the deterioration of the global outlook and how this might...

Danamon Economic and Market Research | Please read the disclaimer on the back of this report 11

The Deterioration of the Global Outlook and How This

Might Impact on Indonesia

The World Bank & University of Paramadina ~ Jakarta: 4 October 2011

Anton Gunawan

Chief Economist [email protected]

+62 21 5799-1466

+62 21 5799-1001 ext 1095

See the Disclosure Appendix for the Analyst

Certification and Other Disclosures

Anton Hendranata

Economist / Econometrician [email protected]

+62 21 5799-1563

+62 21 5799-1001 ext 1128


On the menu today

• Recent financial markets’ turmoil ~ Getting a taste of capital inflows reversal,

when offshore investors were panicking

• Facing a possible double dip

– Trade channel

– Relatively small fiscal space

– Growth stress test


Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011

50

40

30

20

10

0

-10

-20

-30

-40

Credit Growth by Currency%yoy

Total

LCY

FCY

3

Declining FCY liquidity, as loan growth strongly pick up

Movements of Nostro account, 2004-11 Net Foreign Assets of Commercial Banks 2006-11

Source: BI, CEIC Source: BI, CEIC

Growth of Bank Loans by Currency, June 2011 Growth of Bank Deposits by Currency, June 11

Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011

40

35

30

25

20

15

10

5

0

-5

%yoy Third Party Fund Growth by Currency

Total

LCY

FCY


-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

Total State Private Nat Reg Dev Joint &

Foreign

Jan Mar Jun

Declining FCY liquidity by type of banks

FCY Loans and TPF Growth (%ytd) by Bank Category , Jul 11 Net TPF Change (ytd, IDR bn) by Bank Category 2011


Bank Excess Deposits (FCY, IDR bn) by Bank Category

Notes: Net TPF change = change in (TPF – Loans)

Bank Excess Deposit = TPF – Loans – Reserves

Bank Excess Deposits (FCY, IDR bn) by Bank, June 11

10,812

-1,806

3,696

1,261

-1,382

1,325

2,927

-776

-3,000

-1,000

1,000

3,000

5,000

7,000

9,000

11,000

BCA Mandiri BRI BNI CIMB Permata Panin Danamon


89,427

31,121

-1,105

28,294

-1,188

1,544 3,762

-10,061-7,237

-20,000

0

20,000

40,000

60,000

80,000

100,000

BCA Mandiri BRI BNI CIMB Permata Panin BTN Danamon

-100,000

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000


Foreign

Jan Mar Jun

Bank Excess Deposits (LCY, IDR bn) by Bank, June 11

5

0

100,000

200,000

300,000

400,000

500,000


Foreign

Dec-10 Mar-11 Jun-11

LCY: declining liquidity, except for BPD

LCY Loans and TPF Growth (%ytd) by Bank Category , June 11

Net TPF Change (ytd, IDR bn) by Bank Category 2011

-5

0

5

10

15

20

25

30


Foreign

TPF Loans

Bank Excess Deposits (LCY, IDR bn) by Bank Category


Notes: Net TPF change = change in (TPF – Loans)

Bank Excess Deposit = TPF – Loans – Reserves


August 2011 global market turmoil versus GFC 2008

• Practically no major impact of Aug-11 global financial market turmoil on Indonesia bond market. Impact

on longer tenor bonds’ yields were not significant and short lived, as the Rupiah was kept stable by bank

Indonesia. Meanwhile 10-year US Treasury yield down from 3.7% to 2.2% during the week.

• BI’s and banks’ bond holdings up by IDR 4.5tn and IDR 2.5tn, respectively, during the week (5-12

August 2011), while foreign holdings down by IDR 8tn.

• Risk aversion and deleveraging in October 2008 pushed 10yr UST to decline from 4% (on 14 Oct) to 2%

(on 18 Dec), while IDR 10yr gov bonds yields rose to 21% (on 28 Oct) from 12% in Aug-08.

Yield: UST vs IDR 10yr

Source: CEIC Source: BI, Depkeu

10-Oct-2007 9-Sep-2009 10-Aug-2011

25

20

15

10

5

0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

yield spread: IDR SUN 10yr - UST 10yr

IDR 10yr yield

UST 10yr yield (rhs)

IDR was relatively stable

10-Oct-2007 9-Sep-2009 10-Aug-2011

12500

12000

11500

11000

10500

10000

9500

9000

8500

8000

90

85

80

75

70

65

IDR/US$

Dollar Index (major currency)


Sep-11 Market Turmoil: the pressures coming from offshore

Source: Bloomberg

Recent situation of IDR vs NDF GFC 2008 of IDR

• Offshore investors have been excessively ―long‖ Rupiah financial assets for sometime.

• Fears over Greek default (risk aversions), the strengthening of USD, and the tightening global

USD liquidity lead to offshore investors shifting to ―neutral‖ positions and hitting NDF for cover

(to hedge against their currency exposures)


Global bonds funds getting out from EMs, incl. Indonesia

Source: Citigroup’s ICG-CIRA

• The largest weekly outflows from dedicated EM bond funds since EPRF started collecting data, $3.2bn for the

week ending Sep 28, including $1.0bn from hard currency funds, $1.7bn from local currency funds and $502mn

from blended funds. This brings YTD inflows down to $9.9bn. The previous largest outflow was $1.97bn for the

week ending October 29, 2008.

• The $3.2bn in outflows represents 2.3% of AUM (assets under management) for the funds covered by EPFR.

The October 2008 outflow, though smaller in absolute number, represented 4.0% of AUM for the funds covered

at the time


Massive foreign selling in the IDX, in line with other

countries, though IDX down deeper

Source: Bloomberg, Danamon Calculations

DJI (New York) JCI (Jakarta)

Date Index Change

(%) Length (month) Date Index

Change (%)

Length (month)

Peak 9-Oct-07 14,164 9-Jan-08 2,830

GFC 2008 9-Mar-09 6,547 -53.8 17.2 28-Oct-08 1,111 -60.7 9.8

Peak (2011) 29-Apr-11 12,810 95.7 26.0 1-Aug-11 4,193 277.3 33.6

Current 22-Sep-11 10,734 -16.2 4.9 23-Sep-11 3,393 -19.1 1.8

1 week ago 16-Sep-11 11,509 -6.7 16-Sep-11 3,835 -11.5

2 week ago 9-Sep-11 10,992 -2.3 9-Sep-11 3,999 -15.2

1 month ago 22-Aug-11 10,855 -1.1 22-Aug-11 3,840 -11.6

SX5E (Europe) KLCI (Kuala Lumpur)

