Indonesia’s Economic Outlook 2019 · times year and no more in 2020 China’s Economy Monetary...

Anton H. Gunawan ~ Chief EconomistPT. Bank Mandiri (Persero), Tbk.Jakarta: January 8th, 2019

Indonesia’s Economic Outlook 2019 and Key Economic Challenges

1

New tariffs → Trade war• Washing machines (20%) and solar panels (30%)• Aluminum (10%) and steel (25%)• List of Chinese products worth USD34 bn (25%)• List of Chinese products worth USD16 bn (25%)• List of Chinese products worth USD200 bn (10%)

US Monetary PolicyTrumponomics

Monetary policy normalization• 100 bps increase in total in 2018, two

times year and no more in 2020

China’s Economy

Monetary Policy in EU and Japan

Balance sheet reduction • Fed’s balance sheet will shrink from

USD4.5 tn to USD2.5 – 3 tnTrend of US Dollar appreciation • Fiscal stimulus boost growth, making investments in

USA more attractive• USD appreciated mostly against EM currencies • ECB & BOJ will remain accommodative

this year • ECB is expected to hike rates next year• BOJ is expecting inflation to reach 2%

next year

Chinese economic slowdown• Chinese GDP growth is expected to slow

from 6.9% last year to 6.6% this year and 6.4% next year

Weakening Yuan• Possibility of competitive devaluation on

the brink of trade war with US

Excessive debt levels• Aggressive fiscal stimulus could add to

excessive debt levels

Global economic and geopolitical uncertainties

Geopolitics • Brexit prospect: soft Brexit or hard Brexit?• Middle east tensions: Saudi-Turkey-Iran tensions

and their impact to oil price • Elections in emerging markets (India, Indonesia,

Philippines, Thailand and South Africa)

2

China inclusions in several Global Financial Indices:• Both on equity and bond markets

may lead to EMs’ weight dilution• Aramco IPO plan (big ticket size), may

also dilute EM’s weight in Indices.

Source: Bloomberg

Impact of Global Monetary Tightening and Trade WarGlobal monetary tightening and trade war will slow down global economic growth

5.2

4

4.1

8

4.0

0

4.0

7

3.8

7

3.7

6

3.6

0

2017

2018

2019

2020

2021

2022

2023

Global Trade Volume Growth (%)

2018F 2019F 2020F

2.5 3.25 3.5

-0.1 0.0 0..0

0.0% 0.10 0.50

GlobalMonetary Tightening (%)

3.7

3

2.8

8

6.6

0

3.6

5

2.5

4

6.1

8

3.6

6

1.8

2

6.2

2

3.6

4

1.7

3

6.0

0

3.5

8

1.4

8

5.7

5

3.5

9

1.3

8

5.6

0

World United States China

2018 2019 2020 2021 2022 2023

Global Economic Growth (%)

2018F 2019F 2020F 2021F

73.88 75.63 71.75 69.40

102.78 91.52 84.59 93.50

2318 2325 2400 2550

Commodity Price

Notes : Oil in USD/Bbl, Coal in USD/t & CPO in RM/MTSource: Bloomberg Estimate

Oil

Coal

CPO

Trade War

Source: IMF

Source: IMF

Capital Outflow from Emerging Markets

China’s Great Rebalancing

GlobalDemand

US-China Trade War causes US and China’s exports to reduce,

leading to less imports from other countries

Increasing investors’ appetite for safe-haven assets

• Debt-cutting efforts• Falling in investment

3

4

Economic Data Latest YTD Prognosis 2018 2018F 2019F

CAD (% to GDP) 3.02a 2.63 2.88 3.0 – 3.1 2.5 – 2.6

GDP growth (% yoy) 5.17b 5.17 5.18 5.16 5.20

Inflation (% yoy) 3.16c 2.22 3.22 3.10 4.00

BI 7DRR (%) 6.00c 6.00 6.00 6.00 6.50

Latest macroeconomic data and forecastMacro indicators are mostly better than expected

Note: a) as of 2Q18 b) as of 3Q18 c) as of Nov-18

“Stability while maintaining the momentum of growth”

Facing a trade off: Current Account Deficit reduction (and thus tightening policies) versus maintaining strong economic growth

Argentina Brazil China India Indonesia Korea Malaysia Philippines South Africa Thailand Turkey

External Financing Vulnerability Index: 0.87 0.27 0.33 0.47 0.6 0.27 0.53 0.4 0.67 0.27 0.87

Current Account Balance/GDP (%, 2018f) -5.2 -1 0.7 -2.8 -2.4 4.7 2.3 -1.9 -3.3 8.1 -5

(Current Account Deficit -Net FDI)/GDP (%, 2018f) -3.1 2.9 2.2 -1.2 -0.6 5.5 4.2 1.5 -2.2 9.9 -3.8

Reserve Coverage Ratio (2018f) 0.4 2.5 2.9 1.6 0.8 1.6 1 2.5 0.8 1.7 0.3

Short-Term External Debt/Total External Debt (%, 2018f) 33 7 57 19 14 25 41 20 21 40 26

