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Oecd amro s2 02_indonesia dr prasetijono widjojo

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2nd OECD-AMRO Asian Regional Roundtable

2nd OECD-AMRO Asian Regional Roundtable

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  • 1. Ministry of National Development Planning/ National Development Planning Agency Indonesia’s Agenda: How to Address the Middle Income Trap Presented at 2nd OECD-AMRO Joint Asian Regional Roundtable Singapore, 19 July 2013 Dr. Prasetijono Widjojo MJ, MA Deputy Minister for Economic Affairs
  • 2. KEMENTERIAN PPN/ BAPPENAS 1. Middle Income Countries: An Overview 2. Indonesia’s Priority inAddressing Middle IncomeTrap 3. MP3KI: Masterplan forAcceleration and Expansion of Poverty Alleviation 4. MP3EI: Masterplan for Acceleration and Expansion of Indonesian Economic Development 5. Financial Inclusion 6. Conclusion Outline
  • 3. KEMENTERIAN PPN/ BAPPENAS Middle Income Countries: An Overview
  • 4. KEMENTERIAN PPN/ BAPPENAS Middle Income Countries: An Overview 16.3% 26.0% 25.1% 18.6% 14.0% Low Income Lower middle income Upper middle income High income: nonOECD High income: OECD • 51.1 percent (or 110 out of 215 countries ) are classified as lower and upper middle income countries. 32.6 percent of the countries in the category of high income countries; whereas only 16.3 percent of it is classified as low income. • Contribution of Middle income countries’ GDP (nominal) to the world is 33.2% • Therefore, middle income countries’ are very important in supporting the global development and as the engines of world economic growth: • contribute to global economic resilience • Attractive investment location Category: • Low income: $ 1,005 or less • Lower middle income: $ 1006 - $ 3975 • Upper middle income: $ 3,976 - $ 12,275 • High income: $ 12,275 or above Distribution of Country Category (based on income, number of countries)
  • 5. KEMENTERIAN PPN/ BAPPENAS Indonesia: A Low Middle Income Country 449 515 578 641 705 752 840 926 1041 1154 1078 470 680 790 757 910 1076 1161 1273 1601 1871 2178 2272 2947 3471 3557 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 USDperCapita low income high income Indonesia Middle income High incomeIncome per Capita
  • 6. Other Countries’ Experiences: Development of Income Per Capita 0 5,000 10,000 15,000 20,000 25,000 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 USDpercapita low income high income Korea Korea 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 USDpercapita Brazillow income high income Brazil 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 USDpercapita Chile 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 USDpercapita South Africa Korea and Chile have succeeded to mitigate from the middle income trap, but Chile took longer time than Korea did On the other hand, Brazil and South Africa are still struggling in middle income category for quite a long time
  • 7. KEMENTERIAN PPN/ BAPPENAS Other Country Experiences: Korea and Chile • Korea did investments in infrastructure and education. • Korea has proven that building a high-quality education system which encourages creativity and supports breakthroughs in science and technology is key. The biggest challenge is moving from resource-driven growth that is dependent on cheap labor and capital to growth that is based on high productivity and innovation KOREA • Chile was transforming its economic development with pursuing more balanced income distribution • Chile over the past decades has restricted government power and relentlessly fought corruption CHILE
  • 8. KEMENTERIAN PPN/ BAPPENAS A Risk of Middle Income Trap: Does Indonesia need to be worried? Source: Statistics Indonesia (modified by Bappenas) 5.0 5.7 5.5 6.3 6.0 4.6 6.2 6.5 6.2 6.3 6.4 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* % Average growth =5.9 projectionIndonesian Ecoomic Growth Effect of Global Crisis • It is noticed that Emerging Asia, including Indonesia, is potentially susceptible to the ‘middle- income trap,’ a phenomenon where economies are stagnant at middle-income levels and fail to graduate into the high income economy. • However, the history of Indonesian economic growth shows that Indonesia has been experiencing a quite stable growth over the time. Furthermore, after 2009, Indonesia can maintain its economic growth at the rate of above 6%.
