presented by anton h. gunawan ~ chief economist · 2018-11-09 · presented by anton h. gunawan ~...

Presented by

Anton H. Gunawan ~ Chief Economist

Hotel Mulia, Jakarta – November 8th, 2018

Global Economic Environment: Uncertain Global Normalization, Trade Wars and Geopolitics

2

3

Sources of Volatilities: Creating anxiety and rapid swing in sentiment

Source: Bloomberg

-14,7%

-8,2%

-5,0%

-4,3%

-6,0%

11,3%

-0,2%

6,0%

7,0%

6,4%

8,3%

3,8%

-21,2%

-16,6%

-12,4%

-9,8%

-9,4%

-8,2%

-3,7%

-0,3%

1,3%

2,0%

8,3%

8,5%

China

Philippines

S Korea

Singapore

Indonesia

Argentina

Malaysia

Japan

US

India

Russia

Brazil

YTD Oct 2018

YTD Sep 2018

0,0

8,0

16,1

47,6

149,9

69,8

65,6

104,5

179,6

0,0

10,0

22,0

50,1

57,3

64,9

76,0

132,5

243,8

S. Africa

Japan

Malaysia

Thailand

Brazil

India

US

Russia

Indonesia

YTD Oct 2018

YTD Sep 2018

Stock Indices Growth (ytd) Government Bond Yield (bps change)

Updated Oct 12, 2018

Many EM’s financial markets are heavily affected (1/2)

4

Source: Bloomberg

0,9%

-0,7%

2,3%

2,3%

3,6%

5,6%

8,2%

9,8%

22,4%

13,8%

13,5%

59,4%

-0,4%

0,5%

2,7%

3,1%

5,7%

6,3%

8,4%

12,1%

14,3%

14,4%

15,4%

55,1%

Japan

Thailand

Malaysia

Singapore

S. Korea

China

Philippines

Indonesia

Brazil

Russia

India

Turkey

YTD Oct 2018

YTD Sep 2018

Currencies against USD(% ytd)

depreciate appreciate depreciate appreciate

IDR against others (% ytd)

Updated Oct 12, 2018

-3,1%

-3,6%

-10,3%

1,7%

1,4%

4,1%

6,7%

7,4%

7,5%

9,8%

9,1%

-2,8%

-2,1%

-2,0%

2,3%

3,3%

5,3%

8,6%

8,8%

9,2%

12,1%

12,5%

India

Russia

Brazil

Australia

Philippines

China

Euro

Singapore

Malaysia

USD

Japan

YTD Oct 2018

YTD Sep 2018

Many EM’s financial markets are heavily affected (2/2)

5

Indonesia’s financial markets are also heavily affected by the capital flows

-25

-20

-15

-10

-5

0

5

10

15

20

De

c IV

Jan

II

Jan

IV

Feb

II

Feb

IV

Mar

II

Mar

IV

Ap

r II

Ap

r IV

May

II

May

IV

Jun

II

Jun

IV

Jul I

I

Jul I

V

Au

g II

Au

g IV

Sep

I

Sep

III

Oct

I

Monthly Net Capital Inflow/outflow in

Bond and Stock Market (IDR tn)

-40

-30

-20

-10

0

10

20

30

40

50

Jan

-16

Fe

b-1

6

Mar

-16

A

pr-

16

M

ay-1

6

Jun

-16

Ju

l-1

6

Au

g-1

6

Sep

-16

O

ct-1

6

No

v-1

6

De

c-1

6

Jan

-17

Fe

b-1

7

Mar

-17

A

pr-

17

M

ay-1

7

Jun

-17

Ju

l-1

7

Au

g-1

7

Sep

-17

O

ct-1

7

No

v-1

7

De

c-1

7

Jan

-18

Fe

b-1

8

Mar

-18

A

pr-

18

M

ay-1

8

Jun

-18

Ju

l-1

8

Au

g-1

8

Sep

-18

O

ct-1

8

Government Bond

Stock

Weekly Net Capital Inflow/outflow in

Bond Market (IDR tn)

2015 : inflow IDR74 tn*

Oct 12, 2018 Stock outflow IDR57.7 tn Ytd

*Oct 11, 2018 Bond inflow IDR13.89 tn Ytd

Updated Oct 12, 2018 in stock market Noted : *in the bond market

2016 : inflow IDR107 tn*

Bond end 2017: inflow IDR170.3 tn

* Oct 11, 2018 Bond inflow IDR13.89 tn ytd

2017: inflow IDR170.3 tn*

Source: Bloomberg & DJPPR

6

Argentina Brazil Chile China India Indonesia Korea Malaysia Mexico Philippines Russia South

