IEQ - Mainting Resilience - English-Presentation
Transcript of IEQ - Mainting Resilience - English-Presentation
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 1/32
Indonesia Economic Quarterly: October 2012 Maintaining resilience
Lead Economist & Economic Advisor, Indonesia
World Bank
October 15, 2012 Paramadina Public Policy Institute
www.worldbank.org/id www.worldbank.org/indonesia
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 2/32
Outline
The contrast is striking between the global economy and Indonesia:
Global growth is weak and downside risks high
Indonesia: growth remains strong and the economy resilient…..
despite the drag of exports on growth
Looking ahead, global risks remain high and to the downside
The most significant manifestation of this is China
Question: How can Indonesia maintain its resilience?
2
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 3/32
THE GLOBAL ECONOMY remains weak
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 4/32
The global economy slowed going into H2...
- ’ …
105105
Composite leading indicatorsLong term trend=100
Euro Area
China
100100
United States
IndiaJapan
9595
9090
Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12
4
Source: OECD
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 5/32
Global economic growth should improve slightly going into 2013…
…
Real GDP growth year-on-year, percent
7.4
6.2
5.15.6
6.0 6.06
8
6
8
3.9
2.82.3 2.6
3.3 3.4
3.0 2.2 2.4 2
4
2
4
. 1.3 1.5
-2
0
-2
0
-6
-4
-6
-4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
World High-income countries Developing countries
5
Source: World Bank
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 6/32
International financial market conditions have stabilized…
… ,
Index 2 June 2008=100 VIX index
150
175150 Emerging market
equities (LHS)
100
125
100
50
75
75
Developed market equities (LHS)
VIX index
(RHS)
050
Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12
6
Source: CBOE, MSCI
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 7/32
Commodity prices generally rose in Q3
Index Jan 2000 = 100 Index Jan 2000 = 100
..
International USD commodity prices
600600
Indonesia's Major
Export Commodities
400400
Energy
200200Food
00
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
Metals and Minerals
7
Note: Price index of Indonesia’s Major Export Commodities is weighted by export shares of Coal, Gas,Palm Oil, Crude Oil, Copper and Rubber which represent 42% of Indonesia's exports
Source: World Bank and CEIC
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 8/32
THE INDONESIAN ECONOMY has been resilient despite the
headwinds
8
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 9/32
Indonesia’s growth performance in the first half of 2012 was strong…
… , - -
Real GDP growth year-on-year, percent
8
10
8
10
Indonesia
2
4
2
4
-2
0
-2
0Indonesia’s Major Trading
Partners
-6
-4
-6
-4
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12
9
Source: BPS and World Bank
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 10/32
Economic growth has been supported by strong domestic demand…
… ,
Contribution to quarter-on-quarter, seasonally adjusted real GDP growth (percentage point)
3
4
3
4
0
1
0
1
-2
-1
-2
-1
-- Jun-09 Mar-10 Dec-10 Sep-11 Jun-12
Discre anc Net Ex orts Investment Gov cons. Private cons. GDP
10
Source: BPS via CEIC and World Bank
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 11/32
Investment growth is a notable recent feature of the economy…
… - - …
Percent PercentInvestment as a share of nominal GDP
3535
Malaysia Philippines
Thailand Indonesia
2525
2020
1515
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1
11
Source: BPS, CEIC and World Bank estimates
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 12/32
Recent period of high growth and low inflation stands out…
…
1212
Percent Percent
1010
Core CPI inflation
6
8
6
8
44Real GDP growth
00
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
12
Source: BPS, BI
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 13/32
External balances are showing the effects of weak external demand …
…
Export value (LHS) Import value (LHS)Trade balance (LHS) Export growth 3mma yoy (RHS)Im ort rowth 3mma o RHS
8020
USD
billionPercent
4010
-40
0
-10
0
-80-20
Aug-08 Aug-09 Aug-10 Aug-11 Aug-12
13
Source: BI
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 14/32
The shrinking trade surplus has pulled the current account into deficit
… -
Goods trade balance Services trade balance
1515
Income balance Current transfers
USD billion USD billion
55
-
-5
-
-5
-15-15
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12
14
Source: BI
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 15/32
Overall balance of payments flows have turned negative
…
1616
Current account Overall balance
USD billion USD billion
8
12
8
12
-4
0
-4
0
-12-8
-12-8
Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
15
Source: BI
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 16/32
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 17/32
Shrinking current account balances are being seen elsewhere
…
Percent Percent
Current account balances relative to GDP
1214
1214
2011 Q3 2011 Q4
6
8
6
82012 Q1 2012 Q2
2
4
0
2
-20
-4-2
China Indonesia Korea, Rep. Malaysia Philippines Thailand
17
Source: Haver Analytics, BI and World Bank staff calculations
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 18/32
WILL ECONOMIC GROWTH REMAIN ROBUST ? Yes, but there are
multiple risks to Indonesia’s continued resilience
18
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 19/32
Our baseline projection is continued strong economic growth…
-… . .
2010 2011 2012 2013
Real GDP growth (percent) 6.2 6.5 6.1 6.3
CPI inflation (percent)* 6.3 4.1 4.9 5.1
Budget balance (percent of GDP)** -0.7 -1.1 -2.2 -1.6
Major trading partner growth (percent) 6.8 3.1 3.3 3.6
Notes: * CPI inflation is Q4 on Q4. World Bank projections except for *Budget balance, which is
19
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 20/32
But there are risks to the outlook…
…
Euro Area:
ECB action has reduced financial crisis risk but not eliminated
risk of renewed intensification of sovereign funding and
banking sector challenges
US “fiscal cliff”:
World Bank assumes 1 percent fiscal drag for the US in 2013...