Peak 16-Jul-07 4,558 11-Jan-08 1,516

GFC 2008 9-Mar-09 1,810 -60.3 20.1 29-Oct-08 829 -45.3 9.7

Peak (2011) 18-Feb-11 3,068 69.5 23.7 8-Jul-11 1,595 92.3 32.7

Current 23-Sep-11 2,009 -34.5 7.2 23-Sep-11 1,368 -14.2 2.6

1 week ago 16-Sep-11 2,159 -7.0 16-Sep-11 1,431 -4.4

2 week ago 9-Sep-11 2,074 -3.1 9-Sep-11 1,469 -6.9

1 month ago 22-Aug-11 2,183 -8.0 22-Aug-11 1,472 -7.1

NKY (Tokyo) STI (Singapore)

Peak 9-Jul-07 18,262 11-Oct-07 3,831

GFC 2008 10-Mar-09 7,055 -61.4 20.3 9-Sep-09 1,457 -62.0 23.3

Peak (2011) 21-Feb-11 14,691 108.2 23.8 6-Jan-11 3,280 125.1 16.1

Current 22-Sep-11 8,560 -41.7 7.1 23-Sep-11 2,689 -18.0 8.7

1 week ago 16-Sep-11 8,864 -3.4 16-Sep-11 2,789 -3.6

2 week ago 9-Sep-11 8,738 -2.0 9-Sep-11 2,825 -4.8

1 month ago 22-Aug-11 8,628 -0.8 22-Aug-11 2,732 -1.6

Changes in IDX:

• Stock price dropped by 15.2% (9 – 23 Sep)

• Total net foreign sell = IDR 6.5trn (9 – 23 Sep)

• Global funds who mostly sold in the IDX

• as of 27 Sep, IDX recovered to 3,474 from

3,316 (with net foreign buying = IDR 42bn)

5-Jul-11 19-Jul-11 2-Aug-11 16-Aug-11 30-Aug-11 13-Sep-11 27-Sep-11

4200

4000

3800

3600

3400

3200

2000

1600

1200

800

400

0

-400

-800

-1200

-1600

-2000

JCI index (lhs)

Net foreign buying (IDR bn)


Sharp rise in bond yields (up by >100bps) as foreign sold off

Source: Asia Bonds Online

Foreign Ownership of Government Bonds (%)

• Government bonds yields up by more than 100bps, as

IDR weakened sharply (especially in the last two

weeks of turmoil).

• Indo Gov bonds experienced the worst decline

compared to other countries’ in the last one week

• High price of and high ratio of foreign ownership in

Indo gov bonds, plus currency weakening are the

main factors behind the sharp drop.

• Foreign holding down by IDR 32.7trn (9-29 Sep)

Indonesia

Govt. BondsLatest

ClosingPrevious Day Previous Week YTD

CN 10 Year 4.080 1.00 0.00 17.00

HK 10 Year 1.235 11.60 27.20 162.10

ID 10 Year 7.359 28.80 21.90 24.70

JP 10 Year 0.987 0.00 2.60 14.10

KR 10 Year 3.760 6.00 3.00 76.00

MY 10 Year 3.720 0.00 2.50 31.80

PH 10 Year 6.300 38.57 32.12 41.19

SG 10 Year 1.510 6.00 7.00 120.00

TH 10 Year 3.852 2.80 9.30 12.60

US 10 Year 1.833 11.54 11.72 146.01

VN 10 Year 12.700 5.00 3.30 95.00

Close of 23 Sep 2011 Change From

* Government bond yield changes are expressed in basis points.

23-Sep-11

LCY Gov BondsLatest

ClosingYTD (bp) MTD (bp)

1 Year 5.800 39.1 137.0

2 Year 6.206 34.0 90.6

3 Year 6.295 2.5 73.0

4 Year 6.611 22.2 53.1

5 Year 6.766 6.2 63.9

10 Year 7.359 24.7 56.5

15 Year 7.772 103.0 30.1

20 Year 8.094 117.4 21.0

30 Year 8.323 137.2 12.3

USD Denominated Gov

Bonds

Latest

ClosingYTD (bp) MTD (bp)

3 Year 3.060 41.5 94.3

5 Year 3.602 7.7 70.4

10 Year 4.713 471.3 70.7

26 Year 5.703 18.4 46.4


10

15

20

25

30

35

40

3-Jun 18-Jun 3-Jul 18-Jul 2-Aug 17-Aug 1-Sep 16-Sep

IDR tn

0

15

30

45

60

75

90

Mar-

08

Jun-

08

Sep-

08

Dec-

08

Mar-

09

Jun-

09

Sep-

09

Dec-

09

Mar-

10

Jun-

10

Sep-

10

Dec-

10

Mar-

11

Jun-

11

Sep-

11

60

95

130

165

200

235

270

SBI IDR Bonds (rhs)

IDR tn IDR tn

BI has been absorbing IDR liquidity through reverse repo

Source: CEIC, Bloomberg13-Jul-11 27-Jul-11 10-Aug-11 24-Aug-11 7-Sep-11 21-Sep-11

255000

250000

245000

240000

235000

230000

225000

220000

215000

210000

710000

700000

690000

680000

670000

660000

650000

640000

630000

620000

IDR bn

Total (rhs)

Bank

ForeignIDR bn

Banks’ bond holdings rose due to Reverse Repo

Increasing amount of Reverse Repo

• Foreign ownership of SBI has long been

declining, while of bonds just very recent

• Increasing amount of Reverse Repo as BI

supporting IDR bond market and also

absorbing banks’ Rupiah liquidity

• Banks’ bond holdings rose due to Reverse

Repo

• Excluding Reverse Repo, BI holdings of

tradable gov bonds up by IDR 13.3tn

during 9-29 Sep 2011

Ownership of SBI and Bonds, 26 Sep 11


IDR gov bond yields going back into its normal range.