Africa Thailand Turkey

External Financing Vulnerability Index: 0.87 0.27 0.6 0.33 0.47 0.6 0.27 0.53 0.47 0.33 0.2 0.67 0.27 0.87

Current Account Balance/GDP (%, 2018f) -5.3 -1.1 -1.5 0.7 -2.8 -2.4 4.5 2.5 -1.8 -1.9 5.5 -3.1 8.1 -5.3

(Current Account Deficit -Net FDI)/GDP (%, 2018f)

-3.7 2.1 1.3 2.3 -1.2 -0.6 5.4 4.5 0.6 1.5 6 -2 9.9 -4.1

Reserve Coverage Ratio (2018f) 0.3 2.3 0.9 2.9 1.6 0.8 1.7 0.9 1.7 2.5 1.8 0.8 1.7 0.3

Short-Term External Debt/Total External Debt (%, 2018f)

34 7 15 59 19 14 25 42 14 20 12 21 40 27

External Debt/GDP (%, 2018f) 59 37 62 15 22 34 28 58 39 23 30 46 27 64

Domestic Financial Vulnerability Index: 0.53 0.43 0.57 0.52 0.43 0.52 0.43 0.52 0.57 0.67 0.43 0.48 0.43 0.67

Non-Financial Corporate Debt/GDP (%, ∆

in 2013-2018) 4 0 19 27 -6 4 -6 7 10 15 6 7 2 21

Households Debt/GDP (%, ∆ in 2013-2018) 1.7 1 10 19 2.4 0 15 2 2 5 1 -7 5 -2

Private Sector Real Credit Growth (% y/y, 2012-17 average)

10 1 6 14 4 8 5 6 7 13 4 0 6 12

Consolidated Foreign Claims/Domestic Credit (%, 2018)

58 20 78 5 16 42 13 39 86 20 15 24 29 83

Foreign Holdings of Local Currency Govt. Debt (%, Mar, 2018)

12 3 5 39 11 29 32 34 43 15 19

Foreign Holdings of Equities (%, June, 2017)

12 28 10 9 21 18 28 13 29 14 19 29 18 19

Nominal Home Prices (% y/y, 2013-2018 average)

2.2 5.2 3.7 11.4 6.1 1.7 8.1 5.8 10.7 -0.4 5.9 3.8 14.1

Policy Vulnerablity Index: 0.78 0.67 0.28 0.33 0.56 0.33 0.17 0.28 0.67 0.67 0.33 0.56 0.33 0.61

2018-End Inflation Forecast (vs. Central Bank Target)

43.1 (<22) 4.2

(4.5±1.5) 3.0 (3±1) 2.0 (~3.0) 4.0 (4±2) 3.5 (4±1) 1.8 (2.0)

0.2 (2.5-

3.5) 4.8 (3±1) 6.4 (3±1) 4.0 (4.0) 5.0 (3-6)

1.4

(2.5±1.5) 21.5 (5±2)

Current Real Interest Rates 16.9 2.3 -0.3 1.1 2.7 2.3 0 3.1 3.2 -1.9 3.5 1.5 0.4 2.5

Fiscal Balance/GDP (%, 2018f) -3.8 -7.3 -1.8 -4.2 -6.6 -2.1 2.4 -2.7 -2.6 -1.1 1.6 -3.9 -0.8 -4.9

Gross Government Debt/GDP (%, 2018f) 76 88 25 50 70 30 40 55 54 40 15 56 42 32

World Bank Worldwide Governance Indicators (2017 release)

0 -0.1 1 -0.4 -0.2 -0.2 0.7 0.3 -0.3 -0.4 -0.7 0.2 -0.3 -0.5

WEF Global Competitiveness Index (2017-18)

4 4.1 4.7 5 4.6 4.7 5.1 5.2 4.4 4.4 4.6 4.3 4.7 4.4

Parliamentary/Presidential Elections in 2018-2019

19-Oct 18-Oct 19-May 19-Apr 19-Aug 19-Feb

IIF (2018) “Heat Map of EM Vulnerabilities,” Last Update: Oct 2018

Indonesia looks better than some EM Peers (Argentina, Turkey, Brazil)

