0

Indonesian Economy and

ASEAN Economic Community

Leeds, March 14th, 2015

Indonesian Fundamental

GDP Growth Inflation

Foreign Exchange Reserves Balance of Payments

1 * Preliminary Figures

Domestic Economic Adjustment Continues

• The Indonesian economy recorded 5.01% (yoy) growth in Q4-2014, accelerating from 4.92% (yoy) in the preceding period. Consequently, the economy grew at 5.02% in 2014, which is in line with Bank Indonesia’s previous projection.

• Robust economic growth in Q4-2014 was achieved on the back of stronger domestic demand, predominantly in the form of construction investment and government consumption. Meanwhile, resilient household consumption endured despite moderating slightly in line with economic stabilization policy.

• From an external standpoint, a deep contraction was felt in terms of export performance, decelerating to 4.53% (yoy) due to weak demand from emerging market countries and lower commodity prices.

• Stronger economic growth is projected in 2015, in the range of 5.4-5.8%, bolstered by expansive government investment as fiscal capacity expands to catalyze productive economic activity, including infrastructure development as approved in the 2015 budget.

2

Economic Growth - Expenditure Side

S e c t o r 2012 2013

2013 2014

2014 I II III IV I II III IV

Household Consumption 5.5 5.5 5.2 5.4 5.4 5.4 5.4 5.1 5.1 5.0 5.1

Gross Fixed Capital Formation 6.7 6.5 6.4 6.7 12.8 8.2 23.7 22.8 5.6 (-0.2) 12.4

Government Consumption 4.5 3.0 3.2 12.4 7.9 6.9 6.1 (-1.5) 1.3 2.8 2.0

Exports of Goods and Services 1.6 3.5 2.1 1.3 9.4 4.2 3.2 1.4 4.9 (-4.5) 1.0

Imports of Goods and Services 8.0 2.9 0.9 4.9 (-0.9) 1.9 5.0 0.4 0.3 3.2 2.2

GDP 6.0 5.6 5.6 5.5 5.6 5.6 5.1 5.0 4.9 5.0 5.0

Economic Growth - Supply Side

S e c t o r 2012 2013

2013 2014

2014 I II III IV I II III IV

Agriculture, Forestry, and Fisheries 4.6 4.2 4.6 3.5 4.6 4.2 5.3 5.0 3.6 2.8 4.2

Mining and Quarrying 3.0 0.9 0.7 2.7 2.7 1.7 (-2.0) 1.1 0.8 2.2 0.5

Manufacturing 5.6 4.7 5.4 3.7 4.2 4.5 4.5 4.8 5.0 4.2 4.6

Electricity and Gas 10.1 9.8 4.7 2.4 4.4 5.2 3.3 6.5 6.0 6.5 5.6

Water Supply, Waste Management and Recycling 3.3 3.5 3.6 4.7 4.5 4.1 3.6 3.2 2.8 2.7 3.0

Construction 6.6 5.4 6.3 6.5 6.2 6.1 7.2 6.5 6.5 7.7 7.0

Wholesale and Retail Trade; Automotives 5.4 3.0 4.8 4.9 6.1 4.7 6.1 5.1 4.8 3.5 4.8

Transportation and Warehousing 7.1 7.4 8.9 8.3 8.9 8.4 8.4 8.5 8.0 7.1 8.0

Provision of Accommodation and Food & Beverage 6.6 7.0 7.0 6.9 6.3 6.8 6.5 6.4 5.9 4.9 5.9

Information and Communication 12.3 10.6 11.4 10.1 9.5 10.4 9.8 10.5 9.8 10.0 10.0

Financial Services and Insurance 9.5 13.2 11.0 9.2 3.5 9.1 3.2 4.9 1.5 10.2 4.9

Real Estate 7.4 8.9 7.7 5.4 4.3 6.5 4.7 4.9 5.1 5.3 5.0

Business Services 7.4 7.8 7.6 8.2 8.0 7.9 10.3 10.0 9.3 9.7 9.8

Administration, Defence, and Social Security 2.1 1.6 (-2.1) 6.4 3.8 2.4 2.9 (-2.5) 2.6 6.9 2.5