Source: CEIC, Danamon Calculations

Apr-05 Feb-06 Nov-06 Sep-07 Jul-08 Apr-09 Feb-10 Dec-10 Sep-11

18

16

14

12

10

8

6

4

2


+1 St Dev

Average

-1 St Dev

Apr-05 Feb-06 Nov-06 Sep-07 Jul-08 Apr-09 Feb-10 Dec-10 Sep-11

18

16

14

12

10

8

6

4

2


+1 St Dev

Average

-1 St Dev

• BI and MoF have been buying bonds from the market to prevent yields from rising further

• BI auction = IDR 1.74trn, and MoF direct buying in the secondary market = IDR 1.04trn

1-Jul-11 15-Jul-11 29-Jul-11 12-Aug-11 26-Aug-11 9-Sep-11 23-Sep-11

7.0

6.5

6.0

5.5

5.0

4.5

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

UST 5yr (rhs)

IDR 5yr yield


1-Jul-11 15-Jul-11 29-Jul-11 12-Aug-11 26-Aug-11 9-Sep-11 23-Sep-11

8

7

6

5

4

3.5

3.0

2.5

2.0

1.5


IDR 10yr yield

UST 10yr yield (rhs)


US Dollar liquidity getting thinner in the market lately

IDR/USD vs O/N USD inter-bank rate

Source: BI, CEIC

25-Feb-11 6-May-11 15-Jul-11 23-Sep-11

9200

9000

8800

8600

8400

0.5

0.4

0.3

0.2

0.1

Interbank call money

rate USD O/N

IDR/USD (lhs)


-4.8-5.0-5.6-5.4-6.2-4.712.017.99.26.35.86.8Vietnam

-2.0-2.9-2.02.34.14.63.73.83.35.03.67.8Thailand

2.00.00.515.016.522.22.84.22.84.05.714.5Singapore

-1.1-1.4-3.52.02.84.23.74.53.84.64.07.6Philippines

-5.3-5.5-5.69.010.511.83.53.31.75.35.27.2Malaysia

-1.0-1.5-0.6-0.20.20.95.74.75.16.56.56.1Indonesia

0.90.81.41.21.62.83.24.33.03.93.76.2South Korea

-7.1-8.3-8.1-2.2-2.8-2.67.59.012.07.37.68.5India

-2.0-2.0-1.63.54.05.34.25.33.39.09.210.3China

-2.4-2.6-2.32.52.93.94.75.74.27.57.49.1ASIA

-2.2-2.3-2.51.21.72.55.76.45.35.86.07.2Emerging Markets

-8.8-10.3-9.82.62.33.6-0.20.0-0.72.2-0.44.0Japan

-3.1-4.1-6.0-0.3-0.4-0.51.82.61.60.61.61.8Euro Area

-6.8-8.5-9.0-2.7-3.0-3.21.33.01.61.81.63.0United States

-5.0-6.5-7.2-0.3-0.7-0.61.52.51.61.71.52.8Industrial Econ.

-4.0-5.0-5.70.00.00.23.23.92.73.23.14.1Global Indicators

2012F2011F20102012F2011F20102012F2011F20102012F2011F2010

Fiscal Bal. (% of GDP)Curr Account (% of GDP)Inflation Rate (%YoY)GDP Growth (%YoY)Economic

Indicators

-4.8-5.0-5.6-5.4-6.2-4.712.017.99.26.35.86.8Vietnam

-2.0-2.9-2.02.34.14.63.73.83.35.03.67.8Thailand

2.00.00.515.016.522.22.84.22.84.05.714.5Singapore

-1.1-1.4-3.52.02.84.23.74.53.84.64.07.6Philippines

-5.3-5.5-5.69.010.511.83.53.31.75.35.27.2Malaysia

-1.0-1.5-0.6-0.20.20.95.74.75.16.56.56.1Indonesia

0.90.81.41.21.62.83.24.33.03.93.76.2South Korea

-7.1-8.3-8.1-2.2-2.8-2.67.59.012.07.37.68.5India

-2.0-2.0-1.63.54.05.34.25.33.39.09.210.3China

-2.4-2.6-2.32.52.93.94.75.74.27.57.49.1ASIA

-2.2-2.3-2.51.21.72.55.76.45.35.86.07.2Emerging Markets

-8.8-10.3-9.82.62.33.6-0.20.0-0.72.2-0.44.0Japan

-3.1-4.1-6.0-0.3-0.4-0.51.82.61.60.61.61.8Euro Area

-6.8-8.5-9.0-2.7-3.0-3.21.33.01.61.81.63.0United States

-5.0-6.5-7.2-0.3-0.7-0.61.52.51.61.71.52.8Industrial Econ.

-4.0-5.0-5.70.00.00.23.23.92.73.23.14.1Global Indicators

2012F2011F20102012F2011F20102012F2011F20102012F2011F2010

Fiscal Bal. (% of GDP)Curr Account (% of GDP)Inflation Rate (%YoY)GDP Growth (%YoY)Economic

Indicators

14

Global Double dip? Asian EMs. leading the global growth

• Continuing slowdown in the developed economies, as fiscal tightening programs kick in, prompting

extended monetary easing policies

• Asia’s emerging economies mildly slowing amid threat of rising inflationary pressures

• China continues to gradually slowdown the economy and to contain the inflation pressures

• Southeast Asian economies continue to perform well, except for Vietnam, which is still vulnerable

(high inflation, big current account and fiscal deficit)

• If double dip does happen, open economies, eg. Singapore, Taiwan, will likely get hit severely.

Source: Danamon forecasts


2Q11 BOP: no sign of overheating, CA sharp decline

• High BoP surplus (US$ 11.9bn) in 2Q11, despite sharp decline in current account (CA), due to a

jump in services imports (freight, travel and consultants) and repatriation of foreign investment

income

• Modest rise in merchandise trade surplus, despite deterioration in the oil & gas trade balance,

which has turned negative (-US$ 0.9bn) for the first time in 2Q11 no sign of overheating

• There is an increasing amount of equity investment and reinvested profits by foreign direct

investment. Ratio of FDI to portfolio investment flows almost reach one to one.

• FX reserves reach US$ 124.6 end-August, or 7.1 month of import and official debt cover

Indonesia Oil and Gas Trade Balance Ratio FDI to Portfolio Investment in Semester


Q2-08 Q4-08 Q2-09 Q4-09 Q2-10 Q4-10 Q2-11

2500

2000

1500

1000

500

0

-500

-1000

6000

4000

2000

0

-2000

-4000

-6000

OIl and Gas Trade Balance (lhs) Oil Trade Balance

Gas Trade BalanceUS$mn US$mn

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11

15000

10000

5000

0

-5000

4

3

2

1

0

-1

-2

FDI in

IndonesiaPortfolio Inv: Liabilities

Ratio FDI to Portfolio Inv (rhs)US$mn


• Trade surplus hinging on primary commodities exports (volume and price effects).

• Excluding commodities, trade balance is in deficit.