6,5

5,25

0,25

2

4,75

2,75

2

0

0,1 -0,1 -1

0

1

2

3

4

5

6

7

8

9

Jan

-90

Sep

-90

May

-91

Jan

-92

Sep

-92

May

-93

Jan

-94

Sep

-94

May

-95

Jan

-96

Sep

-96

May

-97

Jan

-98

Sep

-98

May

-99

Jan

-00

Sep

-00

May

-01

Jan

-02

Sep

-02

May

-03

Jan

-04

Sep

-04

May

-05

Jan

-06

Sep

-06

May

-07

Jan

-08

Sep

-08

May

-09

Jan

-10

Sep

-10

May

-11

Jan

-12

Sep

-12

May

-13

Jan

-14

Sep

-14

May

-15

Jan

-16

Sep

-16

May

-17

Jan

-18

Fed Policy Rate (%) ECB Policy Rate (%) BoJ Policy Rate (%)

The Fed projected steady growth

Global Economic Crisis

2001 Recession

US Housing Market Bubble

Source: Bloomberg

Forecast 2018 2019 2020

FFR 2.5% 3.25% 3.5%

ECB MRO* 0% 0.15% 0.75%

BoJ short-term rate* -0.1% 0% 0%

Note: *) Bloomberg Forecast

Forecast Suku bunga acuan di negara-negara G3

Global interest rates will increase as normalization process has started

8

Source: Bloomberg, Federal Reserve

…followed by larger G3 CB’s balance sheet reductions

Federal Reserve System Open Market Account (SOMA) Balance Sheet Schedule

(in billion)

Period Monthly Cap Roll-Off Cumulative Holdings Monthly Cap Quarterly Roll-Off Cumulative Holdings Cumulative Holdings

Sep-17 (Initial Balance) - - - $2,465 - - - $1,768 $4,234

Oct - Dec 2017 $6 $18 $18 $2,447 $4 $12 $12 $1,756 $30 $4,204

Jan - Mar 2018 $12 $36 $54 $2,411 $8 $24 $36 $1,732 $90 $4,144

Apr - Jun 2018 $18 $54 $108 $2,357 $12 $36 $72 $1,696 $180 $4,054

Jul - Sep 2018 $24 $72 $180 $2,285 $16 $48 $120 $1,648 $300 $3,934

Oct - Dec 2018 $30 $90 $270 $2,195 $20 $60 $180 $1,588 $450 $3,784

Jan 2018 - Dec 2018 (Full Year) - $252 $270 $2,195 - $168 $180 $1,588 $450 $3,784

Jan 2019 - Dec 2019 (Full Year)* $30 $360 $630 $1,835 $20 $240 $420 $1,348 $1,050 $3,184

Treasuries Mortgage-Backed SecuritiesCombined

Treasury & MBS

9

4,4

1 1,8

-2,8

2,9 2,7 1,9 1,7 1,5 1,4

7,8 8,3

14,2

9,2

6,6 6,4 6,3 6 5,7 5,5

2,6 2,5

5,6

-0,1

3,9 3,9 3,8 3,7 3,7 3,7

-4

-2

0

2

4

6

8

10

12

14

16

18

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

US: Real GDP growth (%) China: Real GDP growth (%) World: Real GDP growth (%)

9/11 Attack

Source: IMF

IMF projection


Asian Financial Crisis

Global growth will be flat at least until 2023, China will continue to slow

10

139,83

45,59 34,74

56,82

74,25

0

20

40

60

80

100

120

140

160

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Oil Price (USD per barrel)


Oil Supply Shock

Forecast 2018 2019 2020 2021

Oil Price Forecast (USD per barrel)* 72.66 70.90 68.32 66.18

Note: *) Bloomberg Forecast

Oil and other commodity prices will be flat until next year...

Forecast 2018 2019 2020 2021

Palm oil (RM per metric ton)* 2304 2379 2419 2419

Steam coal (USD per metric ton)* 108.25 98.16 91.94 90.00

Sumber: Bloomberg

11

Source: Bloomberg (Updated Sept 24, 2018, %YTD)

Commodity prices trend is decoupling

Main Commodity CPO-Rubber-Gas

517

1.3

3.0

0

0,5

1

1,5

2

2,5

3

3,5

4

0

100

200

300

400

500

600

700

800

CPO (USD/ton)

Rubber (USD/kg)

Gas (USD/MMBtu)

113.8

81.4

0

20

40

60

80

100

120

140

Coal (USD/ton)

Oil (USD/bbl)

2235

98,5

0

20

40

60

80

100

120

140

160

0

500

1000

1500

2000

2500

3000

Cocoa (USD/ton)

Coffee (Usd/lb)

