Indonesian Economic Review and Outlook No 1/Year I/December 2012

  • 88 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
88
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
7
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. No 1/Year I/December 2012 INDONESIAN ECONOMIC REVIEW AND OUTLOOK Macroeconomic Dashboard Faculty of Economics and Business Universitas Gadjah Mada
  • 2. Foreword Indonesian Economic Review and Outlook (IERO) is quarterly bulletin, which is published by the Macroeconomic Dashboard, Department of Economic, Faculty of Economics and Business Universitas Gadjah Mada with the collaboration of PT. Bank Mandiri, Tbk. The theme of this IERO edition revolves around the uncertainty in financial markets and world economy, which continues to cast a shadow over the Indonesian economy in 2012. Slow global economic growth is predicted to continue to its adverse impact on the Indonesian economy in 2013, very much in line with the prediction of GAMA Leading Economic Indicators (GAMA LEI). GAMA LEI is a reference which is issued by the Macroeconomic Dashboard predicting the condition and state of the Indonesian economy in future. The underlying objective of GAMA LEI is to serve as a reference and guidance for policy makers in observing future possibilities which in turn will enable them to take policies in anticipation of such economic conditions. In this edition, IERO discusses the theme on the economic crisis, which continues to affect Europe. This analysis gives a comprehensive picture on the European economic crisis and its implication on World economy in general and Indonesia in particular. The publication of IERO which covers both current and regular issues is expected to serve as reference as well as becoming a source of real time information and contextual analysis on developments of the Indonesian economy. Wishing you an enjoyable reading Prof. Dr. Sri Adiningsih, M.Sc Head of Researcher Macroeconomic Dashboard
  • 3. Indonesian Economic Review and Outlook In 2012, uncertainty in financial markets and world economy has continued to cast a large shadow over the Indonesian economy. This grim prediction will remain unchanged in 2013 is based on the pessimism about the World Economy as the United States economy remains weak, compounded by uncertainty that surrounds the future of the European Union. Indonesia, which showed marked resilience during the 2008/2009 financial crisis, has prepared to face challenges in 2012. The resiliency of Indonesia's economy has been underpinned by the large domestic market and primary commodity exports that fetched high prices on the international market, coupled with a large informal economy. As the year 2012 unfolded, the prices of commodities on the international market dropped, which was attributable to weakning demand on the international market. To that end, the domestic market today faces a deluge of imports of products from China and other Asian countries, which despite high growth in investment in the economy, have reduced the pace of economic growth. I.1 Recent Economic Developments At the time this issue is written, the debt crisis in Europe continues to be crucially important, as has a lot of influence on the World economy. Economic growth in several countries which have for long become engines that kept the rest of the world humming, are today facing uncertainty. Amidst such global economic uncertainty, the International Monetary Fund (IMF) predicted global economic growth of 3.3% 2012, which is the lowest since 2009. However, IMF predicts a slight improvement in 2013 when the world economic will register 3.6% in economic growth, which is lower than 3.8% posted in 2011. Uncertainty which has emanated from the crisis in Europe continues to drag down the global economy and in turn the Indonesian economy in two ways namely trade and international finance. As an open economy, Indonesia depends on the economic conditions that obtain in other economies, especially with respect to imports and exports. The implication of this is that Indonesia has high vulnerability to slow economic growth that affects other countries. This is apparent from the difficulty which Indonesia faces in achieving economic growth targets set by the government. Indonesian economy registered 6.17% in economic growth in the third quarter 2012 on year on year basis. This was lower than 6.37% posted in the second quarter 2012. Slower economic growth in the third quarter is a direct consequence of the impact of the crisis in Europe. Moreover, based on IMF prediction, Indonesian GDP will register by 6% in 2012 and 6.3% in 2013, an indication that sluggish economic growth posted in 2012 will continue through 2013. Macroeconomic Dashboard Universitas Gadjah Mada 1
  • 4. Perkembangan Ekonomi Terkini Recent Economic Development Figure 1: GDP economic growth, Indonesia in 2000 constant prices by Expenditure, 2005 – 2012 (yoy, in %) Economic Growth, shows a downward trend, in line with sluggish growth in world economy (%) 40 Consumption Expenditures: Household Consumption Expenditures: Government Exports of Goods and Services Imports of Goods and Services Gross Fixed Capital Formation GDP (RHS) (%) 8.00 7.00 30 6.00 20 5.00 10 4.00 0 3.00 -10 2.00 -20 1.00 -30 0.00 Source: BPS and CEIC Figure 2: GDP Economic growth, Indonesia based on 2000 constant prices by economic sector, 2005 – 2012 (yoy, in %) From the perspective of production, Indonesian economic growth is driven by Transportation and Communications sector, Construction sector, also Financial, Ownership and Business sector. Agriculture, Livestocks, Forestry and Fisheries (%) M and Quarrying ining Manufacturing Electricity, Gas and W Supply ater Construction Trade, Hotel and Restaurant Transport and Communication Financial, Ownership and Business Services 20 15 10 5 0 -5 Source: BPS and CEIC Figure 3: Unemployment in Indonesia Unemployment in Indonesia shows a downward trend over the years Source: BPS dan CEIC Macroeconomics Dashboard Universitas Gadjah Mada Macroeconomic Dashboard Universitas Gadjah Mada 2