External Debt/GDP (%, 2018f) 60 36 15 22 34 29 58 23 46 27 60

Domestic Financial Vulnerability Index: 0.4 0.43 0.48 0.38 0.57 0.43 0.57 0.67 0.48 0.43 0.67

Non-Financial Corporate Debt/GDP (%, ∆ in 2013-2018) 1 -1 28 -7 4 -5 8 14 7 2 27

Households Debt/GDP (%, ∆ in 2013-2018) 1.3 0 19 2.1 1 16 3 5 -7 6 -2

Private Sector Real Credit Growth (% y/y, 2012-17 average) 3 1 14 4 8 5 6 13 0 6 12

Consolidated Foreign Claims/Domestic Credit (%, 2018) 52 17 5 15 42 13 39 19 23 29 70

Foreign Holdings of Local Currency Govt. Debt (%, Jun, 2018) 12 3 4 38 12 25 40 16 17

Foreign Holdings of Equities (%, Dec, 2017) 15 36 10 21 18 28 13 15 29 19 20

Nominal Home Prices (% y/y, 2013-2018 average) 2.2 3.7 11.4 6.1 1.7 8.1 10.7 5.9 3.8 14.1

Policy Vulnerablity Index: 0.72 0.61 0.33 0.61 0.39 0.22 0.28 0.67 0.56 0.33 0.72

2018-End Inflation Forecast (vs. Central Bank Target) 47.3 (17.0) 4.2 (4.5±1.5) 2.0 (~3.0) 4.0 (4±2) 3.5 (4±1) 2.1 (2.0) 0.6 (2.5-3.5) 6.9 (3±1) 5.0 (3-6) 1.4 (2.5±1.5) 26.0 (5±2)

Current Real Interest Rates 12.7 2.3 1.1 2.7 2.5 -0.4 2.7 -2.1 1.8 0.4 -2

Fiscal Balance/GDP (%, 2018f) -3.8 -7.3 -4.2 -6.6 -2.1 2.4 -2.7 -1.1 -3.9 -0.8 -4.9

Gross Government Debt/GDP (%, 2018f) 63 88 50 70 30 40 55 40 56 42 32

World Bank Worldwide Governance Indicators (2018 release) 0 -0.2 -0.3 -0.1 -0.2 0.8 0.3 -0.3 0.1 -0.3 -0.5

WEF Global Competitiveness Index (2017-18) 57.5 59.5 72.6 62 64.9 78.8 74.4 62.1 60.8 67.5 61.6

Parliamentary/Presidential Elections in 2019-20 19-Oct 19-May 19-Apr 19-May 19-May 19-Feb

Indonesia looks better than some EM Peers (Argentina, Turkey, S. Africa)

5Source: IIF (2018) “Heat Map of Emerging Markets Vulnerabilities,” Latest Update, December

Pressures on External Balances 1/2: rising CAD & de-industrialization

6

Sett

ing

the

fra

mew

ork

oil

Primary Income

Transport

Other Services

Non-Oil&Gas

Travel

The BoP pressure: is the factor global, domestic, or both?

Source: CEIC

Investment has caused capital goods imports to increase, while higher oil prices made the oil imports to shoot up, higher than the total export and import growth

0

2

4

6

8

10

12

-30

-20

-10

0

10

20

30

40

50

Mar

-11

Sep-1

1

Mar

-12

Sep-1

2

Mar

-13

Sep-1

3

Mar

-14

Sep-1

4

Mar

-15

Sep-1

5

Mar

-16

Sep-1

6

Mar

-17

Sep-1

7

Mar

-18

Correlation between capital goods import and

investment

Capital goods import (% YoY) GFCF (% YoY) - RHS

-60

-40

-20

0

20

40

60

80

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

YoY of 3mma (%)

Capital goods importExportTotal importOil ImportsCapital goods importExport

No. Sorted (in billions) 7M16 7M17 7M18 Proportion to total import (%)

1 Petroleum and Petroleum Products 9.3 12.1 15.4 14.4%

2 Electrical Machinery and Apparatus 4.7 5.0 6.5 6.1%

3 Iron and Steel 3.8 4.5 6.1 5.7%

4 General Industrial Machinery and Equipments 4.8 4.6 5.6 5.2%

5 Road Vehicles 3.0 4.0 5.0 4.7%

6 Telecommunication and Reproducers Apparatus 3.0 3.9 4.9 4.5%

7 Machinery Specialized for Particular Industry 3.5 3.5 4.8 4.4%

8 Textile Yarns, Fabrics, and Their Products 3.5 3.5 3.9 3.7%

9 Organic Chemicals 2.7 3.3 3.8 3.6%

10 Plastics In Primary Forms 2.7 3.0 3.4 3.2%

Total Imports 75.0 86.2 107.3

No. Sorted (in billions) 7M16 7M17 7M18 Proportion to total export (%)