Main Commodity Coal-Oil

Special Commodity Cocoa-Coffee

12

Recent Development and Outlook: Change in Paradigm, Global Turmoil and Policy Responses

13

Three Domestic Concerns: • Economic Slowdown amid low level of productivity

Despite improving EoDB, but lacking industry strategy

• External Balance Pressures: rising imports (raw materials) and trade wars, amid tightening global liquidity

• Pressures on Financial Markets: volatile markets, risks of contagion & weakening banks

Five Changes in Paradigm: • Archipelagic Concept: inter-connectivity, reducing logistics costs & regional development, thus building infrastructures (starts from the periphery)

• Reducing Dependency on Raw Commodities: down-streaming, including looking for areas of exports expansion and new sources of fiscal revenues

• Reallocation of Scarce Resources: transforming general price subsidy program into directly targeted subsidy program Social Security program

• Rising Role of SOEs in Economic Development: in part to speed up infrastructure projects and to go beyond the fiscal rule

• Promoting Maritime Economy: fishery (industries) and tourism services

14

The Archipelagic Concept: Development Scheme of Tol Laut’s Main and Sub-Corridor interconnectivity & logistic costs reduction

Source: IPC (2012)

BELAWAN (NEW BELAWAN)

JAKARTA

SURABAYA

MAKASSAR

SORONG

Malahayati

NewKalBar Port

Pulau Baai

Tarakan

New Bali

Kendari

Kupang

Ambon NabireJayapura

Main Sea-Corridor

Sibolga Dumai

Lombok

Pantoloan

Marauke

Gorontalo

Ternate

Manokwari

Loop Aceh

Loop Pantai TimurSumatera

Loop Babel and West Kalimantan

Loop Pantai Barat Sumatera

Loop East Kalimantan

Loop West Nusatenggara

Loop West Sulawesi

Loop East Nusatenggara

Loop North-East Sulawesi and North Maluku

Loop Maluku and South-West Papua

Loop North Papua

15

The Archipelagic Concept: Special Economic Zones to push for Regional Economic Development agglomeration of industries

SEZ : special economic zone

SEZ Tanjung Api-api, South Sumatera

SEZ Sei Mangkei, North Sumatera

SEZ Tanjung Lesung, Banten

SEZ Mandalika, North Nusa Tenggara

SEZ Palu, Central Sulawesi

SEZ Bitung, North Sulawesi

SEZ Morotai, North Maluku

Source : Coordinating Ministry of Economy

Bitung Port

Sea toll route

1

2

3

4

5

1 Belawan

2 Tanjung Priok

3 Tanjung Perak

4 Makassar

5 Sorong

16

The Archipelagic Concept: Progress of 37 Priority Projects

Source: Republic of Indonesia (2018) “Stability at the Forefront with Unwavering Reform Commitment,” August

17

Realization and projection of Indonesian economic growth (% yoy)

Facing a trade off: Current Account Deficit reduction (and thus tightening policies) versus maintaining strong economic growth

Indonesian economic growth likely to be slowing again due to tightening mode

1,27

-2,07 -1,55

9,18

6,17 7,70

2014 2015 2016 2017 1Q18 2Q18

Export of goods & services (% yoy)

2,17

-6,19 -2,48

8,07 12,75

15,17

2014 2015 2016 2017 1Q18 2Q18

Import of goods & services (% yoy)

5,15

4,96 5,01

4,95 4,95

5,14

2014 2015 2016 2017 1Q18 2Q18

Household spending (% yoy) Household spending will support economic growth, ...while investment slows

...while exports drive will likely be limited due (flat growth)

...and faster imports growth

Sumber: BPS dan proyeksi OCE

5,56

5,01 4,88

5,02 5,10 5,16 5,10

4,40

4,60

4,80

5,00

5,20

5,40

5,60

5,80

2013 2014 2015 2016 2017 2018F 2019F

“Stability over Growth”

53.56%

1,17%

7,44%

31,82% 3,13% 1,94%

0,94%

Household

Non-Profit Institutions

Govt. Expenditure

Gross Fixed Capital Formation

Change in Stock

GrosStatistic Discrepancy

Net Export

GDP composition 2017

18

Regional growth remains positive, but Java still dominant

Source: Taken from Republic of Indonesia (2018) “Stability at the Forefront with Unwavering Reform Commitment,” August

19

After commodity boom, Indonesia rely on private consumption as the engine of growth

