koeberle-capital inflow into indonesia
TRANSCRIPT
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Capital inflows into IndonesiaManaging risks, maximizing opportunities
Stefan Koeberle
Indonesia Country Director
March 11, 2011
BI-IMF-BKPM Conference on Managing Capital Flows
Bali, Indonesia
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Capital flows into Indonesia
,
,
inflows in the last two years and much of it has come in the form of PORTFOLIO inflows
which have benefited Indonesia but do raise macroeconomic and
prudential concerns and exposure to future disruptive outflows
These portfolio flows have to be MANAGED, NOT DISCOURAGED
-
STABLE forms of financing and this will entail:
DEEPENING Indonesias financial markets
Attracting further FOREIGN DIRECT INVESTMENT by:
Addressing INFRASTRUCTURE bottlenecks
Enhancing REGULATORY TRANSPARENCY and CERTAINTY
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Capital flows into Indonesia
,
,
inflows in the last two years and much of it has come in the form of PORTFOLIO inflows
which have benefited Indonesia but do raise macroeconomic and
prudential concerns and exposure to future disruptive outflows
These portfolio flows have to be MANAGED, NOT DISCOURAGED
-
STABLE forms of financing and this will entail:
Deepening Indonesias financial markets
Attracting further foreign direct investment by:
Addressing infrastructure bottlenecks
Enhancing regulatory transparency and certainty
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Capital inflows have increased sharply
USD billion USD billion
25
30
25
30
Net Other Net portfolio
10
15
10
15
Net FDI Financial account
-5
0
5
-5
0
5
-15
-10
-15
-10
2005 2006 2007 2008 2009 2010
Source: BI
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Portfolio inflows into Indonesia
Source: CEIC, BI, BPS
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Portfolio flows into Indonesia
Source: CEIC, BI, BPS
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Portfolio flows into Indonesia
Source: CEIC, BI, BPS
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Portfolio flows into Indonesia
Local currency government bond yields (5-year)
1515
Indonesia
1010India
Philippines
55MalaysiaThailand
00
Feb-09 Aug-09 Feb-10 Aug-10 Feb-11
United States
Source: CEIC, World Bank
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Portfolio flows into Indonesia
Index Jan09=100 Index Jan09=100
250250
JCI
200200BSE
100
150
100
150SET
Shanghai
5050
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
SGX
Source: CEIC, World Bank
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Portfolio flows into Indonesia
With the majority of portfolio flows going into government securities
USD billion USD billion
2.5
5.0
100
125
0.075
-5.0
-2.5
25
50
-
Reserves (LHS)
-7.50
Jan-08 Jan-09 Jan-10 Jan-11
Equities SUN SBI
,
Source: BI, CEICNote: Flows for SUN (government securities) and SBI (BI certificates) indicate change in holdings
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Foreign reserves have gone up
-
Non-resident SBIholdings
Sep 2008 May 2010
Non-resident equity
holdings
gov. securities holdings)
Total FX Reserves
-Debt*
Note: * External debt is as of end-Dec 2010. Short-term debt on remaining maturity basis
0 20 40 60 80 100 120 140USD billion
, ,
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Capital flows into Indonesia
,
,
inflows in the last two years
and much of it has come in the form of PORTFOLIO inflows
which have benefited Indonesia but do raise macroeconomic and
prudential concerns and exposure to future disruptive outflows
These portfolio flows have to be MANAGED, NOT DISCOURAGED
-
STABLE forms of financing and this will entail:
Deepening Indonesias financial markets
Attracting further foreign direct investment by:
Addressing infrastructure bottlenecks
Enhancing regulatory transparency and certainty
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Indonesias financial sector
FinanceSecurities firms
1%
Insurancecompanies
companies
5%
u ua un s2%
Rural
insurance,pawnshop, VC
2%
Pension funds4%
6%
an s(Commercial &
Sharia)80%
Sources: Bank Indonesia, Bapepam -LK, and World Bank
Share (%) of assets
in different categories of financial institutions
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Indonesias financial sector
Sources: ADB Asian Bonds Online
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Financial markets reforms
Deepen Financial Markets
Share of pensions funds and insurance funds assets in Indonesia verylo
These are typically long-term investors with domestic resources andcan help absorb rupiah liquidity
Issue lon -term cor orate and infrastructure bonds
Short-term portfolio flows can be converted to long-term flows byissuance of higher yielding long-term bonds
However, this requires improvements in corporate governance,disclosure, legal certainty for enforcement of creditor rights, andimproved bankruptcy procedures a medium-long term agenda
Harmonize tax treatment
At present domestic investors investing in Indonesian securities have
to pay higher taxes than foreign investors investing in the samesecurities
In an environment of an open capital account, this creates incentivesfor round-tripping Indonesian money going abroad and coming
Leveling the playing field will help address this issue
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Foreign direct investment into Indonesia
Risin but still relativel low in com arative terms
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Attracting foreign direct investment
,
Building world-class cities by investing in urban infrastructure (mass transport,
housing, water and sanitation) in the key cities that drive Indonesian
Easing transport and logistics bottlenecks and connecting and integrating
Indonesias domestic markets and regions
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Attracting foreign direct investment
Country Main
Airport
Optimum
Passenger (mil)
Optimum
Cargo (tons)
Country
Main
Seaports
Container
handling (box
per hour)
Vessel
berthing
(h)
Vessel
waiting
(h),
Manila 25 600,000
Kuala Lumpur 40 1,200,000
Bangkok 45 3,000,000
Jakarta 23.3 50-57 2
Surabaya 10 65 2
Thailand
(LC)
35 8 0.4
Singapore 73 3,000,000
Source: PT Angkasa Pura II, other airports, media reports(Standard Chartered)
Manila 28 NA NA
Singapore 31.3 Varies 2
Source: ASEAN Ports Association (Standard Chartered)
5.354.93
1.84
6.12Time to import
5.12
2.14
3.36
1.55
3.28
.
With physicalinspection
inspection
Source: LPI 2010 (World Bank)
1 2 4 8
Lower middle income East Asia & PacificIndonesia
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Attracting foreign direct investment
Source: World Bank-LPEM-UI firm-level investm ent climate s urveys.
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Attracting foreign direct investment
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Attracting foreign direct investment
Enhancin re ulator trans arenc and certaint 2007 INVESTMENT LAW
Covers both domestic and foreign investment and aims to provide greater
legal certainty
Provides for national treatment and potentially greater land use rights and
longer work permits for foreign personnel
Reduction in administrative burdens through creation of an integrated one-
stop licensing facilities
Opens all sectors to foreign and domestic investment unless contained on
investment negative list a or s ep orwar , u ..
New investment negative list (DNI) although more transparent also appears
more restrictive than in past
inconsistencies between Investment Law and other laws and ministerial
decrees
Disconnect between INTENT and IMPLEMENTATION of investment policy
Need for a REGULATORY REFORM COMMISSION with a broad mandate and
authority to balance interests, address policy, coordination and implementationissues
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Capital flows into Indonesia
,
Portfolio flows have to be MANAGED NOT DISCOURAGED, but this is
admittedl challen in when a countr has a convertible currenc and
an open capital account
The medium-term response should therefore be to SUPPLEMENT
Deepening financial markets
Attracting foreign direct investment
Institutional development, ability to adapt fiscal and monetary policies,
and coordination are all essential
A number of institutions and agencies need to work togetherno single
institution can do this alone
A common shared objective and vision is critical