Education Services 8.2 11.7 3.2 8.6 9.4 8.2 5.2 5.4 7.3 7.1 6.3

Health Services and Social Activities 8.0 6.9 5.2 8.3 10.7 7.8 7.7 8.5 9.9 6.1 8.0

Other Services 5.8 5.6 5.6 6.2 8.2 6.4 8.4 9.5 9.5 8.4 8.9

GDP 6.0 5.6 5.6 5.5 5.6 5.6 5.1 5.0 4.9 5.0 5.0

Decreasing Pressure of Inflation

Disaggregation of Inflation

Source: BPS, Bank Indonesia

• Consumer Price Index (CPI) in January 2015 records deflation of 0.24% (mtm), which results from deflation of administered prices and decreasing

pressure of inflation of volatile food prices. Annual inflation is recorded 6.96% (yoy).

• The administered prices record a significantly high deflation in January by 3.51% (mtm). Annually, the inflation of administered prices is recorded

12.31% (yoy). Deflation of administered prices results from the Government’s policy to adjust the fuel prices and inner city transport tarriff.

• Inline with the deflation of administered prices, the pressure of volatile food inflation also decreases to 0.55% (mtm) or 8.35% (yoy) from 3.53% (mtm)

or 10.88% (yoy) in the previous month.

• Actual core inflation is still relatively controlled at the level of 0.61% (mtm) or 4.99% (yoy), supported by lower external and domestic pressures.

• Bank Indonesia will continue to strengthen coordination with the central and local government in terms of managing inflation of volatile foods and

administered prices in order to ensure attainment of the inflation target of 4.0± 1% in 2015.

Consensus Forecast

Source: Consensus Forecast 3

• Indonesia's Balance of Payments (BOP) posted a US$2.4 billion surplus in Q4/2014. The

BOP surplus was supported by capital and financial account surplus of US$7.8 billion, which

exceeded current account deficit of US$6.2 billion (2.81% of GDP). The Q4/2014 BOP surplus

in turn increased reserve assets from US$111.2 billion at the end of Q3/2014 to US$111.9

billion at the end of Q4/2014 (equal to 6.4 months of imports and servicing of government

external debt repayment).

• The BOP in 2014 improved significantly on account of effective synergy of stabilization

policy adopted by Bank Indonesia and the Government. BOP in 2014 recorded a surplus of

US$15.2 billion, as against a deficit of US$7.3 billion in 2013. This improvement was supported

by shrinking current account deficit and rising capital and financial account surplus.

• Amid slower than expected global economic recovery, the current account performance

improved. The current account deficit in Q4/2014 was lower than the deficit of US$7.0 billion

(2.99% of GDP) in Q3/2014. This improvement was mainly driven by increased trade surplus in

line with a rise in non-oil & gas trade surplus and decline in oil and gas trade deficit. However,

the current account deficit in Q4/2014 was bigger than the deficit of US$4.3 billion (2.05% of

GDP) in the same period in 2013, primarily due to weak performance of non-oil & gas exports

and widened oil & gas trade deficit .

• For the whole 2014, current account improved with deficit amounted to US$26.2 billion

(2.95% GDP), lower than US$29.1 billion (3.18% GDP) in 2013.

• Investors' positive perception on Indonesia’s economic prospect and remained

attractive yields encouraged foreign capital influx that could fully financed the current

account deficit. In Q4/2014, the capital and financial account surplus was supported by

inflows of Foreign Direct Investment (FDI) and other investment surplus sourced from

withdrawal of domestic private sector's deposits abroad and corporates’ foreign loans.

However, the surplus was lower than that in Q3/2014 amounted to US$14.7 billion due to

foreign capital outflows from Rupiah portfolio instruments in December 2014 triggered by

rising investor concerns related to the planned Fed Fund Rate hike following release of

improved US economic data.

• The capital and financial account surplus in 2014 amounted to US$43.6 billion, an increase

from US$22.0 billion in 2013. Higher surplus was boosted by positive investor confidence in

Indonesia's economic outlook.

Balance of Payments Recorded a Surplus in Q4-2014

• Trade surplus increased from US$1.6 billion in Q3/2014 to US$2.4 billion in Q4/2014 on account of

higher non-oil & gas trade surplus and widened oil & gas trade deficit.