1 Coal, Coke, and Briquettes 7.5 11.1 14.1 13.5%

2 Fixed Vegetable Oils/fats 8.6 12.4 10.8 10.4%

3 Gas; Natural and Manufactured 3.9 4.9 6.1 5.9%

4 Metalliferous Ores and Metal Scraps 2.5 2.8 5.2 5.0%

5 Clothing 4.3 4.7 5.1 4.9%

6 Petroleum and Petroleum Products 3.7 4.2 4.3 4.1%

7 Road Vehicles 3.2 3.8 4.1 4.0%

8 Electrical Machinery and Apparatus 3.1 3.4 3.6 3.5%

9 Organic Chemicals 2.5 3.5 3.6 3.4%

10 Iron and Steel 1.2 1.8 3.5 3.3%

Total Exports 79.1 93.6 104.3

Total Top 10 Exports (USD bn)Total Top 10 Imports (USD bn)

7

Pressures on External Balances 2/2: declining financial & capital inflows

8

Sett

ing

the

fra

mew

ork

Indonesia’s economic growth still heavily dependent on the prospects of commodity prices

Every 1 point increase in commodity price index contributes to 0,004% increase in Indonesian economic growth

0

100

200

300

400

500

600

0

1

2

3

4

5

6

7

8

9

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

3Q

15

1Q

16

3Q

16

1Q

17

3Q

17

(Co

mm

od

ity In

dex o

f To

p F

ive E

xp

orts

)

(Eco

no

mic

Gro

wth

in

% (

t+2))

Commodity Price and Economic Growth

GDP YoY Growth (t+2)

Commodity Index of Top Five Exports

y = 0.0041x + 4.1818R² = 0.202

0

1

2

3

4

5

6

7

8

9

150 200 250 300 350 400 450 500 550 600(E

co

no

mic

Gro

wth

in

% (

t+2))

(Commodity Price Index of Top Five Exports)

Commodity Price and Economic Growth Relationship

Sources: Trade Map, CEIC, Bank Mandiri calculation

9

Three Domestic Concerns:• Economic Slowdown amid low level of productivity

Despite improving EoDB, but lacking industry strategy

• External Balance Pressures: rising imports (raw materials) and trade wars, amid tightening global liquidity

• Pressures on Financial Markets: volatile markets, risks of contagion & weakening banks’ asset quality

Five Changes in Paradigm:• Archipelagic Concept: inter-connectivity, reducing logistics costs & regional development, thus building infrastructures (starts from the periphery)

• Reducing Dependency on Raw Commodities: down-streaming, including looking for areas of exports expansion and new sources of fiscal revenues

• Reallocation of Scarce Resources: transforming general price subsidy program into directly targeted subsidy program Social Security program

• Rising Role of SOEs in Economic Development: in part to speed up infrastructure projects and to go beyond the fiscal rule

• Promoting Maritime Economy: fishery (industries) and tourism services10

2019 Spending focus: Supporting the bottom 40% of the income group

Source : MoF

-4.3

-0.5

-0.1

7.6

9.4

10.4

28.6

-30 0 30 60

Energy Subsidy

Non-energy subsidy

Material

Personnel

Capital

Interest Payment

Social

2019 Central Government Expenditure (YoY%)

-7.2

-6.0

9.5

9.6

15.2

45.1

67.4

-30 0 30 60 90

Capital

Non-energy subsidy

Personnel

Material

Interest Payment

Social

Energy Subsidy

2018 Central Government Expenditure (YoY%)

Amount (Rp tn) Target Amount (Rp tn) Target

1 Village Fund 60 74,957 villages 73.0 74,957 villages

2 PKH (Family Hope Program) 17.3 10 mn families 34.4 10 mn families

3 JKN (National Health Insurance) 25.5 92.5 million persons 26.7 98 mn persons

4 BPNT (Non-cash food program) 20.8 15.6 mn families 20.8 15.6 mn families

5 PIP (Indonesia Smart Program) 10.5 19.7 mn students 10.8 20.1 mn students

6 College program fund (Bidik Misi) 4.1 401.5 thousand college students 4.4 471.8 thousand college students

7 Ultra micro financing - 0.8 mn 3.0 1.4 mn debitur

138.2 173.1Total

APBN 2018 RAPBN 2019

No.Programs to support the bottom 40% of the population

11

12

Improving investment climate (1/2)

Source: Taken from Republic of Indonesia (2018) “Stability at the Forefront Synergized Reform Moves,” November

13

Vietnam

Indonesia

Thailand

Malaysia

Singapore

25

23.5

13.2

13

8.1

Sources: Pelindo II, Ministry of Transportation

5.164.35

3.36 3.54

2014 2015 2016 2017Source: Indonesia Logistics and Forwarder Association (ALFI)

6.2 6.3 7.0 7.6 8.08.8 9.4 9.7

11.5

14.0

17.0

9.410.6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018target

8M2017 8M2018

Sources: Indonesia Central Bureau of Statistics (BPS)

Number of Foreign Tourists Visiting Indonesia

Dwelling Time in Jakarta International Container Terminal (days)

9,5%

CAGR

Logistic Cost in South East Asia Countries(% to GDP)