• Trade surplus is thus susceptible to commodity price decline.

• Fast movable portfolio inflows still strong.

• But FDI into Indonesia showing an uptrend

– Although some were strategic stock purchases.

– Biggest FDI was in mining sector

16

Trade surplus: Living on borrowed time? Amid improving

composition of capital inflows

Trade balance: Commodity and non-commodities

Source: CEIC

Indonesia: Real Effective Exchange Rate

Notes: Rising REER Index (and above 100) means better competitiveness

90

95

100

105

110

115

120

125

130

135

140

060708091011120102030405060708091011120102030405060708091011120102030405060708

2008 2009 2010 2011

-8

-4

0

4

8

12

16

20

24

28

32

App(-)/Dep(+) in IDRUSD (rhs)

Trade-Weighted Exch. Rate

Trade-Weighted Exch. Rate(Infl. Adjusted)

IDRUSD Index

Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11

8000

6000

4000

2000

0

-2000

-4000

Primary commodity trade surplus

(Rubber, Coal, Ores, O&G, CPO)

Non-primary commodity

trade deficit

US$mn


Indonesia’s exports were strongly affected by Global

recession (GFC-08/09)

• Indonesia’s exports value and volume to main trading partners (Japan, EU, USA, and

Singapore) down rather significantly during the GFC-08/09

• Demand by China, Korea and some other countries supported Indonesia’s exports volume to

still be positif

Source: BPS, Danamon Calculations, 2011 = Jan-Apr

Indonesia: Growth (%) of Total Exports to Selected Trading Partners, 2009


Stronger growth of Indonesia’s exports to EM Asia

• Indonesia has seen a strong rebound in exports to EM Asian Countries, most notably China, Korea, and India.

Meanwhile, the value of exports to developed markets are still weak after the GFC-08/09.

• Share of Non OG exports has decreased to developed markets, although EU has been the largest destination

for Indonesia’s non OG exports.

• Meanwhile Non OG exports to China, Korea, and India are continuously increasing.

• China in particular has gained strong importance as Indonesia’s trading partner, for both exports and imports.

Indonesia: Share (%) of Non Oil & Gas Exports to

Selected Trading Partners


0

2

4

6

8

10

12

14

16

2007 2008 2009 2010 2011

Japan EU USA Singapore China

Korea Malaysia India Thailand Taiwan

-30

-20

-10

0

10

20

30

40

50

60

2008 2009 2010



Indonesia: Growth (%) of Non Oil & Gas Exports to

Selected Trading Partners


Japan and Korea are the main oil & gas exports destinations

Source: BPS, Danamon calculations

Indonesia: Share (%) of Oil Exports

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011

Japan Australia Korea Singapore China

Malaysia Thailand US EU

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011

Japan Korea China Singapore Taiwan US EU

Indonesia: Share (%) of Gas Exports

Country 2007 2008 2009 2010 2011

Japan 39.5 37.5 19.1 23.6 29.9

Australia 12.6 12.5 15.4 13.1 11.7

Korea 12.5 11.3 14.4 19.7 17.9

Singapore 12.5 17.3 11.5 11.0 14.9

China 9.4 8.6 15.3 8.9 6.3

Malaysia 4.2 2.8 10.3 9.0 7.6

Thailand 3.1 2.4 5.8 3.1 2.3

US 2.5 3.2 3.8 6.5 6.0

EU 0.0 0.5 0.3 0.3 0.3

Others 3.7 3.9 4.0 4.8 3.2

All 100.0 100.0 100.0 100.0 100.0

Country 2007 2008 2009 2010 2011

Japan 57.7 60.5 52.2 43.1 51.1

Korea 23.2 20.2 17.0 21.0 23.6

China 18.7 18.8 11.6 2.5 1.7

Singapore 0.0 0.0 12.9 18.9 12.6

Taiwan 0.0 0.0 4.0 9.3 8.0

US 0.0 0.0 0.0 0.0 0.0

EU 0.0 0.0 0.0 0.0 0.0

Others 0.4 0.5 2.2 5.2 3.0

All 100.0 100.0 100.0 100.0 100.0

19


0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011

Singapore Japan US Hong Kong UAE

Malaysia China Thailand Korea

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011

Japan Korea China Singapore Australia

Taiwan India Malaysia Thailand EU

0

10

20

30

40

50

60

70

80

90

2007 2008 2009 2010 2011

India EU China Malaysia Pakistan Singapore Bangladesh

20

Indonesia’s Non-Oil and Gas by Commodity (1)

Indonesia: Share (%) of Non Oil & Gas Exports


Commodity 2007 2008 2009 2010 2011

Animal or vegt. fats and oil (15) 11.1 14.5 12.5 12.6 11.3

Elect. machinery, sound rec (85) 8.2 7.5 8.2 8.0 7.0

Mineral fuels (27) 7.7 9.9 14.3 14.4 14.8

Rubber and articles thereof (40) 6.8 7.1 5.0 7.2 10.1

Ores, slag and ash (26) 5.5 4.0 6.0 6.3 4.7

Mech. machinery & equip. (84) 5.1 4.8 4.8 3.8 3.3

Paper and paperboard (48) 3.6 3.5 3.4 3.2 2.7

Articles of apparel clothing (61/62) 6.1 5.6 5.8 5.0 5.0

Wood and articles of wood (44) 3.4 2.7 2.4 2.3 2.0

Copper and articles thereof (74) 3.0 2.0 2.4 2.5 3.0

Others 39.4 38.5 35.0 34.6 36.1

All 100.0 100.0 100.0 100.0 100.0

Share (%) of Animal/Veg Fats & Oils (HS 15) Exports Share (%) of Mineral Fuels (HS 27) Exports

Share (%) of Elect. machin, sound rec (HS 85) Exports

20


0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011

USA EU UAE Japan

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011

Japan EU Korea China India Philippines

0

10

20

30

40

50

60

70

80

90

2007 2008 2009 2010 2011

USA Japan EU China Singapore Korea Brazil

21

Indonesia’s Non-Oil and Gas by Commodity (2)

Share (%) of Rubber & products (HS 40) Exports


Share (%) of Mech. machin, sound rec (HS 84) Exports

0

10

20

30

40

50

60

70

80

90

2007 2008 2009 2010 2011

Singapore Japan EU US

Thailand Malaysia China Australia

Share (%) of Ores, Slag & Ash (HS 26) Exports Share (%) of Apparel & Clothing (HS 61/62) Exports

21


0

2

4

6

8

10

12

14

16

18

20

2007 2008 2009 2010 2011

China EU Japan USA Thailand

Singapore Malaysia Korea India Taiwan

-40

-20

0

20

40

60

80

2009 2010

China EU Japan USA Thailand

Singapore Malaysia Korea India Taiwan

22

China, Korea and India supported Indo exports in GFC-08

• Indonesia’s non OG exports to China, Korea &

India were still positive during GFC-08

• Meanwhile, Indonesia’s non OG imports from

most countries declined in 2009 (due to crisis),

though rebounded in 2010.