  • 5. Indonesian Economic Review and Outlook The ability to maintain the achievement of a positive economic growth (although still relatively low), during the global crisis, mainly because of domestic aggregate, particularly Gross Fixed Capital Formation and Household Consumption. As is evident in Figure 1, from the vantage point of expenditure, GDP growth in the third quarter 2012, is underpinned by growth in Fixed Capital Formation which grew by 10.02 % (yoy) and Household Consumption which posted 5.68% growth (yoy). Meawhile, Government Consumption, Exports and Imports contracted compared with the previous period. In comparison with the third quarter of 2011, the growth in Government Consumption registered stood at – 3.22% (yoy), which is attributable to the low budget absorption. By November 2012 the budget absorption or requisition level was IDR 1,112.1 trillion or 71.8% of the Revised National Budget 2012 of IDR 1,548.3 trillion. Meanwhile, export of goods and services in the third quarter of 2012 decreased by -2.78% (yoy). There is also sign of slowdown in import, which posted contraction of -0.54% (yoy). As regards production, as is evident in Figure 2, Transportation and Communications sector posts the highest growth of 10.48% (yoy), followed by Construction sector for about 7.98%, and while Financial Services, Real Estates, and Service Industry registered 7.41%. Meanwhile, Mining an Extraction sector posted contraction of 0.09%. It is interesting to note that Transportation and Communications sector, which registered 10% growth, has lowered compare to previous periods. Although the economy posted a decrease in economic growth, the level of unemployment shows a decrease in August 2012 compared with the same period in the previous year. This is reflected in a decrease in unemployment. Open unemployment in August 2012 decreased from the rate in February 2012. In August 2012, the number of unemployed was 7.24 million or 6.14% compared with 7.61 million or 6.32% in February 2012. Moreover, unemployment in August 2012 was lower than unemployment in the same period in 2011, which accounted for 6.56%. The decrease in unemployment in Indonesia is also reflected in the decrease in the work force in August 2012. In August 2012 the percentage of workforce in Indonesia was 67.88%, which was a decrease from 69.66% in February 2012. Macroeconomic Dashboard Universitas Gadjah Mada 3
  • 6. Developments in Monetary Indicators Figure 4: Money Supply Despite M1 registering a decrease in October 2012 compared with the previous month, in general, money supply shows an upward (IDR Billion) M1 M2 3500000 3000000 2500000 2000000 1500000 1000000 500000 0 Source: Bank Indonesia and CEIC I.2 Developments in Monetary Indicators A. Money Supply Money supply, MI and M2 shows an upward trend reaching IDR 782 trillion and IDR 3,168 trillion in October 2012 respectively, higher than IDR 779 trillion and IDR 3,050 trillion in June 2012. This shows an increase of 0.3% and 3.8% from June to October 2012. In terms of year on year, MI and M2 in October 2012, constituted an increase of 17.6% and 18.3% from the values for October 2011. Nonetheless, compared with values for September 2012, the level of MI showed a decrease of 1.7 %. B. Inflation Figure 5 shows that inflationary pressure has increased since the beginning of 2012, which is in line with an increase in domestic demand. Inflation level, which decreased below 4% during the 2008/2009 global financial crisis, edged upwards during April-August 2012 to 4.5%, which though decreased to 4.3% in September 2012, moved upwards in October to 4.6%. In November 2012, the Central Bureau of Statistics recorded inflation level of 4.32% (yoy), which is equivalent to 3.73% for the JanuaryNovember calendar year terms. However, inflation in November 2012 which was lower than that recorded in the previous month was still higher than the figure for November 2011, which was only 4.15%. Macroeconomic Dashboard Universitas Gadjah Mada 4
  • 7. Indonesian Economic Review and Outlook What should be noted is that rising food prices have played a part in an upward movement in the inflation level. The administered and volatile inflation is calculated for about 2.70% and 5.78% on year on year basis respectively in November 2012. Meanwhile, in November 2012 core inflation was 0.14%, which is equivalent to 4.40% in annual terms, slightly higher than general inflation (Figure 5). High core inflation reflects high consumer demand which can not be met by existing supply of goods. In light of that, this is an issue, to which the economic authority must pay serious attention as it poses the danger of creating an over heated economy if not handled well. Higher inflation level in November 2012 than the same period last year, is reflected in the increase in indices of several expenditure categories such as an increase of 0,23% for transport, communications and financial services; an increase of 0,15% for housing, electricity, water, and energy; an increase of 0.20% of processed food , beverages, and cigarettes. Meanwhile, some expenditure categories, which included food and clothings experienced deflation - 0.13% and - 0.10%, respectively. Figure 5 : Inflation level, 2009 – 2012 (yoy, in %) Need for careful handling of the problem of higher core inflation than general inflation in November 2012 to avert degenerating into “overheated economy”. (%) HEADLINE CORE ADMINISTERED VOLATILE 20 15 10 5 0 -5 -10 Source : BPS and CEIC Macroeconomic Dashboard Universitas Gadjah Mada 5