1

3

2

Improving investment climate (2/2)

Sources: The Global Competitiveness Report 2017 - 2018

Indonesia still needs to further improve infrastructure quality

GDP 2017(USD Bn)

Competitiveness Ranking

12

13

18

66

199

294

313.6

313

374

873

0 1000

Brunei

Laos

Cambodia

Myanmar

Vietnam

Singapore

Philippines

Malaysia

Thailand

Indonesia 36

32

23

56

3

55

na

94

98

46

Infrastructure Ranking

52

43

22

97

2

79

na

106

102

60

65,065

8,4282,623 2,350 1,016

China Japan SouthKorea

Malaysia

Indonesia

Toll Road Length Among Asian Countries

(Km)

Sources: BJPT

9.6 0.38 0.1 0.33 1.97

Country Land Area (Million Km2 )

14

Government is currently still the major source of infrastructure financing development

15

Sources of infrastructure financing

-

100

200

300

400

500

600

2015 2016 2017 2018

Equity FinancingCorporate BondCommercial Bank LoanDeveloment Bank LoanGovernment

Sources: OJK,Bloomberg, ADB, WB, JICA, IDBNotes: Donors Disbursement in 2017 and 2018 are incomplete

86114.2

145.5 155.9 154.7

256.1269.1

388.3410.7

2010 2011 2012 2013 2014 2015 2016 2017 2018(APBN)

Government Infrastructure Spending (IDR Trillion)

Source: Ministry of Finance

42 51 59 71 83 94 101 124 154 149 17841 57 76 93 101 118

162180

205 230

294

3847

4360

6765

5443

53 43

44

2010 2011 2012 2013 2014 2015 2016 2017 1H2018 2018P 2019P

Logistics Utilities Oil and Gas

121154

178223 252

277318

347

422

517

17,0%

CAGR412

Bank Loan to Infrastructure Projects

Structural Problems: Pre-mature De-industrialization

16

Value Added Constant Per Employment in Indonesia By Sector

Indonesia’s GDP Structure By Sector

*Utilization sector includes Electricity, gas, waterSource: CEIC

Proportion of manufacturing sector to GDP tend to decrease

14.0

7.4

29.1

21.3

1.3

56.0

0

10

20

30

40

50

60

19

93

19

95

19

97

19

99

200

1

20

03

20

05

20

07

20

09

20

10

20

12

20

14

20

16

% o

f G

DP

Agriculture (% of GDP) Mining (% of GDP)

Manufacturing (% of GDP) Utilization (% of GDP)

Services (% of GDP)

0

100

200

300

400

500

600

700

2010

2011

2012

2013

2014

2015

2016

2017

Mill

ion

IDR

/Em

plo

ymen

t

Agriculture Mining

Manufacturing Utilisasi

Services

17

0.3

1.4

3.5

3.4

3.2

2.6

0.3

0.6

0.3

1.3

3.9

3.7

3.0

2.5

0.3

0.6

0.3

1.6

4.0

3.8

3.4

2.9

0.3

0.7

No Schooling

Not Yet CompletedPrimary School

Primary School

Junior High School

Senior High School

Vocational high school

Diploma I-III/Academy

University

Aug-17

Aug-16

Aug-15

Source: Sakernas, BPS

Total Employment in Manufacturing Sector By Education (Million People)

50.2

43.3

32.1

15.517.9

22.4

34.3

38.8

45.5

0

10

20

30

40

50

60

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

10

20

12

20

14

20

16

%

Employment in agriculture (% of total employment)

Employment in industry (% of total employment)

Employment in services (% of total employment)

Employment Structure in Indonesia By Sector

Source: World Development Indicators, World Bank

Share of employment in industry sector increase but at low speedEmployment quality in manufacturing sector relatively low. 57% of employment in manufacturing sector educated below Senior High School

18

Food products

Beverages

Tobacco products

Textiles

Wearing apparels

Leather & related products & footwear

Wood, cork, except furniture; articles of straw

& plaiting

Paper & paper productsPrinting & reproduction

of recorded media

Coke & refined petroleum products

Chemicals & chemical products

Pharmaceuticals, medicinal chemical &

botanical products

Rubber & plastic productsOther non-metallic mineral products

Basicmetals

Fabricated metal products, excepts

machinery & equipment

Computers, electronic& optical products

Electrical equipment

Machinery & equipment n.e.c

Motor vehicles, trailers &semi-trailers

Other transport equipment

Furniture

Othermanufacturing

Repair & installation of machinery & equipment

0

10

20

30

40

50

60

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

% im

po

rted

raw

mat

eria

l (av

erag

e 2

01

0-2

01

5)

% Exported Product (average 2010-2015)

Mapping of Medium and Large Manufacturing Industry 2010-2015% Imported Raw Material Vs % Exported Product

*Bubble Size show that total labor in average 2010-2015Source: Industrial Statistic, BPS 19

Mapping of Medium and Large Manufacturing Industry 2010-2015% Exported Product vs Productivity