• Non-oil & gas exports increased as exports grew (1.4%, qtq) higher than imports (0.2%, qtq). The

export growth was supported by increased demand, especially for vegetable oil and manufactured

products, amid slump in the global commodity prices.

Balance of Payments Q4-2014: Current Account

• In oil & gas front, although oil import volume increased, oil & gas trade deficit shrank as a result of

continuing drop in world crude oil price.

• For 2014, trade surplus reached US$6.9 billion, increased from US$5,8 billion in 2013 supported by

higher non-oil & gas trade surplus.

Trade Balance: Non-Oil & Gas

Trade Balance: Oil & Gas

• Compared to Q3/2014, services account deficit increased as surplus in travel services narrowed

following its seasonal pattern. Services account deficit in 2014 was US$10.5 billion, smaller than

US$12.1 billion deficit in 2013, primarily due to lower freight payments following subdued imports

• In the same period, the primary income account deficit increased from hikes in interest payments

of foreign loans following its scheduled. The deficit for the whole 2014 also larger than that in 2013 as

payments for dividends and interests on inter-company loans and domestic debt securities increased

inline with surged inflows of foreign capital.

• Meanwhile, secondary income surpluses in Q4/2014 and 2014 was higher than those in the

previous period mainly contributed by the increase in net income of personal transfers.

Current Account - Services, Primary Income, and Secondary Income

6

Balance of Payments Q4-2014: Capital & Financial Account

Financial Account: Assets

Financial Account Liabilities: Direct Investment

• On the assets side, Indonesia’s financial account charted net inflow of

US$1.0 billion in Q4/2014, in contrast with deficit US$3.9 billion in Q3/2014

primarily due to withdrawal of private sector’s deposits abroad as well as

receipts from trade receivables.

• For 2014, financial assets posted net outflow of US$12,0 billion, lower than

US$15,5 billion net outflow in 2013 as Indonesia’s direct investment assets

slowed and portfolio investment assets decreased.

• Direct investment inflows (liability side) in Q4/2014 remained in surplus of US$5.5 billion. However, these inflows was lower than that in the previous quarter

(US$8,2 billion) in line with slowing economic growth (2.1%; qtq). For the whole 2014, direct investment inflows grew 9.7% to reach US$25.7 billion.

• On directional basis, Foreign direct investment (FDI) during Q4/2014 decreased US$4,7 billion from US$7,6 billion in Q3/2014. By sector, manufacturing,

agriculture, fishery & forestry, and financial intermediaries (incl. Insurance) were the main sectors attracting FDI inflows during Q4/2014. While based on the country

of origin, the inflows of FDI were dominated by countries in the ASEAN region, followed by Japan and Emerging Markets of Asia (incl. China). FDI for 2014 amounted

to US$22.3 billion, higher than US$18.9 billion in 2013.

7

Balance of Payments Q4-2014: Capital & Financial Account

Financial Account Liabilities: Portfolio Investment

Financial Account Liabilities: Foreign Other Investment

• Foreign portfolio investment charted a tiny outflows in Q4/2014 due to foreign capital outflows from rupiah portfolio instruments in

December 2014 triggered by elevated investors’ worries related to the planned Fed Funds Rate hikes.

• For the whole 2014, foreign portfolio investment inflows reached US$23.4 billion, almost double than US$12,1 billion inflows recorded in 2013.

• Other investment liabilities in Q4/2014 charted US$1.3 billion surplus,

lower than the surplus of US$4.3 billion in the previous quarter. The

decreased surplus was mainly influenced by withdrawal of nonresident

deposits in domestic banks and increased payments of other liabilities.

• For the whole 2014, other investment liabilities registered US$6,9

billion surplus, increased from US$2.6 surplus in 2013 primarily due to

higher net drawings of private sector’s foreign loans.

Exchange Rate In Line With Fundamentals

• The rupiah depreciated in line with broader US dollar appreciation. In Q4-2014, the rupiah sank on average by 3.9% (qtq) to a level of Rp12,244 per US dollar. An increasingly solid US economy precipitated US dollar appreciation against all global currencies.

• Pressures on the rupiah persisted into January 2015 as the US dollar continued to appreciate in light of the ECB’s plan to loosen its monetary policy stance, which was repeated in a number of other countries.