• Indonesia’s Non OG imports from China

continuously rising, while from EU is declining.

Share (%) of Non Oil & Gas Imports by Country


Growth (%) of Non OG Imports by Country

Growth (%) of Non Oil & Gas Exports in 2009

-60

-40

-20

0

20

40

60

Value Volume




Indonesia’s Export to China vs China’s Export to EU

• Indonesia mostly exports primary commodities to China,and looks like they are mostly used for

supporting domestic consumption or investments.

• Meanwhile, lots of China’s exports to EU are manufacturing products, possibly using minimal inputs

from Indonesia

• Thus, the indirect trade impact of an EU meltdown (via China) will likely be minimal as well.

China: Share (%) of Exports to EU

Indonesia: Share (%) of Exports to China

Commodity 2007 2008 2009 2010 2011

Animal or vegt. fats and oils (15) 22.8 27.2 22.4 17.4 13.4


Ores, slag and ash (26) 9.2 8.3 7.8 9.9 14.9

Organic chemicals (29) 8.3 4.3 5.0 6.0 8.6

Pulp of wood; waste of paper (47) 7.7 9.5 5.3 4.7 5.0

Mineral fuels (27) 7.3 9.2 23.3 31.3 23.1

Copper and articles thereof (74) 5.0 4.1 3.5 2.3 2.6

Nuclear react.,boilers,mech (84) 4.2 3.3 2.4 1.0 1.2

Elect. machinery, sound rec (85) 3.3 3.6 3.1 2.9 2.2

Others 20.9 18.9 17.9 14.5 16.1

All 100.0 100.0 100.0 100.0 100.0

Commodity 2007 2008 2009 2010 2011

Machiney, Electrical Equipment 47.3 45.7 45.8 46.6 43.9

Textiles and Textile Articles 10.9 12.7 14.6 13.8 13.3

Base Metals and Articles 9.8 8.8 5.2 5.7 7.1

Miscellaneous Mfg Articles 6.8 7.0 7.9 7.2 7.2

Vehicles, Aircraft, Vessels & Transport Eq 5.0 5.5 5.7 5.7 5.8

Products of Chemcial or Allied Industries 3.8 4.3 4.2 4.4 5.2

Others 16.4 15.9 16.6 16.6 17.6

All 100.0 100.0 100.0 100.0 100.0

Source: CEIC

Source: BPS, Danamon calculations, 2011 = Jan-Apr EU = 27 countries


Indonesia’s Export to India vs India’s Export to EU

• Similar to China, primary commodities are the largest contributors of Indonesia’s exports to India.

• India is one of the largest trading partners of EU. Thus, EU meltdown will have a relatively big

impact to India’s trade and economic growth

• The indirect impact of an EU meltdown on Indonesia’s trade (via India) is also relatively small, as

the share of Indonesia’s trade with India is not as big, though increasing.

Source: BPS, Danamon calculations, 2011 = Jan-Apr EU = 27 countries

India: Share (%) of Exports to EUIndonesia: Share (%) of Exports to India

Commodity 2007 2008 2009 2010 2011

Animal or vegt. fats and oils (15) 46.9 60.5 47.7 46.4 31.4

Mineral fuels (27) 16.5 17.5 26.6 24.6 40.3

Ores, slag and ash (26) 11.0 3.9 8.7 9.9 9.8

Miscellaneous chemical prod (38) 2.6 2.3 1.5 1.3 1.5


Organic chemicals (29) 2.1 0.8 1.2 1.7 2.7

Nuclear react.,boilers,mach (84) 1.7 1.1 1.0 1.5 0.9

Iron and steel (72) 1.6 0.6 0.4 0.2 0.1

Others 15.4 12.1 11.1 11.3 10.9

Total 100.0 100.0 100.0 100.0 100.0

Commodity 2007 2008 2009 2010 2011

Manufactured Goods 31.9 28.5 22.0 22.1 24.0

Miscellaneous Manufactured Articles 26.7 24.3 28.2 23.6 22.7

Machinery & Transport Equipments 14.1 16.9 19.7 18.3 17.8

Chemicals 11.1 11.2 11.7 12.1 13.1

Food & Live Animals 5.8 5.9 5.9 5.1 5.2

Mineral Fuels & Lubricants 5.7 8.0 7.6 14.1 10.8

Others 4.7 5.2 4.8 4.7 6.4

All 100.0 100.0 100.0 100.0 100.0

24


In retrospect: Averting a deep crisis in 2008 with ......

Lower exports to GDP ratio domestic demand dominance (rising middle

class)

Not really involved in the Asia Production Network

Less sophisticated financial markets

The new tax law was approved finally in 2008, providing stimulus in 2009

Poor infrastructure, thus a lot of room to develop, using social spending

Relative political stability

Quick Policy Response

Blessing in Disguise

Easing up the tightness of bank liquidity (Sept-Oct 2008)

Focus more on stabilizing the financial markets

Resorting quickly to alternative fiscal funding strategy

Trying to soften the drop of exports (current account deterioration)

25


Is there still enough fiscal space in the government budget

for stimulus in case there is global double dip?

• Two major weaknesses of the current

fiscal position: (i) relatively low fiscal

space, (ii) government’s inability to spend

effectively and fast

• Major revision to the 2011 budget

(APBN-P), with wider deficits, as macro

economic assumptions have changed

• No subsidized fuel price hike in 2011

leads to ballooning energy subsidies. Oil

lifting target still hard to achieve.

• 2012 proposed budget has lower deficits

(1.5% of GDP)

• Tax ratio slightly raised; tax census,

taxing SMEs (5% rate), giving out tax

holiday.