*Bubble Size show total labor on average in 2010-2015Source: Industrial Statistics, BPS

Food products

Beverages

Tobacco products

Textiles

Wearing apparels

Leather & related products & footwear

Wood, cork, except furniture; articles of straw &

plaiting

Paper & paper products

Printing & reproduction of recorded media

Coke & refined petroleum products

Chemicals & chemical products

Pharmaceuticals, medicinal chemical & botanical

products

Rubber & plastic products

Other non-metallic mineral products

Basicmetals

Fabricated metal products, excepts machinery &

equipment

Computers, electronic& optical products

Electricalequipment

Machinery & equipment n.e.c

Motor vehicles, trailers &semi-trailers

Other transport

equipment

Furniture

Othermanufacturing

Repair & installation of machinery & equipment

0

10

20

30

40

50

60

70

80

90

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000

% e

xpo

rte

d p

rod

uct

(av

era

ge 2

01

0-2

01

5)t

Productivity (Thousand IDR) – average 2010-2015

20

Better freight logistics can connect resources producing regions in outer islands with markets and manufacturing concentrations in Java and Sumatera

Source: World Bank Group (2015) “Reducing freight logistics costs in Indonesia”21

Challenges & Opportunities: Labour Force & Underemployment

22

Labour Force Composition (%)

24

Declining unemployment rate, but mainly because of higher underemployment

30.0% 30.4% 31.3% 31.5% 31.6% 29.8% 30.5% 30.6% 32.0%

62.6% 62.6% 62.3% 62.7% 62.7% 64.4% 64.0% 64.1% 62.9%

7.4% 7.0% 6.4% 5.9% 5.7% 5.8% 5.5% 5.3% 5.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018

% Underemployment (0-34 hours) % Full-time Emp. (≥35 hours) % Unemployment

11.16

9.63 9.48

0

2

4

6

8

10

12

2015 2016 2017

Unemployment Rate by Level of Education (%)

Never attended school

Primary School

Mid-High School

Higher Education

While % of full employment rate decreasing, underemployment contribute more to labour force • Employment: 64% (2016) →

62.9% (2018)• Underemployment: 30.5% (2016)

→ 32% (2018)

Secondary graduates (Middle & High School) posses greater risk for not entering job market

Why? Lack of skills?

Source: Sakernas (BPS)

25

Zoom-in underemployment: Dominated by young ages in rural areas

17.7

12.9

7.9 7.6

16.5

13.2

6.8 6.5

16.4

11.8

7.3 6.9

0

2

4

6

8

10

12

14

16

18

15-19 20-24 35-39 40-44

Underemployment Rate by Age (%)

2015 2016 2017

8.99.7

6.9

5.7

7.48.4

6.9

5.5

8.0 8.4

6.9

4.8

0123456789

10

Never attendedschool

Primary School Mid-High School Higher Education

Underemployment Rate by Level of Education (%)

2015 2016 2017

5.47 5.08 4.91

11.7

10.28 10.52

0

2

4

6

8

10

12

2015 2016 2017

Underemployment Rate (%) by Location

City Rural

Underemployment is dominated by uneducated and primary schools.

Bring more evidence that not enough skills obtained from Secondary Schools


26

19.7

21.0 21.422.0

22.6

24.123.2

14.214.7

15.3 15.716.8 16.5

17.1

4.4 4.14.8 4.8 5.1

5.6

7.1

4.8 4.7 4.8 4.7 4.6 4.7 4.9

1.1 1.5 1.6 1.6 1.8 1.7 1.8

0.9 0.5 0.6 0.7 0.6 0.6 0.80

5

10

15

20

25

2011 2012 2013 2014 2015 2016 2017

Mill

ion

s La

bo

ur

Trade & Reparation Manufacturing Accomodation, F&B Transport & Storage Finance & Insurance ICT

What type of skills? Start from sectors demand more labour

Service sectors (except trade & reparation) absorb more employment in the last 3 years: Accommodation, F&B: 5.1 mio (2015) → 7.1 mio (2017) Transport & Storage: 4.6 mio (2015) → 4.9 mio (2017) ICT: 0.6 mio (2015) → 0.8 mio (2017)


27

Indonesia score improving in 2015, but still below OECD and it peers

386

375

397

396

403

382

360 370 380 390 400 410

2015

2012

2015

2012

2015

2012

Mat

hem

atic

sR

ead

ing

Scie

nce

Indonesia PISA Score, 2015 vs 2012

Country Mathematics Reading Science

International Average (OECD) 490 493 493

Singapore 564 535 556

China 531 494 518

Switzerland 521 492 506

Netherlands 512 503 509

Viet Nam 495 487 525

Russia 494 495 487

Australia 494 503 510

Italy 490 485 481

United States 470 497 496

Malaysia 446 431 443

Thailand 415 409 421

Indonesia 386 397 403

Brazil 377 407 401

Tunisia 367 361 386

Indonesia improve significantly in science and mathematics, and has the chance to match other developed countries in 2030 (the year of SDGs Target for quality education)