• On average, the rupiah depreciated 1.21% (mtm) to a level of Rp12,581 per US dollar.

• Bank Indonesia considers the recent rupiah fluctuations beneficial in terms of the current account deficit through lower imports, in particular of consumer goods, as well as greater export competitiveness, especially of manufacturing exports.

Movement of Rupiah

International Reserves

8

• Indonesia's official reserve asset position as of end-January 2015 reached U.S.$114.2 billion, up from the end of December 2014 level of U.S.$111.9 billion.

• Increasing reserves were mainly attributable to receipts of the global bonds issued by Government, foreign currency deposits of banks at Bank Indonesia, Government’s oil and gas export proceeds, and other Government revenue in the form of foreign currency that exceed the needs of Government external debt payments.

• Official reserve assets at the end of January 2015 can adequately cover 6.8 months of imports or 6.6 months of imports and servicing of government external debt repayment, well above the international standards of reserves adequacy at 3 months of imports.

Monetary Policy Stance

BI Rate

Source: Bank Indonesia

• The Bank Indonesia Board of Governors, convened on 17th February 2015, lower the BI Rate 25 bps to 7.50%, with the Deposit Facility rate also reduced 25

bps to 5.50% and the Lending Facility rate maintained at 8.00%, effective 18th February 2015.

• Such policy measures were instituted based on Bank Indonesia’s conviction that inflation will remain under control at the lower end of the 4±1% range in

2015 and 2016. The current policy direction is consistent with Bank Indonesia’s efforts to reduce the current account deficit to a more sustainable level.

• Bank Indonesia perceives that with approval of the 2015 budget, government-led fiscal stimuli and structural reform policy will catalyze stronger and

higher quality economic growth.

• Bank Indonesia will continue to strengthen its monetary and macroprudential policy mix, bolster the payment system and intensify coordination with the

Government in terms of controlling inflation, reducing the current account deficit and promoting structural reforms in order to support higher economic

growth.

9

6.50

6.75

6.50

6.00

5.75

6.00

6.50

7.00

7.25

7.50

7.75

7.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2

2010 2011 2012 2013 2014 2015

(%) (%)

Solid Financial System Stability

• Banking industry resilience remained solid with credit risk, liquidity risk and

market risk well mitigated and the support of a healthy capital base.

• In January 2015, the Capital Adequacy Ratio soared to 19.50%, well above

the statutory minimum of 8%, while non-performing loans (NPL) were low

and stable at around 2.2%.

• In terms of the intermediation function, credit growth decelerated to 11.6%

(yoy) from 13.2% (yoy) at the end of the third quarter in line with ongoing

economic moderation. Meanwhile, deposit growth in December 2014 was

12.3%, down from 13.3% in the preceding quarter.

• In line with an expected economic upswing, deposit and credit growth are

projected to accelerate respectively to 14-16% and 15-17%.

• On the other hand, capital market performance improved as the IDX

Composite continued to rally.

CAR Comfortably High, NPL Favorably Low

Slowdown in Loan Growth

Stock Market Strengthened

10

11

Source: Ministry of Finance

Debt Composition

Table of Debt to GDP Ratio

Central Government Debt to GDP Ratio (% of GDP)

47.9% 52.6% 53.7% 54.9% 55.5% 53.2% 56.7% 55.9%

52.1% 47.4% 46.3% 45.1% 44.5% 46.8% 43.3% 44.1%

0%

20%

40%

60%

80%

100%

120%

2008 2009 2010 2011 2012 2013 2014 Jan-15

Domestic Debt Foreign Debt

33.0%

28.3%26.2%

24.4% 24.0%26.2% 24.7%

0%

5%

10%

15%

20%

25%

30%

35%

2008 2009 2010 2011 2012 2013 2014*

2008 2009 2010 2011 2012 2013 2014

GDP 4,954,028.9 5,613,441.7 6,422,918.2 7,427,086.1 8,241,864.3 9,083,972.2 10,542,700.0

Debt Outstanding (billion IDR) 1,636,740.7 1,590,656.1 1,681,656.5 1,808,946.8 1,977,706.4 2,375,495.5 2,604,932.6

- Domestic Debt (Loan+Securities) 783,855.1 836,308.9 902,823.4 993,038.2 1,097,993.2 1,263,928.6 1,477,516.7