• Lower energy subsidies with fuel

consumption rationing program, but

without price hike. Electricity rate hike of

10% by April 2012 at the latest

• Salary hike (10%) and 13th month salary

• Capital expenditures picking up

• Slightly higher net bond financing in 2012

Revised 2011 and Proposed 2012 Budget

A. State Revenues and Grants 995.3 1,104.9 1,169.9 1,292.9

1. Tax Revenues 723.3 850.3 878.7 1,019.3

Tax Ratio (% of GDP) 11.3 12.1 12.2 12.6

2. Non Tax Revenues 268.9 250.9 286.6 272.7

B. State Expenditures 1,042.1 1,229.6 1,320.8 1,418.8

I. Central Government Expenditures 697.4 836.6 908.2 954.1

a.o. 3. Capital Expenditures 80.3 135.9 140.9 168.1

4. Interest Payments 88.4 115.2 106.6 123.1

5. Subsidies 192.7 187.6 237.2 208.9

a.o. Energy Subsidies 140.0 136.6 195.3 168.6

i. Fuel (Pertamina) 82.4 95.9 129.7 123.6

II. Electricity (PLN) 57.6 40.7 65.6 45.0

II. Transfer to Regions 344.7 393.0 412.5 464.4

C. Primary Balance (A - B + B.4) 41.5 (9.4) (44.3) (2.5)

D. Fiscal Surplus/Deficit (A - B) (46.8) (124.7) (150.8) (125.6)

% of Fiscal Balance to GDP (0.7) (1.8) (2.1) (1.5)

E. Financing: 91.6 124.7 150.8 125.6

I. Domestic Financing (Nett) 96.1 125.3 153.6 125.9

a.o. State Bonds (Nett) 91.1 126.7 126.7 134.6

II. External Financing (Nett) (4.6) (0.6) (2.8) (0.3) F. Excess (Shortage) of Fiscal Financing 44.7 - - -

Macroeconomic Assumptions:

1. Economic Growth (% pa) 6.1 6.4 6.5 6.7

2. Inflation Rate (%pa, eop) 7.0 5.3 5.7 5.3

3. 3M T-Bills or SPN (%pa) 6.6 6.5 5.6 6.5

4. Exchange Rate (IDR/US$) 9,087 9,250 8,700 8,800

5. Oil Price ICP (US$/barrel) 79.4 80.0 95.0 90.0

6. Oil Lifting (thousand barrel per day) 954 970 945 950

Source: Ministry of Finance (2011), Presentation and "Nota Keuangan dan RAPBN 2012"

(in IDR Trillion) 2010APBN-P

2011

RAPBN

2012

APBN

2011


Economic Environment: Pre-GFC 2008 vs. Now

Source: BPS, CEIC, BI

Variable GFC 2008 Now

Economic Growth Still relatively strong Mostly slow

Monetary Policy Rather tight Easy in developed economies

High interest rate Very low interest rate - developed economies

FX Rate US$ start to weaken Very weak US$

Fiscal Policy No big worry of fiscal and debt situation Widespread problems of fiscal and debt

Fiscal policy is not that constrained Hard fiscal constraints

Sovereign Rating High and stable in developed countries Downgrade prospects in developed countries

Indonesia Rating Still below investment grade Upgrade prospect to investment grade

Leverage High Low

Hedge Funds Very active Less active

Indicator Pre Crisis Pre Crisis Pre Crisis

1. GDP growth (% ) 1.91 -1.92 1.61 2Q11 2.83 -1.96 1.67 2Q11 6.01 4.58 6.49 2Q11

2. Inflation (%) 2.1-2.8 4.1-5.5 3.4 Jun 1.9-2.5 3.1-4.1 2.5 Jul 6.0-6.9 8.6-12.1 4.6 Jul

3. M1 growth (%) 0.5-2.1 6.4-18.0 16.2 Jul 0.2-7.0 9.5-13.3 1.2 Jun 20.0-22.5 1.5-11.3 16.7 Jun

4. Interest rate (% ) 3.1-5.3 2.0-3.2 0.11 Jul 3.2-3.5 1.0-2.0 1.5 Jul 8.0-9.0 9.25-9.5 6.75 Aug

5. Stock index 11,740-14,164 6,594 11,410 17-Aug 4,182-4,399 1,817 2,334 17-Aug 1,836-2,810 1,111 3,953 16-Aug

6. FX to US$ 1.32-1.46 1.60 1.44 17-Aug 9,100-9,500 12,400 8,526 16-Aug

8. Bonds yield 10-yr (% ) 3.82-3.96 2.08 2.17 17-Aug 11-13 18.44 6.95 16-Aug

10. Export growth (%) 12.1 -18.0 18.0 1H 5.59 -16.24 17.94 1H 20.1 -15.0 36.0 Jun

11. Import growth (%) 7.5 -25.9 17.9 1H 9.15 -22.97 17.77 1H 41.6 -25.0 32.8 Jun

Pre Crisis

Oil Price (Brent,US$/barrel) 53-92 143 110 16-Aug

US housing price index 184-203 141 141 May

2011

2011 2011 2011

GFC 2008

US EU Indonesia

GFC 2008 GFC 2008 GFC 2008


GFC 2008 and Stress Test (Global Recession)

Impact of of GFC 2008, and Stress Test

Source: BPS, CEIC, BI

1. GDP GrowthPre Crisis

GFC 082009

Length

(quarter)Current

Stress

Test5. Loan Growth

Pre Crisis

(2008)2009

Length

(month)Current

Stress

Test

- US 1.91 -1.92 6 3.03 -0.50 - Total 30.5 10.0 12 23.37 12.96

- EU 2.83 -1.96 5 1.69 -0.50 - IDR 33.2 16.5 12 20.92 16.54

- Indonesia 6.01 4.58 3 6.10 5.45 - FC 20.4 -17.4 12 38.30 -6.09

2. Commodity Price Growth Pre Crisis CrisisLength

(month)Current

Stress

Test6. TPF Growth

- CPO 67.9 -37.1 13 42 -18.5 - Total 16.0 12.5 12 19.07 11.15

- COAL 138.6 -41.4 12 27.9 -20.7 - IDR 13.7 13.4 12 20.51 12.09

- RUBBER 34.8 -39.5 12 N/A -19.8 - FC 29.6 8.0 12 11.23 5.63

- OIL 72.6 -44.7 12 43.4 -22.4 7. Interest Rate

- IRON 56.0 -35.2 13 19.7 -17.6 - BI rates 8.00 9.00 8 6.75 6.25

- TIN 51.2 -31.1 12 58.5 -15.5 - JIBOR 8.03 10.26 9 6.858 6.40

- Aluminium 3.8 -37.6 13 20.1 -18.8 - LIBOR 2.82 3.37 2 0.187 0.30

- COPPER 18.7 -39.7 13 32.2 -19.9 - SIBOR 2.84 3.43 2 0.191 0.35

3. Indonesia Export Growth 8. Liquidity

- Non Oil Gas 17.3 -9.6 11 33.20 -6.7 - Bank Excess deposits (IDR tn) 269 325 4 281 261

