indonesia chartbook by bank danamon

8/8/2019 Indonesia Chartbook by Bank Danamon

1/37

1Danamon Economic and Market Research | Please read the disclaimer on the back of this report

Indonesia 2010 and 2011 Economic Outlook

29 September 2010

Helmi Arman

Economist / Bond [email protected]

+62 21 5799-1563

+62 21 5799-1001 ext 1128

Anton Gunawan

Chief [email protected]

+62 21 5799-1466

+62 21 5799-1001 ext 1095

See the Disclosure Appendix for the AnalystCertification and Other Disclosures

Anton Hendranata

Economist / [email protected]

+62 21 5799-1563

+62 21 5799-1001 ext 1128

How far can we go?


2/37


The 2011 GDP growth outlook still looks sanguine; non-food spending maycontinue to rise.

The recent rise in inflation has been mainly limited to food and administeredprices; next year the core may also rise and we expect BI would raise the

BI rate to 7.50%.

However BIs latest reserve requirement regulation buys time to keep the BIrate constant at least until 2Q11.

Signs of fast decline in the current account surplus may leave the balanceof payments (hence exchange rate) more dependent on capital flows.

Next year we expect a flat trend for the IDR/USD with a bias fordepreciation (YE11 forecast: Rp9,150/US$).

Until year-end 2010, reduced bond supply from MOF and strong offshorereal money flows may keep long-end yields suppressed.

Economic highlights


3/37


Real sector developments and outlook

Non-food spending (durable and non-durable) has beenrising

this may continue as long as consumer confidence ismaintained and inflation well-managed.

Unfortunately growth in the manufacturing sector has beenlagging and remains limited to several industries.


4/37


Indonesia 2Q10 GDP: Some interesting trends

Non-food consumption growth rising Higher discretionary spending

Investment growth accelerating Construction, imported machinery,transportation equipment

But government consumption shrinking large fiscal surplus in 2Q10

Source: BPS, CEIC Source: BPS, CEIC

Broad-based demand Household consumption: Food vs. non-food

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10

8

7

6

5

4

3

2

1

%

Non-food

Food

Election effect


7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

20

15

10

5

0

-5

-10

-15

-20

% y-o-y GDP growth

Investments

(RHS)

% y-o-y

Exports


5/37


Retail and durable goods sales: Sky still clear


400

300

200

100

0

-100

Sedan MPV: < 1.5 liter SUV: 1.5 to 3.0 liter

% chg y-o-y

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

80

60

40

20

0

-20

-40

% chg y-o-y

Passenger car sales Motorcycle sales: Astra

Source: CEIC

Source: CEIC


500

450

400

350

300

250

200

150

100

Handy craf ts, Arts & Toy s Food and Tobacco

Apparels Writing Equipment

Oct '00 = 100

BI retail sales index: Selected itemsBI retail sales index: Selected items


500

450

400

350

300

250

200

150

100

H andy craf ts , Arts & Toy s F ood and Tobacco

Apparels W riting Equipm ent

Oct '00 = 100


6/37


But sunshine not so bright in goods-producing sectors

By industry, growth focused on services-related sectors e.g. wholesale& retail trade and communication.

Manufacturing sector growth: modest and narrow based

Negative y-o-y growth: Textiles, wood & forestry, paper & printing,

basic metals

By industry, growth was focused on services sectors

Source: BPS, CEIC

Manufacturing (non-oil and gas): Back to sub-par growt

Source: BPS, CEIC

Dec-02 Dec-04 Dec-06 Dec-08 Dec-10

10

8

6

4

2

0

-2

% y-o-y

Manufacturing

Data uses 2000p base year fromMar-04

Services

Primary

Commodities


9

8

7

6

5

4

3

2

1

% y-o-y

Non-oil-and-gasManufacturing


7/37

7Danamon Economic and Market Research | Please read the disclaimer on the back of this report 7

GDP by Industry breakdown: The red and green sectors

Stable agriculture sectorgrowth

Mining growth draggeddown by Oil & Gas

Manufacturing growth

concentrated in thevehicles/machinerychemicals, andconstruction related

Non traded sector(utilities, infrastructure,

trade and services) growthmore dominant

Non-traded

sectors


8/37


External sector developments and outlook

Export structure is becoming more natural resource dependentand this trend may persist.

