indonesia economic quarterly -...
TRANSCRIPT
Indonesia Economic Quarterly Current challenges, future potential
Shubham ChaudhuriIndonesia Lead EconomistWorld Bank
28 June 2011BKPM, Jakarta
OutlineWhat I will be talking about
Indonesia’s economic outlook Strong recent performance and even greater future potential
What is the plan to get there? The Master Plan 2011-2025
What are the current challenges? Relating to energy subsidies, food prices and financial markets
How to reach Indonesia’s potential and deliver on the ambitions of the Master Plan? Implementation is the key – prioritization, coordination,
financing
Indonesia’s economic outlook
Indonesia’s economic outlookPositive recent growth performance…
GDP growth in Q1 2011 moderated but was still 6.5 percent year-on-year. Growth projections for 2011 and 2012 are 6.4 percent and 6.7 percent
Source: Thomson Financial Datastream
-10
-5
0
5
10
15
-10
-5
0
5
10
15
2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1
Indonesia China India Malaysia Philippines ThailandPercent, yoy
Indonesia’s economic outlook …plus record balance of payment inflows…
Note: Errors and omissions not shownSource: BI
The overall balance of payment inflows in Q1 reached USD 7.7 billion, the second highest on record
-8
-4
0
4
8
12
-8
-4
0
4
8
12
Mar-05 Mar-07 Mar-09 Mar-11
Current account Net portfolioNet direct investment Net otherOverall balance
USD billion
Indonesia’s economic outlook …and an upward trend in FDI inflows …
0
1
2
3
4
5
0
1
2
3
4
5
2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1
Quarterly net FDI inflows
4-quarter rolling average
USD billion USD billion
Source: BI
Indonesia’s economic outlook …attracted by Indonesia’s economic potential
Source: World Bank staff projections
What is the plan to reach Indonesia’s economic potential?
The plan to reach Indonesia’s potentialThe Master Plan 2011-2025…
“Plantations Production and Processing Center and National
Energy Reserve"
“Mining Production and Processng Center and
National Energy Reserve"
“National Plantation, Agriculture, and Fisheries Production and Processing
Center''
Sumatera CorridorKalimantanCorridor Sulawesi Corridor
'‘National Tourism Gate and National Food
Support''
“National Industry and Services Booster"
“Abundant Natural Resources Processing and
Prosperous Human Resources"
Jawa CorridorBali Nusa Tenggara Corridor
Papua Corridor
Source: Coordinating Ministry for Economic Affairs “Acceleration and Expansion of Indonesia’s Economic Development Master Plan 2011-2025”
The plan to reach Indonesia’s potential ..aims to increase investment…
The plan to reach Indonesia’s potential ..and reverse the decline in infrastructure spending…
Infrastructure investment to GDP has yet to recover from the post-1997/1998 crisis declines
Source: MoF, World Bank, PPI database, company reports, BPSmarket, FAO
0
2
4
6
8
0
2
4
6
8
1994-1997 1998-2002 2003-2006 2007-2009
Percent of GDP Percent of GDP
The plan to reach Indonesia’s potential …to improve its quality … Indonesia ranks relatively low on measures of infrastructure quality
such as in the World Economic Forum Global Competitiveness Report
Note: Brackets indicate global rankingSource: WEF Global Competitiveness Report
1 2 3 4 5 6 7
Vietnam (123)
Philippines (113)
India (91)
Indonesia (90)
China (72)
Thailand (46)
Malaysia (27)
Quality of infrastructure index (scale 1-7 where 7 is the best)
The plan to reach Indonesia’s potential …which currently is a major constraint for firms
Note: * Most recent survey conducted in 2010 but question concerned the situation in 2009. Rank amongst 22 surveyed obstaclesSources: World Bank – LPEM-UI firm level investment climate
Share of firms citing issue as major obstacle to operating and investing, percent
46
21
26
21
1 3
10
0
20
40
60
80
0
20
40
60
80
Transportation Electricity Telecom.
2005 2007 2009*
Percent (label indicates rank as obstacle)
What are the current challenges?