  • 8. Developments in Monetary Indicators Figure 6: Components of Inflation, 2009 – 2012 (yoy, in %) Rising Inflation year on year in November 2012 is attributable to an increase in prices as reflected by several expenditure categories Headline Processed Food, Beverages, Tobacco Clothing Education, Recreation and Sports Food Housing, Electricity, Gas and Fuel Health Transportation, Communication and Finance 20 15 10 5 0 -5 -10 Source: BPS and CEIC Commodities which contributed significantly to inflation in November 2012 were onions, which contributed 0.08%; rice 0.04%; beef 0.03%; carrots 0.02%; air transport fares 0.04%. C. Interest Rate At the start of 2012, the Indonesian Central Bank maintained the BI rate at 6%, as an effort to maintain financial system stability and conducive condition for domestic economic expansion amid global economic uncertainty. However, in February 2012, in an additional effort to promote economic growth, Bank Indonesia cut the Bank Indonesia rate by 25 basis points from 6% to 5.75%, which is still the applicable rate at the time of writing this edition. Other interest rates such as interest on deposits, time deposit, and SBI have followed the decrease of BI rate (see Figure 7). The level of international reserves continues an upward trend and by October 2012 stood at USD 110,297.16 million, which USD 3,794.77 million higher than USD 106,502.39 million recorded in June 2012 (see Figure 8). The increase in international reserves is attributable to among other factors the surplus position in the balance of payments in the third quarter 2012 as a result of a decrease in current account deficit which in turn was due to an increase in the trade surplus that arose from a decrease in imports, especially consumption goods, and a surplus in Capital and Financial Accounts. The increase in international reserves should improve investor confidence as well as protect the economy from the fallout of a deeper world recession. Macroeconomic Dashboard Universitas Gadjah Mada 6
  • 9. Indonesian Economic Review and Outlook Figure 7: Developments in BI Rate, SBI, Deposits, and Credit/Loans Rates, 2005 – 2012 (in %) Interest rate continues to be in consonance with low inflationary pressures but still under control Deposit Rate: 1 Month (%) Max Guarantee : 3 Month Bank Indonesia Certificates Rate: 1 Month Bank Indonesia Certificates Rate: 9 Months BI Rate 12 10 8 6 4 2 0 Source: Bank Indonesia and CEIC Figure 8: Indonesia's International Reserve position, 2009 – 2012 (in USD Million) The increase of Indonesia's international reserve is expected to reduce weakening pressure on the Rupiah International Reserve USD million 140000 120000 100000 80000 60000 40000 20000 0 Source: Bank Indonesia and CEIC D. Exchange Rate and Share Prices The exchange rate of Rupiah against the US Dollar continues to depreciate throughout 2012. The depreciation was in part attributable to a deficit in balance of payments position recorded in the first and second quarters of 2012, which in turn came as a result of a decline in international reserve position and increasing uncertainty in the global economy. The movement of the exchange rate of Rupiah during the third quarter 2012 though continued to depreciate but at lower rate that in the third quarter 2011. The movement of the exchange rate of the Rupiah during the third quarter 2012 experienced 2.26% depreciation (qtq) to IDR 9.491 per USD from IDR 9.277 per USD recorded in the second quarter 2012. Macroeconomic Dashboard Universitas Gadjah Mada 7
  • 10. Developments in Goverment Finances Figure 9: The Exchange Rate and Share Prices, 2009 – 2012 Pressure from global markets continue to induce depreciation of the exchange rate of the Rupiah during 2012 IDX IDX IDR per USD (RHS) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Source: BPS and CEIC In the meantime, in November 2012, the depreciation of Rupiah continued hitting IDR 9,605 per USD, lower than IDR 9000 per USD at the start of the year as well as IDR 9480 per USD in June 2012. The depreciation of Rupiah is attributable to uncertainty which has characterized the handling of the debt crisis and fiscal condition in Europe, and the increase in demand for foreign exchange to pay for increasing value of imports Meanwhile, the Indonesian Composite Index (IDX) in 2012 strengthened. In November 2012 IDX moved within 4,276 levels, which is an increase compared with 3,941 at the start of the year, which constitutes 8.5% growth. I.3 Developments in Government Finances On 23 October 2012, the National Assembly appoved the State Budget (APBN) for 2013. Changes in assumptions used in drawing up the national budget for 2013 compared with those that underpinned the State Budget 2012-Revised are shown in Tabel 1. Table 1: APBN 2012 and 2013 Economic Growth (%) Inflation (%) yoy Exchange Rate (IDR/USD) 3 Month - SBI/SPN Rate (%) Oil Price (USD/barrel) Oil Lifting (barrel/day) Gas Lifting (barrel/day) APBN 2012 APBN-P 2012 APBN 2013 6.7 6.5 6.8 5.3 6.8 4.9 8800 9000 9800 6 5 5 90 105 100 950000 930000 900000 - 1,360,000 Source: Ministry of Finance Macroeconomic Dashboard Universitas Gadjah Mada 8 IDR per USD