Source: WBG & BPS

32,2 34,1

31,0 29,4 29,8

24,2 24,3 26,3 24,6 23,9 23,7

21,2 19,1 20,4

66,8 64,4

62,7 63,5 60,6

58,7 56,2 55,4 56,4 56,8 57,1

57,5 57,8 57,3

-13

-8

-3

2

7

12

17

0

10

20

30

40

50

60

70

80

90

100

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Exports (% of GDP) - LHS Prv. consumption (% of GDP) - LHS GDP Growth (%) -RHS

Exports (% growth) -RHS Prv. consumption (% growth) -RHS

Over the years the robust private consumption has become to main contribution to Indonesia’s resilience toward global turbulence

• With commodity boom (export surge) helped the country achieving growth more than 6% (2007-2008 & 2010-2012)

20

Export is still important: Need to strengthen export performance to EMs

Source: UN COMTRADE

380,1 365,1

352,1

300,7 288,9

337,6

0

50

100

150

200

250

300

350

400

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015 2016 2017

Export Share (%)

Total Export (Billions USD) -RHS ASEAN E5 China US

Export start to rebound in 2017, with the main driver comes from ASEAN and emerging market ASEAN is the main export destination (23.3%), however there is significant demand comes from China and other emerging markets (India, Russia, Turkey, Mexico, and Brazil)

21

Indonesia’s balance of payment and reserve assets: defending vulnerable IDR

-8.0

-4.3

4.0

119.8

0

20

40

60

80

100

120

140

-15

-10

-5

0

5

10

15

20

1Q

10

2

Q1

0

3Q

10

4

Q1

0

1Q

11

2

Q1

1

3Q

11

4

Q1

1

1Q

12

2

Q1

2

3Q

12

4

Q1

2

1Q

13

2

Q1

3

3Q

13

4

Q1

3

1Q

14

2

Q1

4

3Q

14

4

Q1

4

1Q

15

2

Q1

5

3Q

15

4

Q1

5

1Q

16

2

Q1

6

3Q

16

4

Q1

6

1Q

17

2

Q1

7

3Q

17

4

Q1

7

1Q

18

2

Q1

8

Capital & Financial Account Current Account

Overall Balance Reserve Assets

(USD bn)

114.8

6.5

4

5

6

7

8

9

10

60

70

80

90

100

110

120

130

140

Sep

-10

D

ec-1

0

Mar

-11

Ju

n-1

1

Sep

-11

D

ec-1

1

Mar

-12

Ju

n-1

2

Sep

-12

D

ec-1

2

Mar

-13

Ju

n-1

3

Sep

-13

D

ec-1

3

Mar

-14

Ju

n-1

4

Sep

-14

D

ec-1

4

Mar

-15

Ju

n-1

5

Sep

-15

D

ec-1

5

Mar

-16

Ju

n-1

6

Sep

-16

D

ec-1

6

Mar

-17

Ju

n-1

7

Sep

-17

D

ec-1

7

Mar

-18

Ju

n-1

8

Sep

-18

International Reserve - LHS

Import cover- RHS

(USD bn) (month)

Source: Bank Indonesia

22

Consumer Goods

Raw Materials

Capital Goods

Trade balance (USD bn)

Imports growth (8M16 vs. 8M17 vs. 8M18)

Imports by economic group

16%

75%

9%

Exports growth by products (% 8M18 vs 8M17) Proportion

Trade balance 8M14 - 8M18 (USD bn)

Mineral fuels +25.5%

Oil & Gas +14.0%

Vegetable fats & animal oil -11.5%

Rubber -18.3%

Machines +3.2%

Deteriorating trade balance: oil & gas, raw materials, capital goods

Source : BPS

-30%

-10%

10%

30%

50%

-2,2

-1,2

-0,2

0,8

1,8

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-1

7

De

c-1

7

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Trade balance (USD bn)-LHS Export growth-RHS Import growth-RHS

4,5%

11,2%

19,0%

-7,5% -8,9% -11,1%

27,3% 23,4%

28,5%

Consumer Goods

Raw Materials

Capital Goods

8M16

8M17

8M18

-1,4

6,2 5,1

9,0

-4,1 -6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

8M14 8M15 8M16 8M17 8M18

23

The BoP pressure: is the factor global, domestic, or both? Investment has caused capital goods imports to increase, while higher oil prices made the oil

imports to shoot up, higher than the total export and import growth

-60

-40

-20

0

20

40

60

80

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

YoY of 3mma (%)

Capital goods importExportTotal importOil ImportsCapital goods importExport

No. Sorted (in billions) 7M16 7M17 7M18 Proportion to total import (%)