- US 10.8 -16.4 26.50 -9.9 9. Consumer Spending

- EU 15.1 -11.8 38.18 -8.3 - Average real expenditure (%) -1.7 -6.1 -3.1

- Total 20.1 -15.0 10 36.02 -9.0

- US 12.2 -16.8 28.52 -10.1

- EU 15.8 -12.1 34.49 -8.5

4. Indonesia Import Growth

- Non Oil Gas 42.9 -21.0 29.18 -9.5

- US N/A -8.9 19.44 -5.3

- EU N/A -17.9 30.78 -10.8

- Total 41.6 -25.0 13 32.82 -12.5

- US 64.7 -10.1 15.90 -6.0

- EU 35.0 -17.9 26.72 -9.8


0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100

Exp

ort

/Sale

s (

%)

Import/Total Raw Materials (%)

9

10 11

12

13 1415

16

17

21

20

19

18

High Import Contents &Export Oriented

High Local Contents &

Export Oriented

High Import Contents &

Domestic Oriented

High Local Contents &Domestic Oriented

1

2

67

3

25

24

23

2226

5

27

4

8

28

29

Industries likely be most affected by the global double dip

Source: Processed from BPS, Industry Statistics, 2009;

Danamon estimates

Share of Value Added & Labor of Medium & Large

Manufacturing Industries

High Local Contents High Import Contents

& Export Oriented & Export Oriented

VA = 18.8% VA = 23.3%

Labor = 23.9% Labor = 24.7%

High Local Contents High Import Contents

& Domestic Oriented & Domestic Oriented

VA = 34.9% VA = 23.0%

Labor = 41.6% Labor = 9.8%

Note:

1 = Drugs and medicines 15 = Clove cigarettes

2 = Wearing apparel made of textile (garments) 16 = Cement

3 = Electronic valve and tube and other electronic component 17 = Cultural papers

4 = Sport shoes 18 = Cooking oil made of palm oil

5 = Non ferrous metal basic industries 19 = Granulated sugar

6 = Industrial papers 20 = Weaving mill except gunny and other sacks

7 = Spinning mills 21 = Basic organic chemicals resulting special chemicals

8 = Motor cycles 22 = Crude vegetables and animal cooking oil

9 = Motor vehicles 23 = Crumb rubber

10 = Motor vehicle component and apparatus 24 = Pulp

11 = Preparation of textile fiber 25 = Tire and inner tubes

12 = Steel rolling industry 26 = Straight fertilizers

13 = Motorcycle component and apparatus 27 = Laminated board including decorative plywood

14 = Prepared animal feeds 28 = Wood furniture


Appendix

Background on Indonesia

30


Indonesia’s Potential 1: abundance of natural resources

Source: Government of Indonesia (2011), “Master Plan: Acceleration and Expansion of Indonesia Economic Development 2011-2025”


Source: Demographic Projections from BPS and UN Statistics, taken from the World Bank, “Indonesia Economic Quarterly: Back

on Track,” Dec 2009

INDONESIA: Age Structure of Population and Dependency Ratio (%), 1950-2050

• Indonesia is the fourth most populous nation in the world, with 237.6 million people (2010), and the working

age population are close to 70% of the total population. Population growth rose to 1.49% in 2010.

• Indonesia’s window of demographic dividend (only if it accompanied by better quality of education to

produce high skilled workers and more job creation) will close in the next decade, as the dependency

ratio (i.e. ratio of young and elderly to working age) will start to rise afterwards

Indonesia’s Potential 2: demographic dividend


However, the quality of employment was not that good

Source: BPS

• Despite getting hit by the crisis, unemployment rate continued to come down, from 8.4% in Aug-08 to 6.8% in

Feb-11.

• However, under-employment rate (i.e. people working less than 35 hours a week), is still high, which is around

28.6% of labor force, with part-time workers at around 15.5% of labor force.

• But around 66% of the employed workers are of informal labor.

• The share of employment in agriculture and manufacturing sectors continued to decline, while the ones in trade

and services (especially social services) sectors rising

Share of Employment by SectorFeb 2011

EmploymentIn Million People

95.2 95.597.6

99.9102.5 102.6

104.5 104.9107.4 108.2

111.311.1 10.9

10.6

8.3

8.18.6

9.4

9.4

9.3 9.0

10.0

7.16.87.48.4

8.59.1

8.1 7.9

10.5 10.39.8

90

95

100

105

110

115

120

Feb-06 Aug-

06

Feb-07 Aug-

07

Feb-08 Aug-

08

Feb-09 Aug-

09

Feb-10 Aug-

10

Feb-11

0

2

4

6

8

10

12

Employment Unemployment Unemployment Rate (rhs)

Million People %Unemployment Rate, 2006-11

Financial,

1.9%

Services and

others, 16.8%

Transport

and Comm.,

5.0%

Trade, 20.9%

Construction,

5.0%

Agriculture,

38.2%

Manufacture,

12.3%


Country LPI Customs InfrastructureInternational

shipments

Logistics

competence

Tracking &

tracingTimeliness

Singapore 4.09 4.02 4.22 3.86 4.12 4.15 4.23

Japan 3.97 3.79 4.19 3.55 4 4.13 4.26

Korea, Rep. 3.64 3.33 3.62 3.47 3.64 3.83 3.97

China 3.49 3.16 3.54 3.31 3.49 3.55 3.91

Malaysia 3.44 3.11 3.5 3.5 3.34 3.32 3.86

Brazil 3.2 2.37 3.1 2.91 3.3 3.42 4.14

Thailand 3.29 3.02 3.16 3.27 3.16 3.41 3.73

India 3.12 2.7 2.91 3.13 3.16 3.14 3.61

Philippines 3.14 2.67 2.57 3.4 2.95 3.29 3.83

Vietnam 2.96 2.68 2.56 3.04 2.89 3.1 3.44

Indonesia 2.76 2.43 2.54 2.82 2.47 2.77 3.46

East Asia &

Pacific (regional

average)

2.73 2.41 2.46 2.79 2.58 2.74 3.33

Lower middle

income (income

average)

2.59 2.23 2.27 2.66 2.48 2.58 3.24

Indonesia: Poor logistics is negative for competitiveness and

inter-connectivity

• Indonesia logistics performance rank lower in

ASEAN. Its rank declined from 43 (in 2007) to 75 (in

2010).