  • 9. KEMENTERIAN PPN/ BAPPENAS A Risk of Middle Income Trap: Does Indonesia need to be worried? Source:World Development Indicator (projection calculation by Bappenas) 3,881 4,238 0 500 1000 1500 2000 2500 3000 3500 4000 4500 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* IncomeperCapita(USD) Income per capita of Indonesia is increasing • Since 2002, Indonesia has been experiencing a significant increase of its income per capita.This trend seems to continue in the next period • The income per capita of Indonesia in 2013 and 2014 is projected to be around USD 3881 and USD 4238. projection
  • 10. KEMENTERIAN PPN/ BAPPENAS Indonesia’s Priority in Addressing Middle IncomeTrap
  • 11. KEMENTERIAN PPN/ BAPPENAS Indonesia’sVision “Propelling Indonesia to become a high-income country, to be one of the 10 world largest economies by 2025, and to be one of the 6 world largest economies by 2050 through accelerated, sustainable, and inclusive economic growth” 2011-2014: 6,4 – 7,5 %/year 2015-2025: 7,5 – 9 %/year ~ 10 world largest economies ~ 6 world largest economies 2050
  • 12. KEMENTERIAN PPN/ BAPPENAS The most important problem to be addressed Source: Statistics Indonesia 0.32 0.36 0.33 0.36 0.35 0.37 0.38 0.39 0.41 0.2 0.25 0.3 0.35 0.4 0.45 Gini index is increasing, showing the inequality problem is rising… 16.66 15.97 17.75 16.58 15.42 14.15 13.33 12.49 11.66 9.86 11.24 10.28 9.11 8.39 7.87 7.14 6.56 6.14 0 2 4 6 8 10 12 14 16 18 20 2004 2005 2006 2007 2008 2009 2010 2011 2012* Poverty Rate Unemployment Rate Poverty Rate and Unemployment Rate is decreasing , but the decreasing rate is getting slower…..
  • 13. KEMENTERIAN PPN/ BAPPENAS Indonesia’s Agenda to Address the Risk of Middle IncomeTrap: Sustainable Growth with Equity Addressing the Risk of Middle IncomeTrap: SUSTAINABLE GROWTH WITH EQUITY Addressing the inequality problem Macroeconomic Stability 1. Improving infrastructure 2. Improving the quality of human capital through: • Training of skilled labour • Formal education 3. Improving Research and Development (Technological Innovation) 4. Improving Health of the society Improving Productivity to sustain growth Affirmative Actions 1 2 3 1. Exchange Rate Stability 2. InflationStability
  • 14. KEMENTERIAN PPN/ BAPPENAS Macroeconomic Stability
  • 15. KEMENTERIAN PPN/ BAPPENAS Exchange Rates and Inflation Stability • Indonesia apply managed- floating exchange rate policy and inflation targeting framework • Bank of Indonesia keeps stabilizing the rupiah exchange rate to make sure that it moves around its fundamental value to maintain inflation and to support economic growth. Inflation Rates 3.7 3.6 4.0 4.5 4.5 4.5 4.6 4.6 4.3 4.6 4.3 4.3 4.6 5.3 5.9 5.6 5.5 5.9 0.0 5.0 10.0 15.0 Jan Feb Mar Apr Mei Jun Jul Agu Sep Okt Nop Des Jan Feb Mar Apr Mei Jun 2012 2013 Inflation y-o-y (%)Nominal Exchange Rates
  • 16. KEMENTERIAN PPN/ BAPPENAS MP3KI: Masterplan of Acceleration and Expansion of Poverty Alleviation
  • 17. KEMENTERIAN PPN/ BAPPENAS DESIGN FRAMEWORK PROSPEROUS, FREE FROM ABSOLUTE POVERTY AND HAS HIGH CAPABILITY TO SUSTAIN THE LIVELIHOOD •To create national social protection system •To increase basic services for the poor and the vulnerable •To develop the livelihood of the poor and the vulnerable Preparation of the institutionalization of BPJS (social protection implementation agency) and the supply side support Expansion of targeted programs Development of corridors of islands and special zones in growth center and non-growth center areas • Requirements of MP3KI Supporting Institution and Implementation • Requirements on economic condition: growth and economic stability INDEPENDENT, ADVANCED, FAIR AND PROSPEROUS MP3KI Vision Main Strategy Implementation Strategy MP3KI Mission
  • 18. KEMENTERIAN PPN/ BAPPENAS - Strengthening the integrated Poverty Alleviation Program; - Universal coverage of Social Safety Program. SUSTAINABILITY (YEAR 2021-2025) - Poverty Alleviation Program transformation; - Expand the coverage of social safety to reach universal coverage; - Completion of BPJS of employment security sector; - Strengthening sustainable livelihood. TRANSFORMATION AND EXPANSION (YEAR 2015-2020) - Reduce Poverty Rate to 8% - 10% in 2014; - Synergize existing Poverty Alleviation Programs - Implementation of Sustainable livelihood and its link with the MP3EI - Completion of BPJS of health sector in 2014 . RECONSOLIDATION (YEAR 2013-2014) STAGES OF MP3KI IMPLEMENTATION