Challenges & Opportunities: Shallow Financial Sector Constraining the Development Financing

28

29

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017

Indonesia Malaysia Philippines

Singapore Thailand Vietnam

Domestic credit to private sector by banks (% of GDP)

40

60

80

100

120

140

160

180

200

220

2012 2013 2014 2015 2016 2017



Bank asset to GDP ratio (%)

Relative to GDP, Indonesia's banking assets and lending to

the private sector tend to be stagnant and considered the

lowest in ASEAN

Source: CEIC, World Development Indicator (World Bank), BI, OJK

30

Bank office coverage is increasing and the highest in

ASEAN, but the proportion of borrowers covered tends to be

stagnant and is the lowest in ASEAN

Borrowers from commercial banks (per 1,000 adults)Commercial bank branches (per 100,000 adults)

2

4

6

8

10

12

14

16

18

2012 2013 2014 2015 2016 2017



0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016 2017

Indonesia Malaysia Singapore Thailand

Source: World Development Indicator (World Bank), BI

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2010 2011 2012 2013 2014 2015 2016 2017



31

Bank nonperforming loans to total gross loans (%)

Source: World Development Indicator (World Bank). *Bank lending rate minus deposit rate. The margin between the cost of mobilizing liabilities and the earnings on assets, measures

financial sector efficiency in intermediation. A narrow spread means lower transaction costs, which reduces the cost of funds for investment. This is crucial to economic growth.

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016 2017



Interest rate spread (%)*

Bank interest rate spread in Indonesia, as an indicator of

efficiency in intermediation, relatively higher compared to

peers

Lower proportion of borrowers partly contributed by less efficient in bank’s

transaction costs and increasing number of bad loans

32

ATM (per 100,000 adults)Depositors with comercial banks (per 1,000 adults)

400

800

1,200

1,600

2,000

2,400

2012 2013 2014 2015 2016 2017



0

20

40

60

80

100

120

140

2012 2013 2014 2015 2016 2017



Conversely, banks as a place to deposit money tends to

increase. This makes banks increasingly invest in ATMs to

provide convenience for customers.

Increased customer funds in banks must be accompanied by an increase in lending

to private sector

Source: World Development Indicator (World Bank), BI

33

Total asset

245

182

177

117

77

62

Market Cap

73

63

55

58

59

56

USD bn

1

2

3

4

5

6

7

8

9

10

11

12

14

13

Loan DepositJune 2018

49

36

277

213

202

121

84

71

77

64

57

60

61

61

41

4456

63

83

84

86

91

93

94

95

121

182

268

339

376

39

8

26

7

24

14

12

21

11

12

23

33

36

50

Comparison of asset, market cap, loan, and Deposit of

ASEAN banksSingaporean banks still dominate in terms of total asset, loan and deposit

Source: Bloomberg, Bank Mandiri

34

DIMENSION MATRIX FOR ASSESSMENTCURRENT

STATUS

RECENT

TREND

Capital users

Number of issuers (stock)

Number of issuers (bond)

Capital providers

Relative share of bank funding to bonds and equity

Ratio of foreign to local ownership (Bonds, Equity)

Intermediaries

Mutual funds asset to GDP

Insurance asset to GDP

Instruments

Market volume to GDP (Bonds, Equity)

Interbank lending to GDP

Turnover (Bonds)

Turnover (Equity and FX)

Bid-ask spread

Market infrastructure

Credit bureau coverage

World Bank – depth of credit information index

Assessment on current financial deepening indicates

Indonesia shown improvement across most dimensions of

the financial market ecosystem (1/2)

2015Current

Current status relatively same as in 2015

35

DIMENSION MATRIX FOR ASSESSMENTCURRENT

STATUS

RECENT

TREND

Regulatory, legal, and

macro environment

Level of inflation

World Bank – ease of doing business index

World Bank – strength of legal rights index

Time for issuance

Tax related regulation

2015Current

Current status relatively same as in 2015

Assessment on current financial deepening indicates

Indonesia shown improvement across most dimensions of

the financial market ecosystem (2/2)

Source: World Federation Exchange, IDX, OJK, Mandiri analysis. *As of August 2018. 36

Metrics

Growth in number of issuers, 2018 compared to 2015 (%)

Remarks

POJK No 7/POJK.04/2017, March 2017

OJK cut a number of documents in the securities

registration statement and prospectus. The

simplification was made to make it easier for issuers to

enter the capital market, while at the same time

making it easier for prospective investors to see the

profile of the issuers who will conduct a public offering.

The prospectus is sufficient to use only last 3 years

financial data where previously requested last 5 years.

POJK No 53/POJK.04/2017, July 2017

The objective is to provide wider opportunities for

issuers with small scale assets or issuers with medium

scale assets obtain funding through capital market.

Previously, SME issuers are listed on the development

board which requires prospective issuers to have a

minimum of IDR 5 billion in net physical assets. By this

regulation, acceleration board will be a place for SME

issuers who are still in the early stages of operations,

such as resource-based companies like plantations,

minerals, and oil and mining that have not recorded

profits.