Import growth will remain strong amid continued rise indomestic demand and capital investment.

Pace of trade balance deterioration should be closely watched(risk of faster narrowing)!


9/37


Indonesias export structure:

Long term trend: Increased importance of (especially) non-oil primarycommodity exports.

A double-edged sword:

+ : Exports have lower import content

- : Trade surplus becomes susceptible to commodity price swings

Primary commodity exports (non-oil & gas)

Source: BPS, CEIC, Danamon calculations


40

35

30

25

20

15

10

5

% of total exports

Primary comm. exports

(ex-oil & gas)

6MA

Incl: Rubber, w ood, coal, animal and veg. oils, metal ores


55

50

45

40

35

30

25

20

% of total exports

Primary commodity exports

(incl. oil and gas)

6MA

Primary commodity exports (non-oil & gas)

Source: BPS, CEIC, Danamon calculations


10/37


11/37


But non-commodity exports havent seen dramatic

adverse trend

Export growth generallymoderating (higher base effect)

but no dramatic decline in non-commodity exports seen yet.

Dual speed export growth:

Resource-based: 58% y-o-y

Non-resource: 21% y-o-y

Source: BPS. Commodity exports are in bold

1Q09 1Q10 % y-o-yMineral Fuels 2,233 4,747 113%Vegetable and animal fats & oils 2,101 2,666 27%Electrical appliances / machinery 1,550 2,292 48%Metal ores 1,160 1,978 71%

Rubber and rubber products 934 1,962 110%Machinery 993 1,134 14%

Paper 757 955 26%Copper 411 912 122%Textiles 804 864 7%Aluminium 116 147 27%

Export growth of top 10 non-oil and gas items, 7M10 vs. 1Q10

7M09 7M10 % y-o-y

Mineral Fuels 6,800 10,690 57%

Vegetable and animal fats & oils 5,614 6,698 19%Electrical appliances / machinery 4,193 5,688 36%

Metal ores 2,956 4,350 47%

Rubber and rubber products 2,530 5,158 104%Machinery 2,591 2,794 8%Paper 1,850 2,349 27%

Textiles 1,938 2,088 8%

Copper 1,023 1,786 75%Garments 1,448 1,636 13%


12/37


A closer look at exports of non-natural resources (1)

Electrical appliances: Export value still rising

but volume has been stagnant

Price competitiveness issue?

Industry capacity constraints?


500

450

400

350

300

250

200

150

100

US$mnExports: Electrical

machinery and apparatus

6MA


55

50

45

40

35

30

25

20

Kg mn Export vol: Electricalmachinery and apparatus

6MA

Export volume: Electrical machinery and apparatus Export value: Electrical machinery and apparatus



13/37


A closer look at exports of non-natural resources (2)

Clothing exports: No strong uptrend; growth close to stagnant.

Footwear exports: Some improvement, recently.


700

600

500

400

300

200

100

0

Clothing (6MA)

Footwear (6MA)

US$mn


60

50

40

30

20

10

0

Clothing (6MA)

Footwear (6MA)

kg mn

Export volume: Clothing and Footwear Export value: Clothing and Footwear

Source: BPS, CEICSource: BPS, CEIC


14/37


Trade balance a deficit in July amid non-oil import surge

Imports charging on, triggering the first trade deficit since 2008.

But this time, trade deficit was not triggered by a sharp deterioration of theoil trade balance.

What if the oil trade deficit worsens again? Subsidy reform is needed!


14000

12000

10000

8000

6000

4000

4000

3000

2000

1000

0

-1000

Exports

Imports

Trade balance (RHS)

US$mn US$mn


-0

-500

-1000

-1500

-2000

-2500

Oil trade balance (deficit)

US$mn

Indonesia foreign trade Indonesia oil trade balance



15/37


Rising imports in Jun & Jul have been mostly from

capital goods imports

Although imports still dominated by rawmaterials

but surge in last two months drivenmore by capital goods imports.