  • 11. Indonesian Economic Review and Outlook Considering the current economic conditions of the Indonesian economy and developments in the global economy, the assumptions above seem to be too optimistic. Given the high uncertainty that continues to cast a shadow above the global economy, and predictions are pointing to slower economic growth than initially projected, the assumption on Indonesian economic growth in 2013 is too high. By sector, expenditure on energy subsidies receives most public attention and interest. In the approved national budget for 2013, budget allocation for energy subsidy constitutes the largest item of government expenditure of 27.8 % of the total budget. Second in terms of size the central government expenditure is the proposed expenditure on civil servants (amounting to 21.2%). In descending order, expenditure on capital expenditure follows (17%), goods expenditure (14%), foreign debt serving (9.9%), social expenditure (5.2%) and other expenditure items (4.2%). It is thus, apparent that the 2013 state budget will not have significant impact on the Indonesian economy. Expenditure on subsidies and government employees takes almost 50 percent of government expendtiture. Out of total of IDR 274.7 trillion to be spent on energy subsidies, IDR 41.4 trillion will be spent on non energy subsidies. The item of energy subsidies is divided further into two, which is IDR 193.8 trillion for gasoline/fuels and energy and IDR 80.9 trillion for electricity. Based on information that was provided by the Directorate General National Treasury -Ministry of Finance, by 14 November 2012, the disbursment of the revised national budget for 2012 was IDR 1,112.1 trillion, which is 71.8% of the total amount (IDR 1,548.3 trillion). Total central government expenditure stood at IDR 717.993 trillion, which is equivalent to 67.1 % of total amount IDR 1, 069.5 trillion, and the transfer of IDR 394.1 trillion to the local governments, which is equivalent to 82.3% of IDR 478.776 trillion of the budget allocation for the purpose. In light of the assumptions used in formulating the state budget for 2013, is evident that the Indonesian government has high optimistism that 2013 will be better than 2012. Macroeconomic Dashboard Universitas Gadjah Mada 9
  • 12. Developments in Fiscal Policy I.4 Developments in Fiscal Policy In general, the value of Indonesian foreign debt registers an increase in the third quarter 2012 compared with the second quarter. The ratio of foreign debt to GDP increases as a result of both an increase in the volume of debt and depreciation of Rupiah. The total value of Indonesian foreign debt in the third quarter 2012, was USD 243.910 billion, consisting of USD 115.03 billion (government debt) and USD 123.27 billion (private sector debt). The value of foreign debt for the private sector increased by USD 2,520 million in the third quarter 2012 compared with the same period in the previous year. Meanwhile, the value of foreign debt in the third quarter 2012 registered an increase of USD 2,075 million in the third quarter from USD 112,962million for the same period in 2011. In light of that, the ratio of total foreign debt to increased from 17% in the second quarter 2012 to 25.7% in the third quarter 2012. That said, it is worth noting that the ratio of government foregn debt to GDP was 12.12 % in October 2012. The ratio of government debt to GDP shows a downward trend. By October 2012, the level of Government debt was IDR 1,844 trillion Figure 10: Components of Government, and Private Sector Foreign Debt Government, and Privatec secor Foreign Debt, and ratio of foreign Debt to GDP show an upward trend. (USD MN) (Percent) 300,000.00 29.00 28.00 250,000.00 27.00 200,000.00 26.00 150,000.00 25.00 24.00 100,000.00 23.00 50,000.00 22.00 0.00 21.00 2010:Q1 2010:Q2 2010:Q3 2010:Q4 2011:Q1 2011:Q2 2011:Q3 2011:Q4 2012:Q1 2012:Q2 Total External Debt (LHS) Private External Debt (LHS) Government External Debt (LHS) Total External Debt Ratio to GDP (RHS) Source : BPS, Bank Indonesia, and CEIC Macroeconomic Dashboard Universitas Gadjah Mada 10 2012:Q3
  • 13. Indonesian Economic Review and Outlook Figure 11: Government Debt The ratio of Indonesian government debt to GDP shows a downward trend Government Debt (LHS) Government Debt Ratio to GDP (RHS) (IDR TN) 2,000.00 (Percent) 90 1,800.00 80 1,600.00 70 1,400.00 60 1,200.00 50 1,000.00 40 800.00 30 600.00 400.00 20 200.00 10 0.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 0 Source: Ministry of Finance and CEIC or 21.58% of GDP, represented a decrease of 2.7% from the debt ratio of 24.3% recorded in 2011. By the end of 2012, though the level of government debt is expected to continue to rise, the fact that GDP will rise at an ever faster rate, means that the downward trend of ratio of government debt will continue. The value of government securities (SBN) in November 2012 was IDR 1,375,326 billion, which was higher than the level of outstanding government secutities of IDR 1,314,131 billion in June 2012. Fixed rate bonds contributed the largest percentage, with IDR 624,879 billion. Treasury securities showed a downward trend in October 2012, with a decrease of IDR 25,820 billion from IDR 8,280 billion registered at the start of the year 2012. Variable rate government bonds also showed a decrease. On the contrary, fixed coupon government bonds showed an upward trend. In October 2012, the value of fixed coupon bonds increased by IDR 26,977 billion from the previous month to reach IDR 619,887 billion, which is an increase of IDR 94,926 billion from the value registered at the start of the year 2012. Shariah bonds as well as foreign currency denominated bonds also registered an increase. Macroeconomic Dashboard Universitas Gadjah Mada 11