- Foreign Debt (Loan+Securities) 852,885.6 754,347.2 778,833.1 815,908.6 879,713.2 1,111,567.0 1,127,415.8

Debt to GDP Ratio 33.0% 28.3% 26.2% 24.4% 24.0% 26.2% 24.7%

- Domestic Debt to GDP Ratio 15.8% 14.9% 14.1% 13.4% 13.3% 13.9% 14.0%

- Foreign Debt to GDP Ratio 17.2% 13.4% 12.1% 11.0% 10.7% 12.2% 10.7%

End of Year

Contained Sovereign Debt Position

Improving Budget Structure

Manageable Fiscal Deficit

Quality of Spending

Sustainable Revenue Source

• Develop effective taxation policy and tax administration

• Focus not only on the corporate but also on personal income tax & improve value added tax system.

• Provide fiscal incentive for investment with better targeted system

• Change subsidy paradigm Shift from price (commodity) subsidy to targeted subsidy system

• Reallocate budget to productive spending, such as infrastructure and direct assistance.

• Prioritize basic infrastructure to support food security, agriculture and fisheries sectors as well as job creation.

• Provide a greater room on our fiscal to anticipate the uncertainty coming from global economic development.

• Encourage private sector to help infrastructure development, among other through PPP scheme

Better fiscal profile through improved budget structure

Spending Re-Allocation To Achieve Greater Productivity

Infrastructure Plan 2015-2019

New Sea Ports - 24 Sea Port Development - 59 Pioneer Cargo Ships

New Airports - 15 Airport Infrastructure Development Airplanes - 20

Rail lines - 2,159 km Intra City Rail Lines - 1,099 km

New Roads - 2,650 km Highway - 1,000 km Road Maintainance - 46,770 km Bus Corridors - 2

Source: Ministry of Finance

Kartu Indonesia Pintar (Indonesian Smart Card) - Education subsidies for the poor and families near the poverty threshold

Kartu Keluarga Sejahtera Bi-monthly credits for eligible families to offset increasing costs of living

Kartu Indonesia Sehat (Indonesian Health Card) - Free health insurance and medical benefits

Reduction of poverty through conditional cash transfers Ahead of the fuel subsidy hike, a systemic change in the provision of subsidies to the communities in need was implemented.

IDR Tn % Total Spending

1 2 3

91.3 84 114.2 145.5 155.9 206.6

9.7

8.3 8.8

9.8

9.0

11.0

6

8

10

12

0

50

100

150

200

250

2009 2010 2011 2012 2013 2014 Infrastructure Spending (LHS) % Total Spending (RHS)

Source: Bappenas

Renewed focus on Infrastructure and Poverty Reduction

2015 Policy Summary

Government coordinates policy tools to stabilize growth with macroeconomic management

Capital injection to state-owned companies, as agents of

development in supporting national priorities

Optimizes Governments securities issuance from domestic sources

to fulfill Budget need and uses foreign debts as complimentary.

Determines debt instrument by taken into account of market need

in regard to market development and portfolio management.

Issues Retail Bond for instrument diversification and financial

inclusion.

Optimizes foreign and domestic loan instrument to fulfill Budget

need on capital expenditure.

Conducts active portfolio management of Government securities in

order to promote market liquidity and stability.

Strengthens the function of Investor Relations Unit.

Revenue and tax policy

Financing and debt management policy Expenditure policy

Monetary policy mix

Bold and pre-emptive policy through regulation of BI Policy Rate,

responsively adjusting to current macroeconomic condition.

Exchange rate flexibility to facilitate external adjustments.

Financial market deepening and capital flows management.

Macroprudential and supervisory actions.

Policy coordination with the government and financial stability

forum.

Central bank cooperations, including second line of defences.

14

Improvement of tax revenue administration.

Improvement of regulations related to tax revenues, especially

income tax, VAT, and VAT – Luxury Goods.

Increase law enforcement conducted through intensification and

improved examination of the taxpayer and certain business sectors.

Extending additional new tax subject and VAT Activities related to

‘Build Your Own’.

Optimization of customs and excise policy implementation as it has

been presented in the State Budget 2015.

Optimization of oil & gas lifting and cost recovery, as well as the

improvement of the system and administration of non-tax state

revenues.