Growth of issuers for the stock market in Indonesia is

highest compared to other ASEAN countries

506 521 537 566 598613 639 656 688 692775 769 757 750 745

905 902 900 901 909

263 265 265 267 268

2014 2015 2016 2017 2018*

Indonesia Thailand Singapore Malaysia Philippines

3.9

0.4

1.9

12.9

18.2

Singapore

Malaysia

Philippines

Thailand

Indonesia

2

0

2

4

6

2015 2016 2017 2018*

Indonesia Thailand Singapore

Malaysia Philippines

Growth in number of issuers (yoy, %)

Number of issuers Current status2015CurrentIssuers (equity market)

37

Meanwhile, the number of issuers in the bond market does

not grow significantly

Metrics

Number of issuers

106 110 110 115 113569 493 433 381 344

1,842 1,930 2,039

2,7653,286

30 26 27 24 24

2014 2015 2016 2017 2018*

Indonesia Thailand Singapore Malaysia

20

0

20

40

2015 2016 2017 2018*

Indonesia Thailand Singapore Malaysia

Growth in number of issuers (yoy, %)

39.5

20.0

6.6

78.4

Thailand

Malaysia

Indonesia

Singapore

Growth in number of issuers, 2018 compared to 2015 (%)

Remarks

The process of issuing bonds is considered more

complicated than borrowing from a bank.

In a certain period, interest rate of bonds issued are

relatively not much different than bank loans.Hence,

companies tend to choose banking because the

process is simpler.

Not all companies can issue bonds. Only companies

that get investment grade can issue bond, which is

relatively limited.

Lack of knowledge from domestic companies

regarding the way and process of issuing bonds or

accessing the capital market. The lack of education

from regulators contribute to this.

Not all companies are willing to fulfill the obligation to

open company information to the public as a condition

to raise public investor funds.

Current status

Source: World Federation Exchange, IDX. *As of August 2018.

Current status

relatively same as

in 2015

Issuers (bonds market)

Appendix

38

Challenges & Opportunities: Internet and Tourism

39

Mid-expenditure people could maintain consumption growth above 25% for 2 year (or around 12.5%/year)

Shifting of consumption from food to non-food in 2015 didn’t continue in 2017

40

Middle-expenditure consumption growth remain strong

224 297

600

1,725

267 371

753

2,096

304 444

945

2,405

1,036

-

500

1,000

1,500

2,000

2,500

3,000

poor low-expend mid-expend high-expend

Tho

usa

nd

s R

p

Per Capita Spending

2013 2015 2017 avg spend 2017

67% 66%59%

38%

33% 34%41%

62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 food 2013 non-food

65% 64%56%

35%

35% 36%44%

65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



67% 65%58%

40%

33% 35%42%

60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



Source: Susenas (BPS)

41

Slowdown consumption growth of cigarette, and the raise of internet

78

113

210

285

102

160

267 272

117

182

335 362

-

50

100

150

200

250

300

350

400


Tho

usa

nd

s R

p

Spending for cigarette

2013 2015 2017

17 28

61

188

23 36

81

238

16 31

67

170

-

50

100

150

200

250

300


Tho

usa

nd

s R

p

Spending for pre/post paid cellular

2013 2015 2017

1 15

32

1 3

13

65

3 7

25

87

-

10

20

30

40

50

60

70

80

90

100


Tho

usa

nd

s R

p

Spending for internet

2013 2015 2017

Cigarette consumption growth declining for low-

expend & poor category in 2017

Poor: 30% in 2015 (compare to 2013) become

14.7% in 2017 (compare 2015)

Low-expend: 42% in 2015 (compare to 2013)

become 14% in 2017 (compare 2015)

All level of expenditure reducing spending for

pre/post paid cellular in 2015;

While consumption for internet increased

significantly, especially low-expenditure people


42

An indication a lower health spending triggered more clothing consumption

BPJS significantly reduced spending for

health of all expenditure category in 2015:

Overall: -25.6% compare to 2013, with the

highest contribution from high-expenditure (-

34%)

While consumption of clothing jumped 70% in 2015,

an indication that people taken benefit of lower

health spending

Low-expend and Mid-expend were the biggest

contributor for increased clothing consumption in

2015

18 25 66

341

17 23 60

225

19 30 79

259

-

50

100

150

200

250

300

350

400


Tho

usa

nd

s R

p Spending for health

2013 2015 2017

14 19 48

186

38 49

97

251

44 60

129

286

-

50

100

150

200

250

300

350


Tho

usa

nd

s R

p

Spending for clothing

2013 2015 2017


43

Spending for tourism and travel industry, as

indicated by air transport, land transport,

accommodation, increase overall by 27%,

30%, and 21% respectively

Mid-expend spending for air transport and

hotel jumped significantly in 2017 (51% &

63%)

0.6

19

1

23

-

5

10

15

20

25


Tho

usa

nd

s R

p

Spending for accomodation

2015 2017

12 15

35

82

13 19

45

108

-

20

40

60

80

100

120


Tho

usa

nd

s R

p

Spending for land transport

2015 2017

3

54

4

67

-

10

20

30

40

50

60

70

80


Tho

usa

nd

s R

p

Spending for air transport

2015 2017

Mid-expend people spend more for air transport and accommodation


Challenges & Opportunities: Internet & Digitalization

44

45

Internet still luxurious good: consumed by higher spending groups

Internet Purpose Number of People (2017)

News & Info 51,652,374

School Assign 19,847,521

Email 16,186,523

SocMed 60,715,691

Entertain 34,582,406

Trade Act. 8,299,532

e-Banking 3,896,740

Total people accessing internet reach 76.7 million in 2017. The rest, about 160.4 million never touch internet in the last 3 months in 2017.

