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

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The Impact of Global Financial Crisis on Indonesia

  1. 1. BAPPENAS Workshop to LaunchUNDP’s Regional Synthesis Report on Global Financial Crisis and Asia‐ Pacific Region ISEAS‐Singapore, 30 November 2009 
  2. 2. dadang‐ 2
  3. 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‐ 3
  4. 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‐ 4
  5. 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‐ 5
  6. 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‐ 6
  7. 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‐ 7
  8. 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‐ 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. 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‐ 9
  10. 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‐ 10
  11. 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‐ 11
  12. 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‐ 12
  13. 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‐ 13
  14. 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‐ 14
  15. 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‐ 15
  16. 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‐ 16 Source: Coordinating Ministry of Economic Affairs, 2008
  17. 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‐ 17
  18. 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‐ 18
  19. 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‐ 19
  20. 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‐ 20
  21. 21. BAPPENAS Thank You for further information on Indonesia: further information on Global Impact and  Vulnerability Alert System (GIVAS): dadang‐ 21
  22. 22. Tentang Narasumber dadang‐ 22