Current challenges Rising oil prices…
0
40
80
120
160
0
40
80
120
160
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
USD per Barrel
Indonesian CrudeOil price
Average price of Indonesian Crude Oil forJan-May 2011: USD 113
2011 Budgetassumption: USD 80
Sources: MoF, CEIC, World Bank
Current challenges …increased spending on energy subsidies…
Note: * 2010 data are non-audited outcomes. ** 2011 realized value is as projected by World Bank based on “status quo” scenarioSources: MoF, BPS, World Bank staff calculations
0
25
50
75
100
125
150
175
0
25
50
75
100
125
150
175
2004 2005 2006 2007 2008 2009 2010* 2011**
APBN Realized
Fuel subsidy expenditures, IDR trillion
WB projection for 2011
Fuel subsidy expenditures are expected again to substantially exceed the initial Budget allocation in 2011
Current challenges …imposing a high opportunity cost
Note: Data is actual expenditures. * 2010 data are non-audited outcomesSources: MoF, World Bank staff calculations
0
50
100
150
200
250
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010*
Energy subsidies
Capital expenditures
Social expenditures
IDR trillion
Current challenges Potential spillovers from Euro zone debt crisis…
Source: BI, CEIC, Thomson Financial Datastream Note: Portfolio flows are sum of non-resident purchases of equities plus changes in their holdings of SUN (government securities) and SBI (BI certificates). CDS spreads are on five year external sovereign bonds
-15
-10
-5
0
5
10
0
500
1,000
1,500
2,000
2,500
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
USD billionBasis points
Greece sovereign CDS spreads, LHS
Portfolio capital inflows into Indonesia, RHS
Current challenges …and vulnerabilities to capital flow reversals
0 20 40 60 80 100 120 140
Total FX Reserves
Short-term external debt*
Non-resident equity holdings
Non-resident local gov. securities holdings
Non-resident SBI holdings
Sep 2008
May 2010
Sept 2010
Apr 2011
USD billionNote: * short-term external debt by remaining maturity. Data denoted April is as of end-March 2011 Sources: BI, CEIC, KSEI, CEIC, MoF
Current challengesPotential for further food prices shocks…
0
2,000
4,000
6,000
8,000
10,000
12,000
0
2,000
4,000
6,000
8,000
10,000
12,000
Jan-08 Nov-08 Sep-09 Jul-10 May-11
Rice price IDR/kg (medium quality)
Domestic
International (Thai)
Sources: Jakarta wholesale markets, FAO
Current challenges…which affect poorer households the most Food accounts for more than 50 percent of expenditures for half
of the population in Indonesia
Rice alone is 17 percent of the expenditures of the poorest 20 percent of the population but just 4 percent for top 20 percent
Estimated impact of a rise in prices by 10 percent on the poverty rate
10 percent rise in price for:
Estimated increase in the poverty rate (percentage points)
Rice 1.3Food price index 3.5Gasoline 0.2Energy price index 0.4
Sources: World Bank staff calculations based on Susenas
How to reach Indonesia’s potential and deliver on the ambitions of the Master Plan?
Reaching Indonesia’s potentialPrioritization - improving connectivity
GEOGRAPHICAL distance between major cities in
Indonesia and Singapore
ECONOMIC distance within Indonesia based on SEA
transport costs
ECONOMIC distance within Indonesia based on AIR
transport costs
Reaching Indonesia’s potential Prioritization of catalytic public sector investments Requires addressing ongoing disbursement challenges for
capital expenditures
0
20
40
60
0
20
40
60
Personnel Material Capital Energy subsidies
Social Central exp.
Transfers
2008 2009 2010 2011
Percent PercentSpending in first five months as share of full-year Budget allocation
Sources: MoF, World Bank staff
Reaching Indonesia’s potential Coordination and financing … Successful implementation can also be aided by
mechanisms for: coordination across ministries and levels of government; in-depth monitoring and evaluation; ongoing adjustments to the plan as needed
How to finance the targeted USD 468 billion of investments over 2011-2025? Private sector participation is ambitious - half of the total
– and requires support from: Long-term infrastructure financing mechanisms Improvements in regulatory and legal certainty Enhancing skills (3rd pillar) and complementary “soft”
infrastructure to increase returns from investment
Indonesia Economic QuarterlyCurrent challenges, future potential
Shubham ChaudhuriIndonesia Lead EconomistWorld Bank
28 June 2011BKPM, Jakarta