  • 14. Developments in Fiscal Policy Figure 12: Composition of Government Securities Fixed coupon bonds show an upward trend. (IDR BN ) Fixed Rate (LHS) SBSN Fixed Rate Coupon (LHS) Zero Coupon (Bonds) (RHS) SBN O utstanding (RHS) Variable Rate Bonds (LHS) Foreign Currency Denom inated (LHS) Treasury Bills (RHS) (IDR BN ) 700,000.00 1,600,000.00 600,000.00 1,400,000.00 500,000.00 1,200,000.00 1,000,000.00 400,000.00 800,000.00 300,000.00 600,000.00 200,000.00 100,000.00 0.00 Source : Bank Indonesia, Ministry of Finance and CEIC The total value of portfolio securities, which consist of government bonds, equity, and bank Indonesia certificates, shows an upward trend. In October 2012, the total value of securities in hands of foregn entities was IDR 1,721.37 trillion, which was an increase of IDR 48.98 trilion from the previous month, but at an increase of IDR 172.16 trilion from the start of 2012. The value also represented an increase of IDR 227.188 trillion from October 2011. The value of foreign ownership of equity stood at IDR 1,470.3 trillion, which was an increase of IDR 41.172 trillion from IDR 1,429.158 trilion posted in the previous month, and an increase of IDR 226.838 trillion from IDR 1,243.492 trilion posted in October 2011. Meanwhile, lately foreign ownership of government bonds though registered a decrease recently, in general shows an upward trend. The value of foreign ownership of government bonds was IDR 250.33 trillion in October 2012, which was an increase of IDR 9.3 trilion from the IDR 14.36 trilion posted at the start of the year 2012, and an increase of IDR 30.55 trilion from October 2011. In the meantime, there is a decrease in foreign ownership of Bank Indonesia certificates (SBI). In October 2012, the Macroeconomic Dashboard Universitas Gadjah Mada 12 400,000.00 200,000.00 0.00
  • 15. Indonesian Economic Review and Outlook Figure 13: Foreign Ownership of Securities Total Value of Foreign Onwership of equity, Bank Indonesia Certificates (SBI), and Bonds shows an upward trend Foreign Ownership of SBI (IDR BN) 2,000,000.00 Foreign Ownership of Government Bonds Foreign Ownership of Equity Total Foreign Ownership 1,800,000.00 1,600,000.00 1,400,000.00 1,200,000.00 1,000,000.00 800,000.00 600,000.00 400,000.00 200,000.00 0.00 Source : BAPPEPAM, Bank Indonesia, and CEIC value of foreign ownership of SBI was IDR 710 billion, which represented a decrease from IDR 1.540 trillion registered in the previous month , and a decrease of IDR 6.930 trilion posted at the start of the year 2012, and a decrease of IDR 30.2 trilion from the valued posted in October 2011. The main cause of the decrease was the implementation of the six months holding period, which is the minimum period allowed for holders of SBI prior to making transactions with other parties. The regulation, which came in effect on 13 May 2011, initially set the minimum holding period to one month (28 calendar days) but later prolonged to 6 months (182 calendar days). I.5 International On the performance of international trade, Indonesia registers a deficit in October 2012, which came as a result of a decrease of 1.45% in the value of exports which stood at USD 15, 667.3 million from the value for the previous month. The decrease in value of exports is by and large, attributable to 3.42 % drop in non oil exports in October 2012 from the figure posted for September 2012. The value of exports decreased both in trems of monthly figures and yearly figures (January-October 2012). The value of Indonesian exports Macroeconomic Dashboard Universitas Gadjah Mada 13
  • 16. International Figure 14: Indonesia Trade Balance Indonesia Trade Balance falls back into a deficit in October 2012 Source: BPS and CEIC was USD 158,664.3 million for January-October 2012, which was a decrease of 6.62% from USD 169,183.5 million recorded in the same period in 2011. This is an indication that the weakening global economy continue to have adverse impact on Indonesian exports. Meanwhile, the value of Indonesian imports reached USD 17,214.3 million in October 2012, which represents an increase of 12.16% from the value recorded in the previous month. The increase in the value of imports is attributable to a rise of 11.1% and 3.53 % in the value of non oil and oil imports, respectively. As a result of an increase in the value of imports and a decrease in the value of exports, Indonesia experienced a trade deficit of USD 1,547 million in October 2012. The Indonesian balance of trade position for JanuaryOctober 2012 period, in cumulative terms, posted a deficit of USD 516.17 million. The value of oil and gas exports in October 2012 was USD 2,988.6 million, which represented an increase of 7.87% from USD 2,770.5 million in September 2012. The increase in the value of oil exports of 31.09%, and natural gas of 7.84% and crude oil of 0.8% from the September to October 2012, induced a rise in the value of oil and gas exports. However, the increase in the value of oil and gas exports during January - October 2012 was rather weak as it represented a decrease of 8.23% from the value recorded during the same period in the previous year. Macroeconomic Dashboard Universitas Gadjah Mada 14
