogyakarta33. Jember34. Sumenep35. Kediri36. Malang37. Probolinggo38. Madiun39. Surabaya40. Denpasar41. Mataram42. Bima43. Maumere44. Kupang45. Pontianak46. Singkawang47. Sampit48. Palangka Raya49. Banjarmasin50. Balikpapan51. Samarinda

Table 8

Inflation Rate Contribution in 44 Cities

(Percent)1)

C i t i e s


40

Notes :

1) Index quarterly changes.

CPI Calculated based on 2002 prices (2002 = 100).

* Started in 1 Juli 2008, CPI Calculated based on 2007 prices (2007 = 100) with total 66 cities, quarter II-2008 data is mtm inflation data (month to month) June 2008

Sources: BPS-Statistic Indonesia (processed)

Table 8

Inflation Rate Contribution in 44 Cities (cont.)

(Percent)1)

- - - - - - - - - 2.48 5.541.52 0.05 2.15 1.29 3.34 -0.43 3.45 3.46 1.04 3.63 3.022.54 2.92 1.23 1.74 0.60 1.87 1.60 3.84 1.49 2.44 5.01

- - - - - - - - - 6.26 3.622.79 2.01 1.58 0.66 2.28 0.51 3.38 -0.54 4.45 3.39 -

- - - - - - - - - 2.76 4.21- - - - - - - - - 3.15 3.50

1.93 3.12 2.29 2.97 1.94 2.20 0.15 2.94 2.91 6.49 3.302.56 -0.99 2.34 3.48 -1.24 0.46 3.22 4.51 -0.04 2.59 4.01

- - - - - - - - - 3.04 5.860.96 3.00 -0.47 1.25 1.77 0.51 2.38 1.07 2.92 1.76 5.062.54 -0.04 0.82 1.72 2.39 2.06 0.44 5.21 4.71 1.17 4.30

- - - - - - - - - 5.78 8.31- - - - - - - - - 5.72 7.29

2.85 2.47 1.57 2.31 4.93 0.15 0.52 4.45 6.49 5.86 2.88

1.981.981.981.981.98 0.870.870.870.870.87 1.161.161.161.161.16 2.442.442.442.442.44 1.911.911.911.911.91 0.170.170.170.170.17 2.282.282.282.282.28 2.092.092.092.092.09 3.413.413.413.413.41 2.462.462.462.462.46 2.462.462.462.462.46

2006 2007 2008

I II III IV I II III IV I II* IIIC i t i e s

52. Tarakan53. Manado54. P a l u55. Watampone56. Makassar57. Parepare58. Palopo59. Kendari60. Gorontalo61. Mamuju62. Ambon63. Ternate64. Manokwari65. Sorong66. Jayapura

NASIONALNASIONALNASIONALNASIONALNASIONAL

Statistics

41

Notes :1) Index quarterly changes.

Wholesale Price Index (WPI) calculated based on 2002 prices (2002 = 100).*) August 2008Sources : BPS-Statistic (processed)

-1.27 0.68 1.62 3.34 2.92 0.23 10.75 1.75

-0.34 0.59 0.02 -6.04 -8.54 -4.12 -20.17 -3.12

0.62 -3.34 0.12 2.31 3.66 2.57 7.08 1.28

2.54 0.77 1.10 3.01 2.57 0.86 7.72 1.97

1.26 9.77 1.18 3.10 3.91 2.90 6.75 2.35

3.20 1.55 2.34 6.67 7.32 2.26 21.16 4.37

-1.29 0.35 0.60 3.41 4.68 0.89 13.39 1.80

1.84 1.02 0.52 0.34 -1.48 2.42 -9.47 0.18

3.80 3.00 8.04 9.11 10.73 4.61 24.20 8.02

0.00 0.70 1.34 0.69 1.43 0.00 5.13 1.38

2.76 0.70 1.32 6.85 9.15 3.28 20.49 4.08

4.03 13.19 22.22 0.64 -3.87 2.38 -13.77 9.15

3.87 0.61 1.60 -0.64 -1.34 -4.65 3.29 -1.20

4.97 1.83 2.11 5.13 8.84 6.50 13.64 4.85

5.33 2.40 2.58 0.61 0.00 2.29 -3.60 2.31

6.74 3.51 1.51 1.82 -5.00 1.49 -16.18 0.56

6.32 3.39 3.47 3.57 2.63 3.68 1.49 3.93

2.97 1.64 3.35 5.75 7.05 2.84 14.63 4.32

7.69 1.61 3.70 3.26 1.80 -0.69 6.38 3.63

7.59 3.70 5.80 11.05 10.00 2.08 24.40 8.50

7.05 4.08 7.17 6.64 5.88 5.44 6.43 6.45

7.75 10.78 12.60 15.56 14.14 5.16 28.10 12.55

4.32 3.54 1.75 -4.62 -0.88 1.23 -3.30 0.38

2003

Qtr.I

Qtr.II

Qtr.III

Qtr.IV

2004

Qtr.I

Qtr.II

Qtr.III

Qtr.IV

2005

Qtr.I

Qtr.II

Qtr.III

Qtr.IV

2006

Qtr.I

Qtr.II

Qtr.III

Qtr.IV

2007

Qtr.I

Qtr.II

Qtr.III

Qtr.IV

2008

Qtr.I

Qtr.II

Qtr.III*

Table 9

Changes of Wholesale Price Index

(Percent) 1)

End of Agriculture Mining Industry Import Export General

Period Total Non oil/gas Oil/gas

bank indonesiabank indonesia the monetary policy report is published quarterly by bank indonesia...

Documents