Consumption goods import growth is alsostrong, but this is from a low base.

Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

10000

8000

6000

4000

2000

0

Raw Materials

Capital Goods

Consumer Goods

US$mn

Indonesia import growth: by category

Indonesia imports: by category

Source: BPS

Source: BPS, CEIC

7M09 7M10 y-o-y Contribution to growthTotal 40,814 60,327 48% 100%Consumption 3,625 5,593 54% 10%Raw materials excl. oil & gas 26,553 39,854 50% 68%Capital goods 10,635 14,881 40% 22%


16/37


What capital goods?

Aircraft imports Leasing mechanism Not lump-sum payment using US$

Machinery imports Which industries are they going to?

Source: BPS

Indonesia top 10 imports (non-oil and gas)

Jun-10 Jul-10 chg (US$mn)Machinery / Mechanical apparatus 1,694 1,939 245

Electrical appliances and machinery 1,350 1,467 117Iron and steel 631 586 (45)Motor vehicles and parts 534 521 (14)Organic chemiclas 461 427 (35)Plastic and plastic products 426 464 38Aircraft and parts 219 641 423

Metal products 316 315 (1)Ships, vessels and floating structures 163 202 39Cotton 196 232 36Total top 10 categories 5,988 6,793 805Others 3,382 3,721 338Total non-oil and gas imports 9,371 10,513 1,143


17/37


Which manufacturing industries are expanding capacity?

Company Industry / Business Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10

ASII Auto 15% 12% 12% 14% 18% 22% 27% 37% 34% 34% 30% 20% 18% 19%

UNVR Consumer 14% 16% 21% 27% 28% 26% 21% 17% 16% 16% 17% 21% 23% 29%

INTP Cement 3% 4% 4% 4% 3% 4% 4% 5% 5% 4% 3% 6% 5% 5%

SMGR Cement 1% 1% 1% 5% 6% 8% 8% 10% 10% 11% 18% 12% 13% 15%

INDF Consumer 13% 5% 7% 64% 65% 64% 64% 16% 18% 19% 19% 13% 12% 10%

CPIN Food 37% 15% 37% 23% 24% 22% 18% 16% 15% 12% 9% 6% 4% 5%

KLBF Consumer 14% 21% 19% 18% 20% 11% 12% 14% 12% 12% 11% 10% 11% 13%

SMCB Cement 2% 2% 2% 1% 1% 4% 8% 8% 8% 4% 0% 0% 0% 1%

AUTO Auto 22% -35% 19% 6% -4% 76% -1% 7% 11% 11% 8% 6% 8% 11%

INKP Pulp & paper -31% 13% 7% 7% 67% 6% 6% 9% 8% 5% 4% 2% 2% 2%

BRPT Chemicals -40% -5% -6% 1550% 1739% 1632% 1640% 25% 31% 9% 5% -13% -17% na

MYOR Consumer 6% 8% 9% 10% 11% 10% 16% 25% 25% 30% 26% 20% 21% 17%

IMAS Auto 20% 14% 14% 4% 2% 6% 10% 17% 15% 17% 15% -8% -7% -5%

TSPC Pharmaceutical 8% 8% 8% 14% 9% 9% 10% 11% 11% 11% 12% 9% 9% 8%

GJTL Tires & tubes 5% 11% 6% 7% 9% 5% 11% 11% 10% 8% 6% 5% 7% 7%

JPFA Animal feed 6% 8% 7% 7% 13% 11% 14% 19% 14% 6% 5% 8% 10%

FASW Pulp & paper 12% 6% 5% 2% 2% 2% 2% 1% 1% 1% 2% 2% 2% 4%

TKIM Pulp & paper 284% 2% 2% 4% 4% 5% 5% 6% 4% 5% 3% 1% 2% 2%AMFG Glass 6% 5% 156% 5% 5% 4% 8% 5% 11% 14% 15% 16% 10% 7%