• …. lack of infrastructure is one of the main reasons

• …. low rank of international shipments and logistic

competence lead to consistently high deficit of

services accounts in the BoP

• …. poor inter-connectivity among regions in

Indonesia results in high cost economy, and

possibly also high inflation rate

Source: The

World Bank

(2010),

Connecting

to Compete

2010: Trade

Logistics in

the global

Economy,


Anecdotal Evidence: Poor logistics creating high cost

economy

Source: RJ Lino (2011) presentation, “Port

Unity Indonesia – Pelindo II”

It is cheaper to ship mandarins to Jakarta from

China than from Pontianak (W. Kalimantan)

Cement price in Papua is 20 times

more expensive than in Jakarta

because of shipping costs

Container Shipment cost:

Padang, W. Sumatera – Jakarta = US$ 600

Jakarta – Singapore = US$185


GOI’s recently launched Master Plan for 2011-2025

Strategic Initiatives of MP3EI:

Encourage a large scale investment realization in

22 main economic activities

Synchronization of national action plan to revitalize

the real sector performance

The development of center of excellence in each

economic corridor

Projected per capita income is USD 14,250 –

15,500 by 2025 under this government’s MP3EI

program

Source: Government of Indonesia (2011), “Masterplan: Acceleration and Expansion of Indonesia Economic Development 2011-2025”

Main Economic Activity Sumatera Java Kalimantan SulawesiBali - Nusa

Tenggara

Papua - Kep.

Maluku

Steel

Food and Beverages

Textiles

Transport Equipment

Shipping

Nickel

Copper

Bauxite

Palm Oil

Rubber

Food Agriculture

Tourism

Info & Comm.Tech.

Coal

Oil and Gas

Jabodetabek Area

Sunda Strait Nat.Strat.Area

Defence Equipment

Animal Husbandry

Timber

Cocoa

Fishery

Business

as usual

RPJM MP3EI


Huge financing needs for investment in 6 economic corridors

Source: Government of Indonesia (2011), “Masterplan: Acceleration and Expansion of Indonesia Economic Development 2011-2025”

Seemingly healthy fiscal

position:

Low tax ratio (big informal

sector, high tax avoidance,

many tax exemptions, etc.)

Declining oil & gas production

posing a risk

Small fiscal space (high portion

of non-discretionary spending,

i.e. Interest payments,

subsidies, payroll, education,

transfer to regions, etc.)

95% of local government budget

allocated for payroll

Inability to spend quickly

Financial sector not deep

enough, dominated by banks.

Small domestic base of long-

term investors (pension funds

and insurance companies).

Need foreign investors

participation (volatility risks

the importance of perception)


Relatively poor government effectiveness

Source: The World Bank (2010), The Worldwide Governance Indicators, ( http://info.worldbank.org/governance/wgi/index.asp )

http://info.worldbank.org/governance/wgi/index.asp


Indonesia Selected Economic Indicators

Source: CEIC, Danamon estimates

"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 the investment is consistent with your objectives and that you are able to assume the risk."

2008 2009 2010 2011E 2012E

National Accounts

Real GDP (% y-o-y) 6.0 4.6 6.1 6.5 6.5

Domestic demand ex. inventory (% y-o-y) 7.5 5.4 5.2 6.1 6.9

Real Consumption: Private (% y-o-y) 5.3 4.9 4.6 4.8 4.7

Real Gross Fixed Capital Formation (% y-o-y) 11.7 3.3 8.5 9.1 10.2

GDP (US$bn) — nominal 508 542 707 848 972

GDP per capita (US$) — nominal 2,221 2,343 2,976 3,519 3,976

Open Unemployment Rate (%) 8.6 7.9 7.1 6.7 6.3

External Sector

Exports, fob (% y-o-y, US$ bn) 18.3 -14.3 32.2 13.0 17.3

Imports, fob (% y-o-y, US$ bn) 36.9 -23.3 42.0 15.8 22.1

Trade balance (US$ bn) 22.9 30.1 31.1 31.6 29.9

Current account (% of GDP) 0.0 1.9 0.9 0.2 -0.2

Central government debt (% of GDP) 33 28 26 24 22

International Reserves –IRFCL (US$ bn) 51.6 66.1 96.2 125.0 137.0

Reserve Cover (Months of imports & ext. debt) 4.0 6.5 7.1 7.0 7.3

Currency/US$ (Year-end) 10,950 9,403 8,991 8,700 8,950

Currency/US$ (Average) 9,767 10,356 9,074 8,786 8,825

Others

BI policy rate (% year end) 9.25 6.50 6.50 6.50 6.25

Consumer prices (% year end) 11.06 2.78 6.96 4.68 5.70

Fiscal balance (% of GDP; FY) -1.0 -1.6 -0.6 -1.5 -1.0

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


Brief Overview of Indonesia

Source: Wikipedia

• An archipelagic country with more than 17,500 islands; the world’s 16th largest country in terms of land area

• It is the largest economy in the Southeast Asia and a member of the G-20 major economies.

• With Nominal GDP of USD 707 billion in 2010, Indonesia’s economic size ranks 18th largest in the world, and

4th largest in Asia (just smaller than Japan, China, India and South Korea).

• The country has extensive natural resources, including crude oil, natural gas, tin, coal, copper and iron ore.

Major agricultural products include, palm oil, rice, tea, coffee, spices, wood and rubber.

World Map of Nominal GDP (in US$) Indonesia strategic position

40


0

500

1000

1500

2000

2500

3000

-15

-10

-5

0

5

10

15

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Nominal GDP/Cap (USD, rhs)

GDP Growth (%)

Unemployment Rate (%)

Soeharto Habibie Wahid Megawati SBY

Direct Presidential Election

Reform, Decentralization, BI Independence

A new era, post Asian Financial Crisis. Mild impact of

2008 Global Financial Crisis

Source: BPS, Bank Indonesia, Danamon

41


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expressly disclaimed. The information contained in this report is not be taken as any recommendation made by P.T. Bank Danamon Indonesia Tbk. or any other person to enter

into any agreement with regard to any investment mentioned in this document. This report is prepared for general circulation. It does not have regards to the specific person

who may receive this report. In considering any investments you should make your own independent assessment and seek your own professional financial and legal advice.

the deterioration of the global outlook and how this might...

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