The Impact of Global Financial Crisis on Indonesia
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The Impact of Global Financial Crisis on Indonesia

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Workshop to Launch UNDP’s Regional Synthesis Report on Global Financial Crisis and Asia-Pacific Region ISEAS-Singapore, 30 November 2009

Workshop to Launch UNDP’s Regional Synthesis Report on Global Financial Crisis and Asia-Pacific Region ISEAS-Singapore, 30 November 2009

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The Impact of Global Financial Crisis on Indonesia Presentation Transcript

  • 1. BAPPENAS Workshop to LaunchUNDP’s Regional Synthesis Report on Global Financial Crisis and Asia‐ Pacific Region ISEAS‐Singapore, 30 November 2009 
  • 2. dadang‐solihin.blogspot.com 2
  • 3. Overview of Presentation BAPPENAS OVERVIEW OF MACROECONOMIC IMPACT SOCIAL IMPACT OF CRISIS RESPONDING TO THE CRISIS • Fiscal Stimulus • Social Protection WAY FORWARD • Tracking Vulnerabilities and Early Warning System dadang‐solihin.blogspot.com 3
  • 4. Macroeconomic Overview BAPPENAS When the international crisis hit the world, Indonesia’s overall economic  situation was promising. Prior to the crisis, the country witnessed strong growth, peaking in mid  2008 with 6.4% growth. The export sector boomed due to the world commodity boom. Budget deficits remained low and external debt ratios declined from  almost 90% in 2000 to about 33% at the end of 2008. Since the last crisis, Indonesia has also introduced several social protection  mechanisms.  This all assisted the country in dealing with the crisis and in mitigating its  impact on the economy as the next few slide will show. dadang‐solihin.blogspot.com 4
  • 5. Macroeconomic Overview BAPPENAS Pre‐crisis: strong economic growth and performance GDP Growth (% ) 8 6.3 6.1 5.4 5.7 5.5 4.7 4.7 5 4.4 3.8 3 0.8(y-o-y, %) -2 97 98 99 00 01 02 03 04 05 06 07 08 19 19 19 20 20 20 20 20 20 20 20 20 -7 -12 -13.1 -17 dadang‐solihin.blogspot.com 5
  • 6. Macroeconomic Impact of Crisis              BAPPENAS Decline from Q4 2008 onwards but still positive with growth (y‐ o‐y) 2009: 4.0% in QII, 4.2% in QIII Modest impact on remittances In Sept. 2008 Stock Exchange Index dropped but since QI foreign  capital inflows resumed  Since beginning 2009 most economic indicators   strengthened  again • Strong domestic (private and public) consumption          main  driver of growth • Consumer confidence high • Recovery of industrial activity dadang‐solihin.blogspot.com 6
  • 7. Macroeconomic Impact BAPPENAS As you can see from the graph, prior to the crisis Indonesia’s export performance has been strong due to the world commodity boom. Export growth declined from QIII onwards, followed by falling imports in QI 2009. However, export growth resumed already in May 2009. dadang‐solihin.blogspot.com 7
  • 8. (y-o-y, %) Ja n, -60 -40 -20 0 20 40 60 80 100 120 Fe 200 b, 8 M 200 ar , 8 Ap 200 r, 8 M 20 0 ay 8 , J u 200 n, 8 2 J u 00 l, 8 Au 20 g, 08 Se 200 p, 8 O 200 ct ,2 8 N 00 ov 8 , D 20 ec 08 Export Grow th , J a 200 n, 8dadang‐solihin.blogspot.com Fe 200 b, 9 M 200 ar ,2 9 Ap 00 r, 9 M 20 0 Import Grow th ay 9 Export and Import Growth, 2008-2009 (y-o-y, %) , J u 200 Macroeconomic Impact n, 9 2 J u 009 l, Au 20 g, 09 Se 20 Main Transmission Channel: Export and Imports p t 09 ,2 00 98 BAPPENAS
  • 9. A Reflection of Impact of  1997/98 Asian Financial Crisis BAPPENAS Before going into detail about the social impact of the current crisis, it is useful to go back to the impact of the 1997/1998 crisis. In the 1997/98 crisis Indonesia’s economy contracted by nearly 14%. The impact of the crisis was compounded by the El Nino phenomenon leading to drought and a shortfall in rice production, while the instable political climate in the wake of the fall of the Suharto regime complicated the formulation and implementation of mitigation policies. As you can see from the graph, poverty increased rapidly, reaching 33.2% in late 1998 and then gradually falling again. Common coping strategies included cutting down on food consumption, moving into informality and agriculture, reducing spending on health care and education. As a result school attendance rates dropped, particularly at the secondary level and many people stopped attending health care centres. dadang‐solihin.blogspot.com 9
  • 10. A Reflection of Impact of  1997/98 Asian Financial Crisis BAPPENAS Poverty Rates between Feb. 1996 and Feb. 200235 33.230 28.0 27.125 24.1 22.9 22.320 18.1 15.3 15.4 17.4 18.7 15.5 18.715 14.2 10.3 13.110 5 0 dadang‐solihin.blogspot.com 10
  • 11. Poverty and Vulnerability BAPPENAS While poverty rates since then have been falling to pre-crisis levels, there is a very high clustering around the poverty line – as you can see from the graph. More than half of the population in Indonesia lives below US$2/day. These households are facing a very high probability of becoming tomorrow’s poor during an economic crisis or as a result of an exogenous shock. dadang‐solihin.blogspot.com 11