TCID Consumer 19% 17% 15% 10% 14% 7% 21% 20% 18% 23% 8% 9% 4% 4%

BUDI Chemicals 18% 21% 21% 26% 24% 18% 19% 10% 12% 10% 8% 7% na na

ADMG Textile 2% 1% 0% 2% 1% 1% 2% 0% 2% 0% -1% 2% 0% 2%

BATA Footwear 4% 3% -53% -9% -6% -9% 171% 48% 49% 68% 25% 21% 7% 13%

INDR Textile 6% na na na 7% 6% 6% 4% 2% 0% -1% 0% 0% 0%

CNTX Textile na na na na na na na na 110% 104% 59% 89% -3% -25%

POLY Textile 0% -60% 0% 0% 0% 150% 0% 0% 0% 0% 0% 0% 0% 0%

Increase in gross fixed assets of selected listed manufacturing companies (% y-o-y)

Source: Bloomberg, Danamon calculations

In the sample, relatively strong increase in fixed assets seen in vehicle,consumer, cement andto some extentfootwear companies.


18/37


Across non-manufacturing sectors, capacity expansion

appears to be broader-based

On average, pace of capacity expansion appears to have been broaderacross resource-based & services sector companies.

Company Industry / Business Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10TLKM Telecom 22% 35% 20% 17% 13% 12% 14% 15% 15% 16% 14% 12% 11% 9%

EXCL Telecom 33% 34% 39% 42% 44% 45% 48% 45% 38% 26% 14% 8% 6% 7%

AALI Plantations 18% 19% -21% -20% -30% 24% 84% 77% 120% 23% 24% 25% 20% 21%

ISAT Telecom 19% 17% 18% 22% 25% 27% 25% 24% 26% 24% 25% 18% 12% 8%

JSMR Toll-road na na na na na na na na 13% 12% 14% 14% 16% 17%

LSIP Plantations 16% 8% 10% 22% 35% 32% 28% 15% 14% 13% 14% 14% 12% 11%

ADRO Coal na na na na na na na na na na na 8% -1% -1%

UNTR Heavy Equipment 19% 12% 12% 17% 32% 42% 48% 55% 41% 43% 39% 28% 24% 23%

INCO Nickel 3% 3% 3% 5% 5% 5% 6% 7% 8% 8% 7% 5% 5% 5%

ITMG Coal na na na na na na na na 17% 15% 14% 13% 12% 11%

PTBA Coal 2% 2% 2% 2% -73% 1% 1% 5% 354% 22% 22% 17% 3% 4%

BUMI Coal 12% 8% 6% 3% 4% 6% 14% 25% 31% 31% 28% 19% 11% 11%

INDY Coal na na na na na na na na na na 1499% 1376% 1244% na

RALS Retail 24% 15% 15% 17% 20% 25% 23% 24% 21% 20% 15% 11% 13% 15%

BTEL Telecom 30% 30% 79% 85% 84% 93% 43% 57% 58% 92% 93% 73% 69% 28%

MNCN Media na na na na na na -45% 23% 24% 19% 145% 9% 8% 11%

AKRA Transport / Chemicals 29% 17% 22% 28% 25% 27% 29% 44% 48% 38% 37% 22% 12% 17%

MPPA Retail 14% 11% 7% -5% -3% -3% 0% 15% 20% 21% 20% 12% 4% na

HEXA Heavy Equipment 19% -55% -56% -57% 5% 12% 25% -1% -54% 85% 61% 100% 85% 8%

BLTA Shipping 19% 20% 33% 127% 136% 138% 101% 13% -4% 13% 15% 13% 7% 11%

Source: Bloomberg, Danamon calculations

Increase in gross fixed assets of selected listed resource based / services sector companies (% y-o-y)


19/37


Forward looking (though less reliable) FDI data also

shows similar trends

0

100

200

300

400500

600

700

800

900

1Q 2Q 3Q 4Q

2005 2006 2007 2008 2009 2010

0

1000

2000

3000

4000

5000

6000

7000

8000

1Q 2Q 3Q 4Q

2005 2006 2007 2008 2009 2010 Consistent increase in quarterly ForeignDirect investment (FDI) in raw commodity(primary) sectors

as well as services (tertiary) sectorssince 2009.

There is signs of FDI improvement insecondary sector (manufacturing) but lessapparent.