1 Petroleum and Petroleum Products 9.3 12.1 15.4 14.4%

2 Electrical Machinery and Apparatus 4.7 5.0 6.5 6.1%

3 Iron and Steel 3.8 4.5 6.1 5.7%

4 General Industrial Machinery and Equipments 4.8 4.6 5.6 5.2%

5 Road Vehicles 3.0 4.0 5.0 4.7%

6 Telecommunication and Reproducers Apparatus 3.0 3.9 4.9 4.5%

7 Machinery Specialized for Particular Industry 3.5 3.5 4.8 4.4%

8 Textile Yarns, Fabrics, and Their Products 3.5 3.5 3.9 3.7%

9 Organic Chemicals 2.7 3.3 3.8 3.6%

10 Plastics In Primary Forms 2.7 3.0 3.4 3.2%

Total Imports 75.0 86.2 107.3

No. Sorted (in billions) 7M16 7M17 7M18 Proportion to total export (%)

1 Coal, Coke, and Briquettes 7.5 11.1 14.1 13.5%

2 Fixed Vegetable Oils/fats 8.6 12.4 10.8 10.4%

3 Gas; Natural and Manufactured 3.9 4.9 6.1 5.9%

4 Metalliferous Ores and Metal Scraps 2.5 2.8 5.2 5.0%

5 Clothing 4.3 4.7 5.1 4.9%

6 Petroleum and Petroleum Products 3.7 4.2 4.3 4.1%

7 Road Vehicles 3.2 3.8 4.1 4.0%

8 Electrical Machinery and Apparatus 3.1 3.4 3.6 3.5%

9 Organic Chemicals 2.5 3.5 3.6 3.4%

10 Iron and Steel 1.2 1.8 3.5 3.3%

Total Exports 79.1 93.6 104.3

Total Top 10 Exports (USD bn) Total Top 10 Imports (USD bn)

24

Source: CEIC

1% 3%

13%

16%

20%

23%

24%

The Progress Proportion on the Rp4,150tn Strategic Infrastructure Projects (%)

2 projects has been realized

6 projects in transaction process

29 projects under construction and will be operational this year

37 projects under construction and will be operational > 2019

44 projects under construction and will be operational soon

52 projects under construction and will be operation in 2019

53 projects and 1 Aviation Industry Program in preparation phase

3% 6%6%

38%

47%

The Progress Proportion on the Rp1,036tn 35GW Electricity Program (%)

1,007 MW in planning phase

2,278 MW has been operational

2,130 in procurement phase

13,481 MW has finished power purchase agreement/PPA; not yet financial close

16,523 MW in construction phase

Policies to mitigate the Balance of Payments Pressures launched

10.9%

29.3%

13.1%

36.3%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2013 2014 2015 2016 2017 2018

Trend of consumer goods imports w/ income tax to 10% (as of July)

Furnitures, Bedding, Lamps and Lightings, etc.

Machinery and mechanical appliances

Essential oils, perfumery, cosmetics, etc.

Soap, organic agents, washing, etc.

Vehicles

The total import reduction from the infrastructure delay could reach around Rp448.2tn starting next year

Total consumer imports hit by the import tax increase account for 4.6% of total imports

25

Source: CEIC, MoF

Fiscal Policy Respond: Budget Tightening Budget deficit is aimed lower to repair primary fiscal deficit

Budget deficit trend has been the lowest since the last several years…

…as MoF target is to improve primary fiscal balance going forward

The government aims to have positive primary balance in 2020

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

Jan

uar

y

Feb

ruar

y

Mar

ch

Ap

ril

May

Jun

e

July

Au

gust

Sep

tem

be

r

Oct

ob

er

No

vem

be

r

De

cem

be

r

Budget Deficit (% of GDP)

2016 2017 2018

-200

-150

-100

-50

0

50

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Primary Fiscal Balance (Rp tn)

26

Source: CEIC, MoF, Mansek

Improving the Quality of Government Spending: Reallocation of Scarce Resources Establishing National Social Security System

Source: Republic of Indonesia (2018) “Stability at the Forefront with Unwavering Reform Commitment,” August