  • 17. Indonesian Economic Review and Outlook Figure 15: Oil and Gas Exports and Imports Weakening global markets have impacted on Indonesian oil and gas exports Source : BPS and CEIC Meanwhile, the value of oil and gas exports increased by 11.48%, from USD 3,443 million in September 2012 to USD 3,838.1 million in October 2012. The increase in the value of oil and gas imports in October 2012, is largely attributable to an increase in crude oil and natural gas imports of 37.86% and 10.01%, respectively. The trade balance in oil and gas products posted a deficit of USD 849.50 million in October 2012. In cumulative terms, the trade balance in oil and gas products registered a deficit of USD 3,159.26 million for JanuaryOctober 2012 period. The trade balance in non oil and gas decreases once again in October 2012, as a deficit of USD 697.5 million, which followed a surplus of USD 1,222.07 million in September 2012. This contributed to a decrease of 3.42 % in the value of non oil and gas exports from USD 13,127.6 million in September 2012 to USD 12,678.7 million in October 2012. The decrease in non oil and gas exports during January-October 2012, by sector, was attributable to a decrease of 5.30% in large Industry exports, and a drop of 9.53 % in mining and others, compared with the same period in 2011. Nonetheless, agricultural exports continued to register growth of 10.54 % during January-October 2012 period, compared with the same period in 2011. Macroeconomic Dashboard Universitas Gadjah Mada 15
  • 18. International On the contrary, the value of Indonesian non oil and gas imports registered an increase from USD 11,905.6 million in September 2012 to USD 13,376.2 million in October 2012. The increase in non oil and gas imports in October 2012 was largely attributable to imports of raw materials from some key trading partners such as China and Japan, which was 12.05% higher than in September 2012 and contributed 73.04% during January - October 2012 period. A deficit in current accounts decreased in line with slower economic growth of Indonesian economy. The decrease in current accounts deficit from USD 7,687 million in the second quarter 2012 to USD 5,336 million in the third quarter 2012, was largely as a result of improvement in the performance of trade balance which recorded a surplus of USD 817 million in second quarter 2012 that increased to USD 3,039 million in the third quarter 2012, as the value of imports decreased. Meanwhile, Indonesian current account in the third quarter 2012 registed a sharp decrease compared with the same period in 2011. In the third quarter 2012, Indonesian current accounts posted a deficit of USD 5,336 million, which much in contrast to surplus of USD 766 million registered in same period in 2011. The capital and financial accounts position worsened in the third quarter 2012. The surplus in capital and financial accounts increased from USD 5,054 million in the second quarter 2012 to USD 5,959 million in the third quarter 2012. In fact, capital and financial acounts in the third quarter 2012 represented a sharp increase from the position recorded during the same period in 2011. Indonesian capital and financial accounts, which showed a deficit of USD 3,293 million in the third quarter 2011, moved a surplus of USD 5,959 million in the third quarter 2012. The surplus in capital and financial accounts was attributable to an increase in direct investments and portfolio investments. The increase in the direct investment surplus which stod at USD 2,119 million in the third quarter 2011, rose to USD 3,583 million in the third quarter 2012. Meanwhile, portfolio investment, which showed a deficit of USD 4,649 million, became a surplus of USD 3,846 million. The increase in inflow of foreign funds attests to the positive sentiments of foreign investors about the domestic economy. Macroeconomic Dashboard Universitas Gadjah Mada 16
  • 19. Indonesian Economic Review and Outlook Figure 16: Non oil and gas Exports and Imports Trade Balance in non oil and gas relapsed into a deficit in October 2012 Source : BPS and CEIC Figure 17: Current Accounts Improvement in the balance of payments stimulated better performance in current accounts Source: BPS and CEIC Indonesia balance of payments posted a suplus of USD 834 million in the third quarter 2012, which was an improvement on the performance in the third quarter 2011, which registered a deficit. The surplus in balance of payments was attributable to a decrease in the current accounts deficit and an increase in the surplus in the capital and financial accounts. Indonesia registered a deficit of USD 5,336 million on its current accounts in the third quarter 2012, which however an improvement on the deficit of USD 7,687 million posted in the third quarter in 2011. Improvement in current accounts was Macroeconomic Dashboard Universitas Gadjah Mada 17
  • 20. International largely a consequence of a surplus in trade balance registered in third quarter 2012. The same is also evident in the third quarter 2012, capital and financial accounts posted an increase of 17.92% compared with the second quarter 2012. Indonesia recorded a surplus of USD 5,960 million on its capital and financial accounts position in the third quarter 2012, which was largest so far. Improvement in the surplus balance of payments, contributed much to an increase in the level of international reserves that reached USD 110,172 million by late September. Figure 18: Capital and Financial Accounts Developments in the Domestic Economy led to improvement in Capital and Financial Account Source : Bank Indonesia and CEIC Figure 19: Indonesia Balance of Payments Indonesia Posted a Balance of Payments surplus in the third quarter 2012 Source: Bank Indonesia and CEIC Macroeconomic Dashboard Universitas Gadjah Mada 18