FDI realization (US$mn): Primary sector FDI realization (US$mn): Secondary sector

0

500

1000

1500

2000

2500

1Q 2Q 3Q 4Q

2005 2006 2007 2008 2009 2010

Source: BKPM; Data doesnt include oil and gas mining Source: BKPM

Source: BKPM; Data doesnt include Banking, Non Bank FinancialInstitution, Insurance, Leasing

FDI realization (US$mn): Tertiary sector


20/37


Investment in a number of domestic demand sectors may

require more capital goods imports going forward

0

500

1000

1500

2000

2500

3000

3500

1Q 2Q 3Q 4Q

2005 2006 2007 2008 2009 2010Rpbn

0

100

200

300

400

500

600

700

800

1Q 2Q 3Q 4Q

2005 2006 2007 2008 2009 2010US$mn

There have been FDI and Domestic DirectInvestment (DDI) improvements in utilitiesinfrastructure.

1Q10 DDI improvement also in transport

and comm. sector. These sectors are domestically oriented,

but investment may need capital goodsimports going forward.

DDI realization: Electricity, gas and water FDI realization: Electricity, gas and water

0

500

1000

1500

2000

2500

1Q 2Q 3Q 4Q

2005 2006 2007 2008 2009 2010Rpbn

Source: BKPM Source: BKPM

Source: BKPM

DDI realization: Transport and communication


21/37


Inflation and interest rate developments

Inflation has risen but mainly limited to food andadministered prices.

BIs latest reserve requirement package buys time toavoid raising the benchmark rate at least until 2Q11.

We should watch inflation expectations, the core inflationrate and deterioration of current account balance.


22/37


Aug-06 Aug-07 Aug-08 Aug-09 Aug-10

50

40

30

20

10

0

-10

-20

Mining & Quarrying

Agriculture

Construction Materials

% y-o-y

Imports

Inflation creeping up, but has not become broad-based

Inflation climbed in Aug-10 (6.44% vs.6.22% in July).

But rise not yet very broad-based; increasein core inflation (4.24%) less profound.

Consumer inflation expectations pulled-

back in August. Wholesale price level inflation also shows

no strong uptrend.

Consumer inflation expectations indexCPI inflation and BI rate

Source: BPS, CEIC Source: Bank Indonesia, CEIC

Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10

20

18

16

14

12

10

8

6

4

2

BI rate

Headline inflation

% y-o-y, p.a.

Core inflation


190

180

170

160

150

140

pt

Price expectation6M forward (LHS)

Source: BPS, CEIC, Danamon Calculations

Wholesale price inflation: No strong uptrend


23/37


Loans growth continues to accelerate

-4

-3

-2

-1

0

1

2

3

4

5

6

Jan Feb Mar Apr May Jun Jul

2006 2007 2008 2009 2010

% m-o-m

IDR loan growth accelerated in July (22% y-o-y, 0.8% m-o-m).

FCY (USD) loan growth catching up fast (18% y-o-y, 1.8% m-o-m) in Julyon an exchange rate adjusted basis.

IDR loan growth (% m-o-m) USD loan growth (% m-o-m, exchange rate adjusted)

Source: Bank Indonesia, CEIC Source: Bank Indonesia, CEIC

-6

-4

-20

2

4

6

8


2006 2007 2008 2009 2010

% m-o-m

IDR TPF h i d 15% i J l


24/37


IDR TPF growth increased to 15% y-o-y in July

IDR TPF (Third Party Funds) grew 0.6% m-o-m, 15% y-o-y in July.

Domestic liquidity pool continues downward trend

shrinking (-Rp30tn) in July upon withdrawal of 13th month civil servantsalary.

IDR TPF growth IDR excess deposits

Source: Bank Indonesia, CEIC Source: Bank Indonesia, CEIC, Danamon calculations

-4

-3

-2

-1

0

1

2

3

45


2007 2008 2009 2010

% m-o-m

Aug-07 Aug-08 Aug-09 Aug-10

400000

350000

300000

250000

200000

150000

500000

450000

400000

350000

300000

250000

Bank holdings of SBI + Bonds

Bank excess deposits (IDR)

Excess Deposits = Bank Deposits - Loans - Reserv es at BI

Rpbn Rpbn

BI i t hik i N b b b


25/37


BI reserve requirement hike in November may absorb

Rp50 55tn in liquidity

Based on July figures, the 3ppt PRR hike would draw out Rp52tn from thesystem.