27

2019 Spending focus: Supporting the bottom 40% of the income group

Source : MoF

-4.3

-0.5

-0.1

7.6

9.4

10.4

28.6

-30 0 30 60

Energy Subsidy

Non-energy subsidy

Material

Personnel

Capital

Interest Payment

Social

2019 Central Government Expenditure (YoY%)

-7.2

-6.0

9.5

9.6

15.2

45.1

67.4

-30 0 30 60 90

Capital

Non-energy subsidy

Personnel

Material

Interest Payment

Social

Energy Subsidy

2018 Central Government Expenditure (YoY%)

Amount (Rp tn) Target Amount (Rp tn) Target

1 Village Fund 60 74,957 villages 73.0 74,957 villages

2 PKH (Family Hope Program) 17.3 10 mn families 34.4 10 mn families

3 JKN (National Health Insurance) 25.5 92.5 million persons 26.7 98 mn persons

4 BPNT (Non-cash food program) 20.8 15.6 mn families 20.8 15.6 mn families

5 PIP (Indonesia Smart Program) 10.5 19.7 mn students 10.8 20.1 mn students

6 College program fund (Bidik Misi) 4.1 401.5 thousand college students 4.4 471.8 thousand college students

7 Ultra micro financing - 0.8 mn 3.0 1.4 mn debitur

138.2 173.1Total

APBN 2018 RAPBN 2019

No.Programs to support the bottom 40% of the population

28

Off (central government) budget impact of rising oil price and currency depreciation estimate for switched fuel subsidies burden

Potential loss in revenue of Pertamina according to several scenarios

Source: Mandiri Sekuritas estimate

Premium Solar Premium Solar Premium Solar Premium Solar Premium Solar Total Premium Solar Total Premium Solar Total Premium Solar Total

1 60 63 6550 5150 8803 8771 0 500 -2253 -3121 -22.5 -46.8 -69.3 -22.5 -39.3 -61.8 -22.5 -31.8 -54.3 -22.5 -24.3 -46.8

2 65 68 6550 5150 9332 9300 0 500 -2782 -3650 -27.8 -54.8 -82.6 -27.8 -47.3 -75.1 -27.8 -39.8 -67.6 -27.8 -32.3 -60.1

3 70 73 6550 5150 9861 9829 0 500 -3311 -4179 -33.1 -62.7 -95.8 -33.1 -55.2 -88.3 -33.1 -47.7 -80.8 -33.1 -40.2 -73.3

4 75 78 6550 5150 10390 10358 0 500 -3840 -4708 -38.4 -70.6 -109.0 -38.4 -63.1 -101.5 -38.4 -55.6 -94.0 -38.4 -48.1 -86.5

5 80 83 6550 5150 10919 10887 0 500 -4369 -5237 -43.7 -78.6 -122.2 -43.7 -71.1 -114.7 -43.7 -63.6 -107.2 -43.7 -56.1 -99.7

Assumption used:

1.) Solar Consumption Per year = 15 mn kiloliter 15

2.) Premium Consumption Per year = 10 mn kiloliter 10

3.) Rupiah/USD = 14,600

Rp trn (if solar subsidy is increased to

Rp1500)

Rp trn (if solar subsidy is increased to

Rp2000)

Selling Price Economical Price Subsidy Price Differential Gain (loss) of certain SOE Gain (loss) of certain SOE Gain (loss) of certain SOE Gain (loss) of certain SOE

Rp trn (if solar subsidy is increased

to Rp1000)

No. ICP (USD/bbl)

Brent Price

(USD/bbl)

Rupiah/liter Rp trn

29

647.3

343.7 329.4

194.7162.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2015 2016 2017 2018 RAPBN 2019

Irrigration (thousand ha)

58.4

23.7

50.0

84.0

0

10

20

30

40

50

60

70

80

90

2015 2016 2017 2018 RAPBN 2019

FLPP (thousand unit)

155

256 269

379 410 421

65.5

5.1

41.0

8.22.5

-20

-10

0

10

20

30

40

50

60

70

-

50

100

150

200

250

300

350

400

450

2014 2015 2016 2017 Outlook 2018

RAPBN2019

Infrastructure Spending (Rp tn)

Infrastructure (Rp tn) Infrastructure growth (%)-RHS

Types of 2019 Infrastructure Projects

Source : MoF

5,229

2,529 2,754

2,271 2,007

-

1,000

2,000

3,000

4,000

5,000

6,000

2015 2016 2017 2018 RAPBN 2019

2019 Road Target Realization (km)

29,176

18,352 19,875

52,449

27,067

-

10,000

20,000

30,000

40,000

50,000

60,000

2015 2016 2017 2018 RAPBN 2019

Bridge Target Realization (m)

176.3

69.0

270.0

615.1

415.2

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2015 2016 2017 2018 RAPBN 2019

Rail road (km 'sp)

30

Inflation is expected to increase next year, as exchange rate pass through and subsidized fuel price adjustment happen.