However, people tend to use this technology with unproductive purposes (75%): Entertainment (games, video, streaming), Social-Media, News/Info

While the use for e-Banking only reach 3.9 million (2%)


0

5

10

15

20

25

1 2 3 4 5 6 7 8 9

Mill

ion

s

Number of People Accessing Internet in 2017 (Decile of Spending)

Yes No

46

Why technology (internet) & digitalization importance? Snapshot of Spending

1.5

0.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1 2 3 4 5 6 7 8 9 10 AvgExpen

Mill

ion

s (R

p)

Internet & Expenditure per Capita (Decile of Spending)

Yes No

3.1

1.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1 2 3 4 5 6 7 8 9 10 AvgExpen

Mill

ion

s (R

p)

e-Banking & Expenditure per Capita (Decile of Spending)

Yes No

At the lower spending/expenditure level, the difference in spending from 1st to 7th

decile not much

However, start from 8th decile, spending of people who accessed internet are higher

For e-banking the result is clearer: people use e-banking spend significantly more than people who don’t


Challenges & Opportunities: Woman Empowerment & Financial Inclusion

47

Woman tend to be Entrepreneur

Woman as entrepreneur is higher than man (58% vs 46%)

35.2% 33.9% 33.3% 32.6%30.1% 29.3%

15.8% 15.7% 15.4% 15.7% 16.0% 15.9%

49.0% 50.4% 51.2% 51.7%54.0% 54.8%

0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015 2016 2017

Woman Employment by Sector (% total woman employment)

Sektor Pertanian Sektor Industri Sektor Jasa

50.82% 49.55% 48.98%46.43% 46.76% 46.73%

61.40% 60.35% 60.33% 58.42% 58.08% 58.05%

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017

Wirausaha pria (% jumlah pria bekerja)

Wirausaha wanita (% jumlah wanita bekerja)

Trend of working in services sectors is also increasing for woman • Agriculture: 35% (2012) to 29% (2017)

• Service: 49% (2012) to 55% (2017)

Source: BPS dan ILO. 2017 is an estimation48

Global Findex Data - Indonesia

Financial inclusion rapidly increases due to non cash transfers for social assistance

General Information 2011 2014 2017

Has a national identity card (% age 15+) 90%

Account (% age 15+) 20% 36% 49%

Account, male (% age 15+) 20% 35% 46%

Account, female (% age 15+) 19% 37% 51%

Account, young adults (% ages 15-24) 13% 35% 47%

Account, older adults (% ages 25+) 22% 36% 49%

Financial institution account (% age 15+) 20% 36% 48%

Financial institution account,male(% age 15+) 20% 35% 46%

Financial institution account,female(% age 15+) 19% 37% 51%

Financial institution account,young adults(% age 15-24) 13% 35% 45%

Financial institution account, older adults(% age 25+) 22% 36% 49%

49

Source: World Bank Group

Financial Inclusion in Indonesia: Man vs Woman

19%

10%

0%

8%

37%

26%

2%

11%

51%

32%

2%

17%

0%

10%

20%

30%

40%

50%

60%

Woman (% of Age 15+)

2011

2014

2017

20%

12%

1%

9%

35%

25%

1%

15%

46%

29%

3%

18%

0%

10%

20%

30%

40%

50%

Male (% of Age 15+)

2011

2014

2017

Account Ownership Debit Card Credit Card Borrow at Fin. Institution

Access of finance for woman show

greater improvement compare to

man

Significant increase of account

ownership at financial institution:

19% (2011) to 51% (2017)

The improvement also trigger the

increase of credit card holder by

woman: 10% (2011) to 32% (2017)

Account Own Debit Card Credit Card Borrow at Fin. Institution

Source: World Bank Group

50

Financial Inclusion for Woman: Needs and Potential

27%

67%59%

28%

67%

49%

0-14 15-64 65+

% working ages

Wanita Pria

96.1% 96.0%

72.1%

99.1%93.8%

69.6%

SD SMP SMA

School Participation Rate (APS)

Wanita Pria

766 704

1,0861,022

Wanita Pria

Average Spending of Household (Gender of KRT)

2012 2017

Woman has the same proportion of working ages with man. However, APS for woman is higher for secondary and higher education

Household with woman as the head spend more compare to the man. The difference is about 42% in 2017

Sumber: Susenas (BPS)51

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