Increasing infrastructure spending to support growing economy.

Reduction of poverty through conditional cash transfers.

Increase the effectiveness of targeted subsidies.

Support the accelerated achievement of minimum essential force in

national defense

Support the management of natural resources in improving food,

water, and energy security.

Expanding access and quality of education.

Improve the implementation quality of the National Social Security

System in terms of health and employment.

Minimizing the impact of uncertainty through the support of fiscal

risk reserves.

Mar-

99

Dec-9

9

Sep-0

0

Jun-0

1

Mar-

02

Dec-0

2

Aug-0

3

May-

04

Feb-0

5

Nov-0

5

Aug-0

6

May-

07

Jan-0

8

Oct-

08

Jul-09

Apr-

10

Jan-1

1

Oct-

11

Jul-12

Mar-

13

Dec-1

3

Fitch

Mar-

99

Dec-9

9

Sep-0

0

Jun-0

1

Mar-

02

Dec-0

2

Aug-0

3

May-

04

Feb-0

5

Nov-0

5

Aug-0

6

May-

07

Jan-0

8

Oct-

08

Jul-09

Apr-

10

Jan-1

1

Oct-

11

Jul-12

Mar-

13

Dec-1

3

S&P

Mar-

99

Dec-9

9

Sep-0

0

Jun-0

1

Mar-

02

Dec-0

2

Aug-0

3

May-

04

Feb-0

5

Nov-0

5

Aug-0

6

May-

07

Jan-0

8

Oct-

08

Jul-09

Apr-

10

Jan-1

1

Oct-

11

Jul-12

Mar-

13

Dec-1

3

Moody's

Mo

od

y’s

Dec 2011 (affirmed Nov 2014)

“The authorities' explicit and consistent preference for stability over

economic growth since the "taper tantrum“ related market pressures in the

summer of 2013 has strengthened their macro-economic policy track record.

Real GDP growth continues to be high compared with peers. Fitch expects

real GDP growth to bottom out at 5.1% in 2014, before gradually picking up

to 5.4% in 2015 and 5.9% in 2016. This compares favorably with the 'BBB'

category median of 3.0%. Moreover, GDP growth is much less volatile in

Indonesia compared with peers.”

Jan 2012 (affirmed Dec 2013)

“Indonesia's rating is based on the country's resilient growth, low debt

burden, favorable maturity profile, and high debt affordability. Indonesia has

demonstrated resilience to large external shocks [with] sustainably high

trend growth over the medium term. Prudent fiscal management has

contained budget deficits and steadily reduced the government's debt

burden over the past decade.”

28 April 2014

“The sovereign credit ratings reflect the economy's low per capita income, a

relatively weak policy environment, and rising external leverage from a

moderate level. These rating constraints are weighed against the country's

well-entrenched cautious fiscal management and resultant modest general

government debt and interest burden, which make for a favorable debt

profile.”

BBB- / Stable

Baa3 /

Stable

BB+ / Stable

Source: Moody’s, S&P, Fitch

Improving International Perception: Acknowledged by Rating Agencies

S&

P

Fitc

h

Investment grade

Baa3

B3

B2

B1

Ba3

Ba2

Ba1

CCC+

CCC

Positive Outlook

Negative Outlook

Stable Outlook

Positive Watch

B-

B

B+

BB-

BB

BB+

BBB-

CCC+

CCC

B-

B

B+

BB-

BB

BB+

BBB-

Caa1

Caa2

Investment grade

Investment grade

1

5

International institutions outlook shows some optimism though there is still downside risk for Indonesia in 2015 …

16

`

IMF Staff Visit (December 2014)

World Bank IEQ (December 2014)

“Sound macroeconomic management has bolstered

policy credibility and external resiliency in Indonesia.”

• GDP growth is projected to be sustained at 5.1 percent in 2015 - Recovery in investment

demand - More buoyant manufacture

exports • Inflation is expected to return to

2015 target band (4.0 ±1 percent) by the end of next year.

• Current account deficit is projected to decline to around 2¾ percent of GDP in 2015, supported by rising manufacture exports as well as a lower oil import bill.

Risk • Global headwinds from

weakening commodity prices and tightening financial conditions.