…but “worst case” could shave up to 5 percent off US GDP in
2013
China:
World Bank projects 7.7 percent growth in 2012 and 8.1 percent
Risk of further slowdown
Additional uncertainty:
20
Impact of renewed global monetary easing on portfolio flows
and commodity prices
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 21/32
Further external shocks would be felt through the trade channel…
’ …
Share (%) of commodity in country’s total exports (by value) in 2011
IDN JPN KOR MYS SGP THA VNM*
Agriculture, Foods & Tobacco1 23.5 4.4 3.5 19.8 3.5 25.4 25.7
Mining & Bulk Commodities2 13.6 14.3 20.2 12.1 24.9 12.3 7.5
Mineral Fuels3 31.3 0.0 0.0 12.0 0.0 0.6 9.2
. . . . . . .
Manufacturing4 31.4 80.1 76.0 55.8 71.2 60.9 57.4
…of which: Capital &5
7.5 50.8 37.9 16.7 23.5 28.9 10.8
Note: Aggregated using two digits ISIC Rev.3 code (ISIC3). 1. ISIC3 01-05, 15-16, 25; 2. ISIC3 12-14, 23, 26-28; 3. ISIC3 10-11; 4. ISIC317-22,24,32-33,36; 5. ISIC3 29-31, 34-35
Other 0.3 1.2 0.4 0.3 0.4 0.7 0.2
21
ource: v a
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 22/32
And shocks could also be felt through the financial channel
…
Sep 2008
Non-resident local gov.securities holdin s
on-res en o ngs May 2010
Sep 2011
Jul 2012
Non-resident equity holdings
Short-term external debt*
0 25 50 75 100 125 150 175
22
Source: BI, KSEI and CEIC, * Data is for end-May 2012 for short term debt
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 23/32
…and could spill over into domestic demand…
…
Index
(Dec 2004=100)
Year-on-year growth,
percent
20%400
Real investment growth in Indonesia (RHS)USD international commodity price index (LHS)
10%200
5%100
0%0
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
23
Source: CEIC and World Bank
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 24/32
MAINTAINING RESILIENCE in Indonesia in an uncertain global
environment will not be easy
24
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 25/32
Maintaining resilience has multiple dimensions….
n a ese mens ons are mpor an
Crisis management protocol in place (capacity of the fiscal and
Ability to promptly implement countercyclical fiscal policies
Maintaining fiscal room & contingent financing
Pre-agreement on swift Parliament approval of spending and
financing re-adjustment if external risks materialize
Efficient spending execution and absorption
Quality of spending improvement
Support FDI to meet larger external financing needs
Reducing regulatory uncertainties to maintain high level of
investment growth (esp. if commodity prices fall)
25
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 26/32
Strong debt dynamics give Indonesia fiscal space against more shocks
…
Percent of GDP Percent of GDP
80
100
80
100
Indonesia Brazil China India Malaysia Philippines
6060
2020
00
26
Source: IMF Fiscal Monitor April 2012, MoF, BPS.Note: All data from IMF except Indonesia from World Bank staff calculations
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 27/32
And public deficit is currently low
…
Projected fiscal balance in 2012 for selected economies
24
24
ercen o ercen o
-4
-2
-4
-2
-10
-8
-
-10
-8
-
-12-12
27
Source: IMF Fiscal Monitor Database October 2012 except * Indonesia is MoF Semester I projection
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 28/32
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 29/32
As well as securing high quality external funding
…
Foreign direct investment, net inflows
8
1056 1993-1997 1998-2002
2003-2007 2008-2011
4
6
2
3
-2
0
-2
-1
0
29
Note: * data not available for 2011Source: World Bank World Development Indicators
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 30/32
And reducing regulatory uncertainties
… ,
r va e nves men s a orwar - oo ng ac v y an nvo ves sun cos ;
thus uncertainty is a deterrent to investment
Indonesia’s success in boostin investment artiall reflects success in
establishing a stable macroeconomic framework (fiscal fundamentals and
low inflation)
will help investments and support resilience
And strengthening the policy framework will support Indonesia’s
eve opmen o ec ves
30
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 31/32
Maintaining resilience amidst global uncertainty
To recap: What does it takes for Indonesia to maintain resilience in the
Indonesia has already equipped itself with sound mechanisms to remain
resilient but further efforts may be needed
In light of the rapid transformation of the demand side of the economy,
facilitating the supply response will be key in furthering resilience
This requires
…further accelerating investments by reducing regulatory
uncertainties for business and enhancing the policy framework…
…emphasizing clarity, consistency and certainty… …and enhancing the quality of public spending to boosting public
investment in growth-enhancing areas and social protection.
31
7/28/2019 IEQ - Mainting Resilience - English-Presentation
http://slidepdf.com/reader/full/ieq-mainting-resilience-english-presentation 32/32
Thank you
Indonesia Economic Quarterly October 2012 Maintaining
resilience also includes special topics on:
Spending dynamics:
The proposed 2013 Budget
Trends and drivers of ublic ersonnel
expenditure Higher education reform
www.worldbank.org/id www.worldbank.org/indonesia