  • 21. Indonesian Economic Review and Outlook I.6 GAMA Leading Economic Indicator Indonesian business circle, which uses the quarterly GDP data for 2000-2012 shows a modestly fluctuating circle. The movement business GDP circle is predicted using Leading Economic Indicator (LEI), which has the ability to predict the resumption point from the business economic circle Gama LEI is able to predict the point at which the economy changes course during the 2008 global financial crisis, which was the third quarter of 2007, which was followed by the change for the worse in course of GDP in mid 2008. Subsequently, Gama LEI predicts with high accuracy the recovery of GDP at the start of 2009, which is followed by improvement in PDB circle in late 2009. Gama LEI in the third quarter 2011 started showing signs of changing course, presaging period of impending slow growth. Gama LEI signals in the third quarter 2012 point to a change for the better, slower path of decreasing. This shows that GDP circle will avoid sharp contraction and it regains stability. In light of that, economic practitioners must be ready to determine the right strategy and policy needed to support the economy in future. Figure 20 : Leading Economic Indicators and Indonesia GDP Business Cycles 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 GDP Cycles Leading Indicator Macroeconomic Dashboard Universitas Gadjah Mada 19
  • 22. Current Issue I.7 Current Issue : The Economic Crisis in Europe: Continues By Prof. Dr. Sri Adiningsih, M.Sc. and Rosa Kristiadi M.Comm European economic crisis which begun in 2010 shows no signs of abating. The ongoing economic crisis in the Eurozone region is attributable to the large public debt , which started to emerge in 2000, reflected in a significant increase in the ratio of government debt. In 2000, the ratio of government debt for Greece was just 77% of GDP, but in 2012 it had surged to 170%. IMF predicts that Greece debt ratio will rise above 180% in 2013, due to the widening budget deficit. Such a condition is very much in contrast to Maastricht Treaty rules that impose maximum limit of 60% on the country's debt to GDP ratio and a deficit of 3 % of GDP. The theory is that economic uncertainty in the regional economy is unavoidable if the two ratios go beyond the maximum limits imposed To aggravate the situation, the debt crisis has now spread to other countries in the European Region such as Ireland, Portugal, Italy, Spain, and even France. Ireland today has a ratio of government debt to GDP of 103%, which is in contrast to 36% in 2000. Portugal, which in 2012 had a debt ratio of 113%, based on IMF predictions will surge to 119% in 2013. Consequently, the large debt overhang facing Eurozone countries such as Greece, Portugal, and Ireland, has hampered their capacity to repay their debt obligations, causing an economic crisis in the European economic region. Eurozone leadership has taken some measures tailored to overcoming the debt crisis. One of the key policy measures was the formation of the European Stability Mechanism (ESM) on 27 September 2012, which was been charged with the task of providing bailout funds to members of the Eurozone that face financial difficulties, facilitated by the Troika (International Monetary Fund, European Central Bank and the European Comission). In addition, Eurozone countries reached agreement on increasing money in bailout fund from 500 billion Euros to 800 Euros or about USD 1trillion. The standby fund is aimed at not only assisting Eurozone members that face financial crisis such as Greece, Ireland, and Portugal to overcome such a problem, but also anticipated members that may need bailout funds from ESM. Macroeconomic Dashboard Universitas Gadjah Mada 20
  • 23. Indonesian Economic Review and Outlook Figure 21: Ratio of Government Debt to GDP in some Countries within the European Union region, 2000 – 2013 (in %) Belgium (%) France Germany Greece Ireland Italy Portugal Spain 200 180 160 140 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: IMF WEO, October 2012 Another policy that was implemented in order to overcome debt crisis in Europe, was the imposing of haircut on Greek government bonds for the private sector. Banks and insurance reached an agreement that in effect reduced the value of their Greek government bonds by 50%. The reduction in the value of Greek debt obligations to the private sector was not only important from the vantage point of saving the country from the possibility of default, but also the entire European region. Direct recapitalization of banks, was another measure which European Union leadership took. The troubled banking sector of any country within the Eurozone, could receives direct bail out fund from European bailout fund. To that end, the Eurozone reached an agreement that in effect will unify the supervision of banks in member countries. That way, the bailout of banks in Eurozone member countries will not add to the already large government debt. Additionally, the Greece bailout fund amounting to USD 56 billion finally approve by IMF and Eurozone's minister of finance after going through a long debate. The Eurozone leader hopes that their policies will be able to protect Greece as well as Eurozone from further crisis. Nonetheless, the still large public debt in European member countries and sluggish progress of economic reforms, have reduced the impact of the realization of the desired effect on the economy. On the contrary, worsening economic conditions in some European Union member countries has induced credit rating agencies downgraded government debt for some Eurozone member nations. Moody's rating of Germany government debt, though confirmed its Macroeconomic Dashboard Universitas Gadjah Mada 21