  • 19. SCENARIO TO ACCELERATE AND TO EXPAND POVERTY REDUCTION IN INDONESIA (P3KI) Outlook of Economy and Poverty Target Poverty Alleviation Strategy 2012 2015 2020 2025 PDB/ capita (US$)Poverty Level 3.543 6.097 10.278 14.963 10,5-11,5 % 8-10% 6-7% 4 - 5 % Strategic Program Target Groups Near poor HH, poor HH and very poor House Holds (HH) (the lowest 40 % of PPLS 2011) The lowest 30 % of PPLS 2014/2017 The lowest 20 % of PPLS 2017/2020 The lowest 10 % of PPLS 2023 EXISTING POVERTY ALLEVIATION PROGRAMS Cluster I Social Protection/ Security and Social Assistance Cluster II Community Empowerment Klaster III Credits for Small and Medium Entreprises Klaster IV Pro-People Programs SOCIAL PROTECTION PROGRAM Social Security:  Health Insurance  Death Insurance  Old-Aged Security  Pension Plan  Accident Insurance Social Assistance:  Temporary (economic crisis, natural disaster)  Reguler (food security, scholarship the poor, etc.) TRANSFORMATION OF SOCIAL PROTECTION PROGRAM 467 DEVELOPMENT OF SUSTAINABLE LIVELIHOOD OF THE POOR/ THE VULNERABLE Empowerment/Human Resources Capacity Building Financial Access f(or micro entrepreneurs) Mainstreaming Programs/Activities
  • 20. KEMENTERIAN PPN/ BAPPENAS THE WAY FORWARD: CONTINUING SUSTAINABLE POVERTY REDUCTION 1. Continuing more integrated and well coordinated poverty reduction programs within each clusters and among clusters 2. Promoting pro-poor economic growth: • Promoting growth in sectors that have significant impact on poverty reduction; • Utilization of local resources to promote local economic activities; • Improve the capacity of pro-poor planning and budgeting; 3. Improve the effectiveness of poverty reduction program at the local levels, including: • Empowerment of informal sector, SMEs, and cooperatives at the local level • Diversification of businesses in rural areas through agroindustry supported by utilization of local resources and rural infrastructure • Promoting development in the remote and border areas 4. Carefully design the expansion: • PNPM: refocus the intervention toward the poor (incl. the marginalized groups). • PKH: prioritize areas where health & education indicators are low 5. Promote greater involvement—and responsibility—of other stakeholders (LGs, NGOs, CSR)
  • 21. KEMENTERIAN PPN/ BAPPENAS MP3EI: Masterplan of Acceleration and Expansion of Indonesian Economic Growth
  • 22. MP3EI Objective : Accelerated Growth with Equity Goal : Achieving GDP per capita USD 14.000-16.000 in 2025 Approach : - Increase in value-added corridor-based flagship commodities - Involvement of Government, State- Owned Enterprises, and Private Sector Strategies : - Economic Corridor Development - Human Resources and Technology Development - Strengthening National Connectivity MP3KI Objective: Accelerated Poverty Alleviation Goal : Reducing poverty rate to 4 -5% in 2025 Approach: - The fulfillment of basic services/needs and increase in income - Involvement of Government, State-Owned Enterprises, Private, People (P4: Public- Private-People Partnership). Strategies: - Comprehensive Social Safety Net - Improving basic services to the poor and vulnerable - Improving the livelihood of the poor and vulnerable LONG-TERM NATIONAL DEVELOPMENT PLAN Main Strategy: Pro-Growth, Pro-Job, Pro-Poor, Pro-Environment MEDIUM-TERM NATIONAL DEVELOPMENT PLAN The Alignment of MP3KI and MP3EI: Integrated Planning Documents Slide 22
  • 23. KEMENTERIAN PPN/ BAPPENAS Framework Design Of Mp3ei
  • 24. THEME OF EVERY ECONOMIC CORRIDOR Denpasar Mataram Jakarta Medan Pekanbaru Jambi Lampung Semarang Banjarmasin Palangkaraya Pontianak Makassar Manado Kendari Gorontalo Manokwari Jayapura Serang Mamuju Surabaya Merauke Kupang Samarinda Ternate Wamena Sorong Ambon Palu Padang Palembang Bengkulu Jogjakarta Banda Aceh Pangkal Pinang Batam KALIMANTAN : center for production and processing of national minning & energy reserves" SUMATERA: center for production and processing of national resources as nation’s energy reserve JAVA: Driver for national industry and service provision BALI: gate way for tourism and supporting national food support PAPUA – MALUKU: Center for development of food production, fisheries, energy and national minning” SULAWESI: center for production and processing of national agricultural, plantation, fisheries, oil and gas, & minning. 24
  • 25. KEMENTERIAN PPN/ BAPPENAS Progress of MP3EI Implementation Groundbreaking Projects in 2011 In 2011, 111 projects have been groundbreaking, which consist of: • Government: Rp77,14 trillion (22 projects), • SOEs: Rp80,24 trillion (37 projects), • Private: Rp159,78 trillion (42 projects) • PPP: Rp94,46 trillion (10 projects) Groundbreaking Projects in 2012 In Sulawesi, 7 of 11 projects have been groundbreaking; but the rests are the high-valued projects. Some projects that havent been groundbreaking in Sumatera and Papua-Maluku are high-valued investment In 2012, 71 projects have been groundbreaking, which consist of: • Government: Rp42 trillion (21 projects), • SOEs: Rp41,65 trillion (20 projects), • Private: Rp115,56 trillion (28 projects), • PPP: Rp11,97 trillion (2 projects).