Our estimates: LDR-linked RR in Mar-11 may absorb another Rp10tn.

Deposits, LDR and CAR of selected commercial banks per 2Q10

Source: Bloomberg, Danamon estimates; Blended: includes IDR + USD portions; *4Q09 figures; **Company figures

Deposits

(Blended)LDR

(Blended) CAR

Danamon 67,015 106.0 15.3

BRI 259,342 87.2 14.1**

BNI 184,198 68.9 13.5**Mandiri 326,578 67.6 14.5**

Niaga 106,180 86.3 12.1**

BII 52,214 94.3 14.9

NISP 30,892 77.5 18.7

Permata 47,232 90.2* 12.2*

BTN 39,997 116.1 18.7

MEGA 32,791 63.6 17.7BCA 255,030 52.7 14.7**

Panin 62,407 80.2 19.7

BTPN 22,351 88.3 18.5*

Bukopin 38,108 77.5 13.3

Total / Average 1,524,335 82.0 15.7

BI t hik f t h d b k i t 2011


26/37


BI rate hike forecast pushed back into 2011

BIs quantity tightening measures buy time to avoid rate hike in 2010.

Rate hike could be delayed further into 1Q-2011, when core inflation mayexceed 5.5%...

and the current account surplus narrows further (if not turn into deficit).

Further delay in energy subsidy reforms may be favorable for short-terminflation, but could exacerbate the trade balance deterioration.

2003 2005 2007 2009 2011 2013 2015

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

% of GDP

Indonesia current account (% of GDP)

Source: BPS, CEIC; Shaded: Danamon estimates

Indonesia M1 growth and core inflation

Source: CEIC, Danamon estimates

Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

30

25

20

15

10

5

0

11

10

9

8

7

6

5

4

3

Core Inflation, RHS

M1 growth (lead 18M)% y-o-y

%


27/37


Exchange rate and yield curve outlook

If the current account worsens, exchange ratefluctuations will become more dependent on capitalflows.

We think the exchange rate is likely to head towardsRp9,150/US$ by end-2011.

In the IDR bond market, reduced supply from MOF and

strong offshore real money flows may keep long-endyields suppressed in the near term.

As trade surplus narrows capital flows will be more


28/37


As trade surplus narrows, capital flows will be more

closely monitored

With the foreign trade surplus shrinking and current account surplusnarrowing

IDR/USD movements will be more dependent on capital flows goingforward.

BI will also likely to be even more participative in the market, smoothingout fluctuations.

0

20

40

60

80

100

120

140

160

180

200

Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10

Rptn

Foreign Ownership:

IDR Government Bonds

Foreign Ownership:

SBI


8000

6000

4000

2000

0

-2000

-4000

JCI: Net foreign buying (Rpbn)

Foreign ownership of bonds and SBI Net foreign flows in the equity market

Source: Bank Indonesia Source: CEIC

2011 exchange rate forecast


29/37


2011 exchange rate forecast

We still expect strong capital account surplus in 2011, however smallercurrent account surplus could reduce the balance of payments surplus.

Domestic money supply M2 will also accelerate, given stronger economicgrowth and higher inflation.

Given our money supply and BOP projections, we think the exchange rate

is likely to head towards Rp9,150/US$ by end-2011.

2007 2008 2009 2010 2011

6.5

6.0

5.5

5.0

4.5

4.0

100000

90000

80000

70000

60000

50000

40000

Months of imports

and STED, LHS

US$mn

International reserves and import cover

Source: CEIC, 2010 and 2011 are Danamon estimates


12500

12000

11500

11000

10500

10000

9500

9000

8500

8000

40000

38000

36000

34000

32000

30000

28000

26000

24000

Nominal ExchangeRate (LHS)

IDR/USD IDR/USD

M2 / Foreign Reserves

(Adj. RHS)

M2/Reserves and IDR/USD


Highlights from the proposed 2011 fiscal budget


30/37


Deficit of 1.7% GDP (vs. expectedrealization of 1.5% this year).