• Slowdown in emerging market trading partners and surges in global financial market volatility.

“The World Bank projects a moderate near-term growth outlook for Indonesia of 5.1-

5.5 %”

• Fuel subsidies adjustment in November 2014 suggests the new government’s commitment and willingness to address many of Indonesia’s long-standing structural priorities.

• The growth in economic activity was moderate in the third quarter of 2014 due to weaker investment and exports while private consumption has continued to support growth.

• The Rupiah has depreciated further against the US dollar since July, but strengthened in real effective terms through October.

Risk • Slower projected global recovery

could weaken commodity price trajectory in the next few years.

• Several implementation challenges faced by the new government, including a complex domestic political environment.

Asian Development Outlook (December 2014)

“GDP growth decelerated further to 5.0% in the third

quarter of 2014”

• Private consumption remained robust as expected, however gross fixed investment and net exports contributed less to GDP growth than in the second quarter.

• Investment recovery following the elections has been slower than anticipated, and recovery in export markets remains uncertain.

• The effect of higher administered prices on inflation is expected to be short-lived, and the rate should taper toward the end of 2015.

Risk • Downside risks to this outlook

center on further deterioration of export performance and changes in market sentiment that cause capital outflows

OECD Economic Forecast (November 2014)

“Growth is projected to remain moderate through

2015 before picking up somewhat in 2016…”

• …due largely to an acceleration in investment and firming consumption.

• Economic growth has continued to slow as investment and exports have softened, although household consumption is holding up.

• The current account has widened again, and the rupiah has depreciated as a result.

• The recent second round of cuts in fuel subsidies lift headline inflation, but core measures should remain well anchored,

Risk • Risks to the outlook are

mainly on the external side.

Historical Timeline MEA 2015

17

Pembentukan Masyarakat Ekonomi ASEAN (MEA) telah melalui proses yang berlangsung lama. Proses integrasi ekonomi di ASEAN telah dimulai dengan integrasi sektor barang sejak 1977 melalui Preferential Tariff Arrangement (PTA). Integrasi sektor jasa dimulai tahun 1995 dengan disepakatinya ASEAN Framework Agreement on Services (AFAS). Integrasi sektor investasi dimulai dengan kesepakatan ASEAN Investment Agreement (AIA) tahun 1998.

1967

Deklarasi ASEAN oleh 5

Negara

1992 2003 1997

2006

2007

2008

Krisis Asia memicu gagasan MEA

ASEAN Vision 2020

Bali Concord II

Gagasan Pembentukan KEA

2020

Kesepakatan pembentukan blueprint

untuk mendorong implementasi MEA

Cebu Declaration

Percepatan komitmen MEA menjadi 2015;

ASEAN Charter;

ASEAN Blueprint

Tahun pertama blueprint MEA; ASEAN Charter berlaku efektif

Pembentukan AFTA dg Common

Effective Preferential Tariff (CEPT)

2015

Implementasi MEA (Akhir Desember)

2015

1998

Kesepakatan ASEAN Investment

Agreement

1995

Kesepakatan ASEAN Framework

Agreement on Services (AFAS)

1977

Kesepakatan Preferential Tarif

Arrangement

Blueprint MEA 2015

18

Free flow of goods

Free flow of services

Free flow of investment

Free flow of capital

Free flow of skilled labor

Priority integration sectors

Food, agriculture and forestry

Competition policy

Consumer protection

Intellectual property right

Transport

Energy

ICT

Taxation

E-commerce

Small and medium enterprise

Initiative for ASEAN Integration

Coherent approach towards external economic relations

Enhanced participation in global supply network

Single Market and Production Base

Competitive Economic Region

Equitable Economic Development

Integration into the Global Economy

Asean Economic Community 2015

Ditetapkan 12 sektor prioritas untuk memperoleh quick win integrasi di ASEAN: pertanian, kayu, karet, angkutan udara, otomotif, elektronik, tekstil dan produknya, perikanan, jasa kesehatan, logistik, turisme, dan E-ASEAN

19

MEA vs EU

AEC is not an EU-style economic integration. ASEAN integration is more market-driven, while EU is institution-driven.