  • 12. Poverty and Vulnerability BAPPENAS Large Number of Indonesians Vulnerable to Poverty 59.3% below US$2/dayUS$2/day (PPP) US$1/day (PPP) 10.4% below US$1/day dadang‐solihin.blogspot.com 12
  • 13. Percentage of Poor People BAPPENAS  There are wide disparities in Indonesia with poverty rates particularly alarming in the East of the country and Aceh.  However, in terms of absolute numbers, most of the poor are concentrated in Java and Sumatra. dadang‐solihin.blogspot.com 13
  • 14. Current Crisis – Impact on Poor Preliminary Findings BAPPENAS Preliminary findings show that overall social impact of crisis  limited  Workers in export‐oriented manufacturing   most affected  but overall employment in manufacturing grew Unemployment rates continue to decline Food insecurity levels, however, remain high and make  many susceptible to increases in food prices dadang‐solihin.blogspot.com 14
  • 15. Government Response BAPPENASFiscal Stimulus Package To strengthen and maintain stability of domestic financial  sector To stabilize and stimulate domestic economy by fiscal  expansion in 2009Social Protection Mechanisms Rice for the poor (RASKIN) Community Empowerment Programme (PNPM) Cash transfers (BLT, etc.) dadang‐solihin.blogspot.com 15
  • 16. Government Response – Fiscal Stimulus BAPPENASStimulus Package 2009 (In IDR Trillion) Description IDR Trillion 1 Tax Savings 43 Reductions in Income Tax Rates: 32 Lower Corporate Tax Rate 18.5 Lower Personal Income Tax rate 13.5 Income tax-free band raised to IDR 15.8 million 11 2 Tax /Import Duty Subsidies for Business/Targeted Households 13.3 VAT on oil/gas exploration, cooking oil 3.5 Import duties on raw materials and capital goods 2.5 Payroll tax 6.5 Geothermal tax 0.8 3 Pro-business/Jobs subsidies + budget expenditures 15 Reduced price for automotive diesel 2.8 Discounted electricity billing rates for industrial users 1.4 Additional infrastructure expenditures + subsidies + government 12.2 equity injection Upscaling of Community Block Grants (PNPM) 0.6Total Stimulus 73.3 dadang‐solihin.blogspot.com 16 Source: Coordinating Ministry of Economic Affairs, 2008
  • 17. Establishing a Crisis Monitoring System BAPPENAS Establishment of crisis monitoring and response system • To understand the impact of crisis on vulnerable  • To undertake appropriate, targeted and effective policy  response Ongoing data collection activities include • Crisis impact household survey (World Bank/BPS) • Pilot food security and nutrition monitoring survey  (WFP/UNICEF/ILO) • Qualitative studies • Regional assessments dadang‐solihin.blogspot.com 17
  • 18. Beyond the Crisis BAPPENAS Impact of global crisis less severe than anticipated Current economic crisis intersects with food price crisis,  follows fuel price crisis Different crises show that policy makers lack data to design  and target response in timely manner Setting up a crisis impact and vulnerability monitoring and  response system Preparing for future crises/ exogenous shocks ‐ early warning  system  Building a sustainable system  Linking monitoring with response dadang‐solihin.blogspot.com 18
  • 19. Monitoring Vulnerabilities BAPPENAS The system seeks to track vulnerabilities across multiple dimensions of distress and will focus on vulnerabilities caused or exacerbated by external shocks. A simple, manageable indicator framework is being developed with both, lower frequency, ‘contextual’ indicators drawn from existing data bases and higher frequency, ‘pulse’ indicators drawn from ongoing qualitative and quantitative assessments. As you may know, on the global level the UN, on request of the G20, is setting up a Global Impact and Vulnerability System (GIVAS) which envisions to include similar data and analysis on the global level. For those interested, we have provided the web addresses of our evolving website as well as the one of GIVAS. dadang‐solihin.blogspot.com 19
  • 20. Monitoring Vulnerabilities BAPPENAS MDGs/Human Development Indicators (DevInfo, BPS, Disaster UNDP) Risk Vulnerability Monitoring Response/ Indicators Social Protection (DESINVENTAR) Schemes VULNERABILITY  PNPM, etc. INDICATORSMacro Indicators (early  warning/ transmission  Crisis Impact channels) IndicatorsBank of Indonesia, IMF, BPS,  Food Insecurity MoF (BPS/WB survey; UNICEF/WFP/ILO; JICA)) dadang‐solihin.blogspot.com 20
  • 21. BAPPENAS Thank You for further information on Indonesia: www.vulnerabilitywatch.web.id/v1/for further information on Global Impact and  Vulnerability Alert System (GIVAS): www.voicesofthevulnerable.net dadang‐solihin.blogspot.com 21
  • 22. Tentang Narasumber dadang‐solihin.blogspot.com 22