  • 26. KEMENTERIAN PPN/ BAPPENAS Financial Inclusion
  • 27. KEMENTERIAN PPN/ BAPPENAS 27 SUPPLY SIDE:  Information asymmetry  Dealing with small customers is not very profitable  Some financial products are designed for people with a certain minimum amount of income DEMAND SIDE:  Some customers face a complexity in dealing with financial institutions  Some poor households believe that financial institutions are intended for modern and progressive people  Other demand-side barriers such as low level of financial literacy, lack of formal identification system, and inability to track an individual’s track history Some Issues in Financial Inclusion
  • 28. KEMENTERIAN PPN/ BAPPENAS Financial Inclusion Financial Education Financial Eligibility Policy and Regulation Distribution Channel Public Finance Consumer Protection Six Pillars of Financial Inclusion
  • 29. KEMENTERIAN PPN/ BAPPENAS • Financial literacy and financial capability improvement – National campaign “Let’s go to the Bank” • Potential customers identification – Financial Identity Number (FIN) is a unique number for unbanked community (poor households and SMEs) to reduce information asymmetry issue • Saving services provision –TabunganKu which has less requirements and administrative costs •Credit services provision – Kredit Usaha Rakyat – Perusahaan Penjaminan Kredit Daerah (Local Credit Guarantee Corporations) which guarantee credit for SMEs – Credit rating services for SMEs which enables banks to select potential customers for loans Some Examples: Initiatives to Promote Financial Eligibility
  • 30. KEMENTERIAN PPN/ BAPPENAS Conclusion 1. Indonesia’s economic growth is still maintained at the high rate 2. To address the risk of Middle Income Trap, Indonesia will focus on promoting Sustainable Growth with Equity; aiming at solving the inequality problem and in the same time to sustain the economic growth 3. For this, Indonesia seriously implements MP3EI,MP3KI, and promotes financial inclusion, as well as maintaining stability of macroeconomic condition.
  • 31. KEMENTERIAN PPN/ BAPPENAS THANKYOU
  • 32. KEMENTERIAN PPN/ BAPPENAS ATTACHMENT
  • 33. THE MAIN ECONOMIC ACTIVITIES IN EACH CORRIDOR Sumatera Jawa Kalimantan Sulawesi Bali – Nusa Tenggara Papua – Kep. Maluku Palm oil Ruber Coal Shipping Steel Region Strait Sunda Textile Food- beverage Equipment and machine Telematics Main tools of weapon systems Shipping Jakarta Metropolitan Area Palm oil Timber Oil & gas Steel Bauxite Coal Food estate Cocoa Fishery Nickel Oil & Gas Tourism Livestock Fishery Food agriculture Fishery Cooper Nickel Oil & gas 33
  • 34. KEMENTERIAN PPN/ BAPPENAS TRANSFORMATION TO SUSTAINABLE LIVELIHOOD 2012 Cluster II, III, IV •PNPM •Small Credit •Housing for the poor •Clean water for the people •Low cost electricity for the poor •Provide public transportation for the people •Increase coastal livelihood •Increase livelihood for urban poor 2025 Sustainable Livelihood • Credit assistance, Training for small enterprise, and market integration (financial asset) • Labor worker training (in collaboration with Industry, Certification, Universal Education (human asset) • Village improvement, easy to use electricity and clean water system (infrastructure asset) • Environment protection and pollution overcome (natural asset) • Participatory planning for community (social asset)

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