  • 24. Economic Outlook AAA rating, slapped a negative outlook. Meanwhile, recently, S&P downgraded Greek government debt to Selective Dafault. The above developments underscore the fact that economic crisis in Europe is still raging. Thus, developments in Europe to this day, have not yet to produce sufficient confidence that the European crisis will be overcome any time soon. Various efforts have been made to overcome the economic crisis which has been roiling Europe since 2010, but as yet certainty of the European Union remain as elusive as ever. This is compounded by the slow pace of economic reforms. As if all the above problems are not worrying enough, there are signs that United Kingdom may exit the European Union. However, what underscores is that the only way European union will be to solve all the host of problems it faces today. To that end, there is little doubt that uncertainty emanating from European Union will to a large continue to influence the direction and pace of the world economy in 2013. I.8. Economic Outlook The Indonesian economy will continue to show resilience amidst the repercussions of the European economic crisis on the global economy in 2013. However, economic uncertainty in Europe which is showing signs of intensifying have in 2012 led to a decrease in economic growth of China and India, economies which were virtually unaffected by the 2008 global financial crisis. Such a development will eventually have negative repercussions on Indonesian economy. Financial markets, which are the main transmission through which global economy uncertainty affects the Indonesian economy, will continue to be an important source of vulnerability in 2013. Large volume of portfolio inflow in 2012, will continue in 2013, along with its attendant uncertainty, would become source of vulnerability. The same applies to international trade, which showed weaknesses in 2012, will follow the same pattern in 2013. In light of that, the Indonesian economy in 2013 will continue to rely on the domestic economy such consumption. Growth in investment , though initially posted robust performance in 2012, is predicted to become sluggish in 2013. Developments in the non tradable sector such as Transportation and Communications, Construction, and Financial Services, Real Estate and Company Services are expected to face pressure and difficulties. To that end, GAMA LEI in its previous chapter predicted that Indonesian economy growth in 2013 will not Macroeconomic Dashboard Universitas Gadjah Mada 22
  • 25. Indonesian Economic Review and Outlook much different to the growth in 2012 within the range of 6-6.5%. To that end, the expectation in 2013 the economic authority will have to implement policies that will ensure that macroeconomic and financial markets stability, which conditions are needed to ensure investment and business climate remains sound. In addition, economic stimulus policies will be needed to stave off the adverse impact of global economic uncertainty on the Indonesian economy. Gradual reducing of fuel subsidies is one of the options that can be taken, and funds saved in the process transferred to developing infrastructure which will go a long way in enhancing the competitiveness of Indonesian products on the international market. Macroeconomic Dashboard Universitas Gadjah Mada 23
  • 26. This page is intentionally left blank Macroeconomic Dashboard Universitas Gadjah Mada 24
  • 27. Indonesian Economic Review and Outlook This page is intentionally left blank Macroeconomic Dashboard Universitas Gadjah Mada 25
  • 28. INDONESIAN ECONOMIC REVIEW AND OUTLOOK MACROECONOMIC DASHBOARD TEAM Prof. Dr. Sri Adiningsih, M.Sc Prof.Dr.Tri Widodo, M.Ec.Dev Head of Researcher sadining@macroeconomicdashboard.com +62 274 548 517 ext 373 Researcher tri.widodo@macroeconomicdashboard.com +62 274 548 517 ext 373 Prof. Dr. Samsubar Saleh, M.Soc., Sc Rosa Kristiadi, M.Comm Researcher ssamsubar@macroeconomicdashboard.com +62 274 548 517 ext 373 Researcher rosa.kristiadi@macroeconomicdashboard.com +62 274 548 517 ext 373 Azka Khairina, SE Muhammad Averous Mashuri, SE Research Assistant Research Assistant azkakhairina@macroeconomicdashboard.com averous@macroeconomicdashboard.com +62 274 548 517 ext 373 +62 274 548 517 ext 373 Ardina Ayu Dwiratna Galih Adhidharma Research Assistant ardina.ad@macroeconomicdashboard.com +62 274 548 517 ext 373 Research Assistant galih.adhi@macroeconomicdashboard.com +62 274 548 517 ext 373 Fandi Gunawan Web Developer and Layout fandi@macroeconomicdashboard.com +62 274 548 517 ext 373 MACROECONOMIC DASHBOARD FAKULTAS EKONOMIKA dan BISNIS UNIVERSITAS GADJAH MADA th Pertamina Tower Building 4 fl. Room 4.1 Jl. Humaniora No. 1 Bulaksumur, Yogyakarta 55281 Phone : +62 274 548 517 ext 373 Email : iero@macroeconomicdashboard.com Website : www.macroeconomicdashboard.com