Stable, on the low side, tax ratio.

Higher infrastructure spending andlower energy subsidies.

Another 15% increase in electricity

tariffs (got rejected by parliamentrecently).

Caution: Numbers can still change

Highlights from the proposed 2011 fiscal budget

Source: MOF

2010 Rev. budget 2011 Planned chg

A) Total revenue and grants 992.4 1086.4 94

1) Tax revenues 743.3 839.5 96.2

2) Non-tax revenues 249.1 243.1 -6.0

B) Government Expenditures 1126.1 1202 75.9

1) Ministry and agencies 366.2 410.4 44.22) Non-Ministries 415.3 413.2 -2.1

Energy subsidies 144.0 133.8 -10.2

II) Transfer to region 344.6 378.4 33.8

D) Surplus / Deficit -133.7 -115.7 18.0

as % of GDP 2.1 1.7 -0.4

E) Financing 133.7 115.7 -18.0

- Government bonds (net) 107.5 125.5 18.0

Assumptions 2010 Rev. budget 2011 Planned

GDP growth (%) 5.8 6.3

3M SBI rate (%.p.a.) 6.5 6.5Indonesian crude price ($/bl) 80 80

Exchange rate (Rp/US$) 9,200 9,300

Oil lifting (kbpd) 965 970

But next years supply schedule looks more challenging


31/37


1. Fiscal Deficit 133.7 115.7 1. Domestic Borrowing 1.0 1.0

2. Maturing Bonds, incl. buyback 70.6 84.0 2. Gross Bond Issuance 178.0 209.5

3. Maturing External Debts 54.1 48.1 2. External Debts: 70.8 57.1

4. Gov.Invest. & Capital Inject. 22.5 16.3 a. Program Loans 29.4 17.7

5. Channel to SOEs/Reg.Gov. 16.8 12.0 b. Project Loans 41.4 39.4

4. Domestic Banks, incl. SILPA 45.5 7.7

5. Privatize & Asset Sales 2.4 0.8

Total Financing Need 297.7 276.1 Total Financing Source 297.7 276.1

RAPBN

2011

APBN-P

2010

RAPBN

2011FINANCING SOURCE (IDR Trillion)FINANCING NEED (IDR Trillion)

APBN-P

2010

Increased reliance on bond market financing;

Reduction of net foreign loan withdrawal.

Comment: Rising debt issuance still looks manageable, but success willdepend much on foreign investor appetite.

But next year s supply schedule looks more challenging

Source: MOF

2011 fiscal highlights

The dominant vs the dormant


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The dominant vs. the dormant

Up to Aug-2010, offshore investors (Rp70.8tn) have been net buyers of IDRgovvies.

Onshore investors have been net sellers (-Rp7tn).

Source: MoF, Danamon estimate

Ownership of IDR Tradable Government Bonds (%)

64.356.2

49.2 43.737.5

5.12

5.516.30

7.77

7.86 8.03

13.88

14.44 16.8918.92

18.34 18.35

13.1 16.4 16.7 18.626.1

35.6

27.7

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 Jun-10 Aug-10

Banks Bank Indonesia Mutual Funds

Insurance & Pension Securities & Others Foreign

Net Buyers of IDR Government Bonds (% of Total)

-75

-50

-25

0

25

50

75

100

125

150

2007 2008 2009 1H10

-75

-50

-25

0

25

50

75

100

125

150

Banks

Bank Indonesia

Mutual Funds

Insurance & PensionForeign

Securities & Others

Will onshore investors still stay on the sidelines next


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Will onshore investors still stay on the sidelines next

year?