Source: various sources

Characteristic AEC EU

Main principle Non-interference and respect of national sovereignties of each member state

Pooling of sovereignty for common gains with EU as a supranational entity adopting legal act

Main driver Market-driven Government-driven

Binding Commitment

Lack of binding commitment; AEC runs under ASEAN-minus-X formula

Strictly binding for all member states; EU is a rules-based economic integration backed by hard laws

Enforcement of agreement

ASEAN Integration Monitoring Office with no specific enforcement power

Enforcement by the EU Council and Parliament, EU Commission, and the Court of Justice of the EU

Single currency No Euro

Supranational entity

No ECB, Banking Union, etc.

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Tingkatan Implementasi per Pilar di ASEAN

Key Areas Phase I (2008-2009)

Phase II (2010-2011)

Phase III (2012-2013)

Single Market and Production Base 93.8% 49.1% 54.4%

Free Flow of Goods 100.0% 48.9% 34.6%

Free Flow of Services 76.9% 43.3% 0.0%

Free Flow of Investment 83.3% 38.5% 100.0%

Freer Flow of Capital 100.0% 100.0% 37.5%

Free Flow of Skilled Labor - 100.0% 71.4%

Priority Integration Sector 100.0% 100.0% 93.3%

Food, Agriculture and Forestry 100.0% 45.5% 37.5%

Competitive Economic Region 68.8% 67.4% 55.7%

Competition Policy 100.0% 100.0% 100.0%

Consumer Protection 100.0% 55.6% 33.3%

Intellectual Property Rights - 80.0% 100.0%

Transport 60.0% 42.9% 47.8%

Energy - 66.7% 47.1%

Mineral 100.0% 100.0% 66.7%

ICT 100.0% 100.0% 75.0%

Taxation - 0.0% 0.0%

E-commerce - 100.0% 100.0%

Equitable Economic Development 100.0% 55.6% 72.7%

SME Development 100.0% 57.1% 70.0%

Initiative for ASEAN Integration 100.0% 50.0% 100.0%

Integration into the Global Economy 100.0% 77.8% 33.3%

External Economic Relation 100.0% 77.8% 33.3%

Source: ASEAN Secretariat, BI Staff’s Calculation, as of 31 Dec 2013

ASEAN Post-2015 Vision

ACC-WG

HLTF

ACC

AEM

HLTF-EI

HLTF-EI WG

AFMGM

WC

CAL

WC

PS

S

WC

FSL

WC

CMP

SLC AFDM

WG

Lead: Kemenlu

Lead: Kemendag

Lead: Kemenkeu/BI/OJK

ASEAN Community

Post Vision 2015

Political-Security

Community

Socio-Cultural

Community

Economic

Community

AEC Beyond 2015

Elemen-elemen

Lain

Elemen

Financial Services:

Vision for Fin.

Integration

CAL PSS FSL Cap.

Market

Strategic Schedule

AMAF, AMEM, AMMin, AMMST,

TELMIN, ATM, M-ATM

MEA 2025

Draft Framework 10 Tahun MEA 2025

22

22

Strengthening the Role of SMEs

Strengthening Role of Private Sector

Public Private Partnership (PPP)

Narrowing the Development Gaps

Financial Inclusion

Engagement with Civil Society

Integrated & Highly Cohesive Economy

Competitive,

Innovative, and Dynamic ASEAN

Resilient, Inclusive,

People-Oriented & People-Centered ASEAN

Enhanced Sectoral Integration and

Cooperation

Global ASEAN

Review & Improve ASEAN FTAs

Engaging with Regional and Global

Partners

Role of ASEAN in International

Economic Forums

Trade in Goods

Trade in Services

Investment Environment

Financial Services Liberalization & Capital Market

Development and Integration

Facilitating Movement of Skilled Labor & Business Persons

Towards facilitative standards &

conformance

Trade facilitation

Enhancing participation in GVC

Effective Competition policy

Consumer protection

Strengthening IPR Cooperation

Productivity-Driven Growth, Innovation,

Research and Technology

Commercialization

Taxation Issues

Regulatory Coherence

Sustainable development

Emerging, Trade-Related Issues

Transport

Telecommunication & Information

Technology

E-Commerce

Finance

Energy, power and utilities

Food, agriculture and forestry

Tourism

Healthcare

Minerals

Science and technology

Mega-trends

Good Governance