economic social update.presentation nus

8/14/2019 Economic Social Update.presentation NUS

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Economic and Social UpdateEconomic and Social UpdateApril 2008April 2008

William E. Wallace, Lead EconomistWilliam E. Wallace, Lead EconomistWorld Bank, IndonesiaWorld Bank, Indonesia

April 1, 2008April 1, 2008


2/22

Indonesia had sustained GDP growth inIndonesia had sustained GDP growth in

20072007

-2

0

2

4

6

2001 2002 2003 2004 2005 2006 2007

-2

0

2

4

6

%

Sources: BPS; World Bank seasonal adjustment

Year-on-year

Quarterly(seasonally adjusted)

%


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Largely on domestic driversLargely on domestic drivers

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2005 2006* 2007*

-24%

-12%

0%

12%

24%

36%

48%

Total GDP

(LHS)Net Exports

RHS

Investment

RHS

Consumption

RHS


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With capital goods and construction up &With capital goods and construction up &

consumption rebounding on falling interestconsumption rebounding on falling interest

ratesrates

-10%

0%

10 %

20 %

30 %

40 %

50 %

2004 2005 2006 2007

-3 %

0%

3%

6%

9%

12 %

15 %

SBI 1 month ra(RHS)

Tota l nomina l consum

growth(y-o-y, LHS)

Consum pt ion cre

growth(y-o-y, LHS)

Total real consumption gro(quarterly, seasonally adjusted; RH

Investment(percentage change)

-40%

-20%

0%

20%

40%

60%

80%

2003 2004 2005 2006 2007

Imported

capital goods

Domestic

Construction

Investment(quarterly, SA)

Consumption

(percentage change)


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Which, in turn, supported a turn around inWhich, in turn, supported a turn around in

employment growthemployment growth(and reduced unemployment)

3%

6%

9%

12%

15%

2000 2001 2002 2003 2004 2005 2006 2007

-10%

-5%

0%

5%

10%

Unemployment(LHS)

Source: BPS

Employment growth(RHS)


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Trends continuedTrends continued

and services & Utilities continued strongand services & Utilities continued strong

while tradables were mixedwhile tradables were mixed

-2

0

2

4

6

8

10

Q1

05

Q2

05

Q3

05

Q4

05

Q1

06

Q2

06

Q3

06

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Agriculture Transport Construct'nManu Trade, restaur. Finance

Mining Utilities Services

Tradables Non-tradables

TradablesNon-

tradables

%

Total

GDP


7/22

Domestic economy is drawing in imports;Domestic economy is drawing in imports;

while higher commodity prices supported exportswhile higher commodity prices supported exports

25

Growth (Year-on-year percentage chang

-10

0

10

20

30

40

Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07

Non-oil

Exports

**Preliminary

Source: BPS Trade Statis tik

Non-oil

Imports

**

**


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But Indonesian exports are becoming lessBut Indonesian exports are becoming less

dependent on the USdependent on the US

(and more on China and India)(and more on China and India)

Marke t Sh are in N on-Oil/Ga s E

1

3

5

7

9

1 1

1 3

1 5

1 7

1 9

2 0 00 2 00 1 2 00 2 2 00 3 2 0 04 20 05 2 0 06 2 0 0 7

%

China India Japan

M alay s ia S ingapore United S tat

C ontribu t ion to Grow th of N on-Oil

0

2

4

68

10

12

14

16

18

20

C hin a In dia Ja pa n Ma laysiaS in ga po re Un ite d

States

%

20 0 4 2 0 0 5 20 0 6 20 0 7

A d di i d I d i kA d diti d I d i t k


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And commodities drove Indonesias stockAnd commodities drove Indonesias stock

market to one of the best performances inmarket to one of the best performances in

the worldthe world

80.00

100.00

120.00

140.00

160.00

180.00

200.00

220.00

240.00

260.00

Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08

Jakarta Stock Exchange (JSE)

MSCI Emerging

Market

MSCI Developed Market

Equity Price Indices

1/2/2006=100


10/22

u c a enges are moun ng as ou c a enges are moun ng as opricesprices

put pressure on fiscal policyput pressure on fiscal policy

Central government balancePercent of GDP

10%

13%

16%

19%

22%

2000 2001 2002 2003 2004 2005 2006 2007*2008**

-6%

-3%

0%

3%

Realized(RHS)

Proposed(RHS)

Expenditure(LHS)

Revenue

(LHS)

Balance(RHS)

Central government debtPercent of GDP

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007

S.O.E.s

Commerical

Export credit

Multilateral

BilateralDomestic


11/22

And energy subsides risk crowdingAnd energy subsides risk crowding

out other spendingout other spending

(and distorting incentives)(and distorting incentives)

0%

10%

20%

30%

40%

50%

1 2 3 4 5 6 7 8 9 10

Poor Household consumption decile Rich

0

60

120

180

Subsidies Capital investment Social assistance

Electicity

Fuel

Source: Ministry of Finance, 2008 RAPBN-P. Assumes oil at US$95.