Banks Funding costs rising; need cash to fund loans growth

Negative carry on bonds for most banks (vs. marginal cost of funds)

SBIs give better yield with more liquidity

Next year, banks likely to be net sellers of bonds (-Rp15 20tn)

Pension funds & Insurance

Traditional pension funds

Running defined benefit schemes

ALM not a top priority

Government bonds dont seem too attractive: Some banks offer better interest rates at shorter tenors

Wait for corporate bond primary issuances

Higher allocation into equities

Insurance & modern pension funds

Stable demand for bonds

Implication: At current yields, the government will still very much have torely on foreign inflows to accommodate their 2011 issuance schedule.

Bond yields: cross-country comparison


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o d y e ds: c oss cou t y co pa so

ID inflation-adjusted 10-yr yield now more aligned with regional peers, butstill among the highest in the Asia Pacific.

10-yr local currency yield (%) comparison

Source: Bloomberg (27-Sep), FocusEconomics (Aug-10); Real Yield: Nominal yield 2011consensus inflation

10-yr Yield "Real Yield" S&P Rating

LCY 2010 2011

Australia 5.09 3.0 3.0 2.1 AAA

China 3.32 3.3 3.1 0.2 A+

Hong Kong 2.09 2.8 2.9 -0.8 AA+India 7.95 7.8 5.4 2.6 BBB-

Indonesia 7.75 4.7 5.8 2.0 BB

Japan 1.01 -0.9 -0.2 1.2 AA

Philippines 6.02 4.5 4.2 1.8 BB-

Singapore 2.06 2.7 2.6 -0.5 AAAKorea 4.3 2.9 3.1 1.2 A

Taiwan 1.23 1.3 1.6 -0.4 AA-

Thailand 3.12 3.3 3.0 0.1 BBB+

Consensus Inflation

Reduced supply may allow for tactical flattening


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pp y y g

Until YE10, new issuances will be limited to around Rp17tn or Rp3.4tn per

auction.

Reduced supply from MOF and strong offshore real money flows maykeep long-end yields further suppressed.

Externally, prospects of QE2 in the US also bringing down yields globally.

In the last auction, bid to cover ratio was very high (9.3 times) for the 21-yr bond.

IDR sovereign yield curve

Source: Bloomberg

29-Sep

1M ago

Indonesia Selected Economic Indicators


36/37



"Note: The above views, trends and pricing are subject to change without notice and are based on certain assumptions. Actual

results may differ materially. Prior to making any investment decision, you should make your own determination that theinvestment is consistent with your objectives and that you are able to assume the risk."

2007 2008 2009 2010E 2011E

National Accounts

Real GDP (% y-o-y) 6.3 6.1 4.6 6.1 6.4Domestic demand ex. inventory (% y-o-y) 6.0 7.4 5.5 6.2 7.6

Real Consumption: Private (% y-o-y) 5.0 5.3 4.9 4.8 4.9

Real Gross Fixed Capital Formation (% y-o-y) 9.2 11.7 3.4 10.0 11.7

GDP (US$bn) nominal 433 507 536 672 774

GDP per capita (US$) nom inal 1,925 2,227 2,324 2,878 3,274

Open Unemployment Rate (%) 9.8 8.6 7.9 7.2 6.9

External Sector

Exports, fob (% y-o-y, US$ bn) 14.0 18.3 -14.4 24.7 11.1

Imports, fob (% y-o-y, US$ bn) 15.4 36.8 -27.7 33.4 15.5

Trade balance (US$ bn) 32.8 22.9 35.2 36.6 35.7

Current account (% of GDP) 2.5 0.1 2.0 1.1 0.4

Central government debt (% of G DP) 35.1 33.0 28.8 26.0 24.4

International Reserves IRFCL (US$ bn) 56.9 51.6 66.1 83.3 95.2

Reserve cover (Imports and external debt) 5.7 4.0 6.5 5.8 6.0

Currency/US$ (Year-end) 9,419 10,950 9,403 9,075 9,150

Currency/US$ (Average) 9,163 9,767 10,356 9,100 9,115

Other

BI policy rate (% year end) 8.00 9.25 6.50 6.50 7.50

Consumer prices (% year end) 6.60 11.06 2.78 6.10 6.50

Fiscal balance (% of GDP; FY) -1.3 -1.0 -1.6 -1.4 -1.2

S&P's Rating - FCY BB- BB- BB- BB BB+


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