12/22


13/22

While other commodity pricesWhile other commodity prices

feed into domestic food costsfeed into domestic food costs

(with rice an exception)(with rice an exception)

1,000

2,000

3,000

4,000

5,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

International

prices(Vietnamese, 25%

broken, cif)

IDR

Domestic

wholesale price

Import

ban

0

5

10

15

2004 2005 2006 2007 2008

Core

Food

Headline

CPI inflation

Year-on-year percentage change

Wholesale & international rice prices


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And borrowing spreads are rising, butAnd borrowing spreads are rising, butremain low in historical perspectiveremain low in historical perspective

Source: Bloomberg

20

30

40

50

60

70

80

90

100

110

120

Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08

JP Morgan US High Yield Spreads

EMBI Global

Indonesia Bond

Spread over US

Emerging Market Spreads, January 2003=100


15/22

And International conditions continue toAnd International conditions continue to

deterioratedeteriorate

-6

-3

0

3

6

9

2000M1 2002M1 2004M1 2006M1 2008M1

Industrial production growth, year on year (%)

OECD leading

indicator

OECD IP

Source: World Bank, DECPG.


16/22

The global outlook for 2008The global outlook for 2008Prelim. Projected

2005 2006 2007 2008

Real GDP growth (annual % change):World3.4 3.9 3.6 2.7

OECD2.4 2.8 2.5 1.5

United States3.1 2.9 2.2 0.4-1.4

Japan1.9 2.2 2.1 1.5

Euro Area1.5 2.8 2.7 1.6

Developing East Asia Pacific9.1 9.7 10.2 8.8

World trade (% change in

volume)

7.8 10.1 9.2 4.5

CPI inflation G7 (% change) 2.0 2.0 1.7 1.7

Oil Price (USD per barrel)* 53.4 64.3 71.2 86.8

Non-oil commodity prices (%change)

13.4 24.5 -0.7 13.4

* Simple average of spot prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil.Source: World Bank Development Economics Prospects Group (preliminary, March 2008)

But developing and high income countryBut developing and high income country


17/22

But developing and high-income countryBut developing and high-income countrygrowthgrowth

has been diverginghas been diverging

-1

0

1

2

3

4

5

6

7

8

9

1962 1967 1972 1977 1982 1987 1992 1997 2002 2007

Developing countries

High-income countries


eve op ng coun r es prov ngeve op ng coun r es prov ng


18/22

eve op ng coun r es prov ngeve op ng coun r es prov ngmore momentum especially to trademore momentum especially to trade

growthgrowth

-5

0

5

10

199 1M1 1993 M1 1995M1 1997M1 1999M1 2001M1 2003M1 2005M1 2007M1

United States

Developing countries


Contribution to global nominal import growth in US$, year on year (%-points


19/22

But Indonesian growth to slowBut Indonesian growth to slow

moderatelymoderatelyThe outlook for the Indonesia economy

2006 2007 2008 2009

GDP growth 5.5 6.3 6.0 6.4

NIA real export growth 9.4 8.0 7.0 8.6

Fixed investment growth 2.5 9.2 10.5 10.0

BOP Current account (% of GDP) 2.7 2.5 1.7 0.9BOP Capital account (% of GDP) 0.7 1.4 1.3 1.6

Foreign reserves (Bill.$) 42.6 52.9 71.8 87.0

Central government bal. (% of GDP) -0.9 -1.3 -2.2 -2.1

Government debt (% of GDP) 39.6 34.4 31.9 30.3

CPI Inflation (%) 13.1 6.6 6.5 5.5

Key policy interest rate (1 m SBI) 12.0 8.0 7.5 7.25


20/22

Overview Indonesia

2007 was a good year Solid output growth Accelerating investment and Better employment outcomes.

And there are strengths going forward Domestic momentum from credit expansion and growing infrastructure

investment. Relatively smaller trade shares (i.e. more focus on the domestic economy)

with trade concentrated in commodities where prices are expected tocontinue relatively strong

Reduced government debt exposure (


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Thank You!Thank You!

While growth and investment have fed into


22/22

While growth and investment have fed intohigher imports and commodity prices supported

exports

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