Inflation pressure will increase due the rationalization of fuel price in 2019 and passthrough effect of Rupiah depreciation

Realization and projection of Indonesian Inflation (% yoy)

8,0 8,4

3,4 3,0

3,6 3,6

4,5 4,5

20

13

20

14

20

15

20

16

20

17

20

18

F

20

19

F

20

20

F

Source : BPS and Bank Mandiri Forecast

-80

-60

-40

-20

0

20

40

60

80

100

0.00

4.00

8.00

12.00

16.00

20.00

Fe

b-1

4

Jun

-14

Oc

t-1

4

Fe

b-1

5

Jun

-15

Oc

t-1

5

Fe

b-1

6

Jun

-16

Oc

t-1

6

Fe

b-1

7

Jun

-17

Oc

t-1

7

Fe

b-1

8

Jun

-18

The correlation between WPI, CPI and Oil Price (YoY %)

WPI CPI Oil Price-RHS

Inflation in the producers level had increased (% yoy)

31

3

4

5

6

7

8

9

10

11

12

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jul-

05

Feb

-06

Sep

-06

Ap

r-0

7

No

v-0

7

Jun

-08

Jan

-09

Au

g-0

9

Mar

-10

Oct

-10

May

-11

De

c-1

1

Jul-

12

Feb

-13

Sep

-13

Ap

r-1

4

No

v-1

4

Jun

-15

Jan

-16

Au

g-1

6

Mar

-17

Oct

-17

May

-18

Fuel Price vs. Policy Rate

Premium fuel price (Rp/liter)

BI policy rate-RHS9,544

6,550

5,000

6,000

7,000

8,000

9,000

10,000

11,000

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

De

c-1

5

Feb

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

De

c-1

6

Feb

-17

Ap

r-1

7

Jun

-17

Au

g-1

7

Oct

-17

De

c-1

7

Feb

-18

Ap

r-1

8

Jun

-18

Indonesia's Retail Fuel Price (Rp/liter)

Economical Price

Current Price Sold

Assuming Brent Oil Price at US$70/bbl and Rupiah at Rp14,600/US$

48%

Fuel Products Selling Price (Rp/liter)

Economical Price

Calculation (Rp/liter)

Price difference

Rp/liter (Econ - Selling)

Price Gap %

(Econ - Selling)

BPS weight for

fuel in CPI basket

Potential weight for fuel consumption in the new CPI

basket

Potential inflation

using BPS basket

Potential inflation

using latest basket

Premium 6,550 9,544 2,994 45.7 2.01 1.46 0.92 0.67

Pertalite 7,800 9,969 2,169 27.8 1.32 1.79 0.37 0.50

Pertamax 8,900 10,610 1,710 19.2 0.64 0.72 0.12 0.14

Pertamax + 10,000 11,594 1,594 15.9 0.02 0.03 0.00 0.01

First round 1.41 1.31

Second 0.71 0.65

Total additional inflation 2.12 1.96

Assumptions used on the calculation:

1.) Economical Price calculation is based on exchange rate at Rp14,600/USD and oil price at USD70/bbl

2.) BPS fuel weight is based on BPS fuel consumption to total data

- Premium : 50.4

- Pertalite : 33.1

- Pertamax : 16.0

- Pertamax + : 0.6

3.) Current fuel weight is based on Pertamina fuel consumption to total data as of 2H17

- Premium : 36.4

- Pertalite : 44.8

- Pertamax : 18

- Pertamax + : 0.8

Calculation Impact towards Inflation assuming a one off increase

Simulation of Fuel Price Adjustment towards Headline Inflation

Partial subsidized fuel price adjustment (after the election 2019) may push inflation rate to increase at most 1.0%

32

Source: Mandiri Sekuritas estimate

The policy rate increase was an effort to maintain an attractive interest rate differential

Source: CEIC, Bloomberg, Federal Reserve

-4

-2

0

2

4

6

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

De

c-1

6

Feb

-17

Ap

r-1

7

Jun

-17

Au

g-1

7

Oct

-17

De

c-1

7

Feb

-18

Ap

r-1

8

Jun

-18

Real Interest Rate (%)Indonesia Malaysia Thailand

Philippines India

Year 7DRRR (%) Inflation (%)

Indo Real Interest

Rate (%) FFR (%) Inflation (%)

U.S. Real Interest

Rate (%) Spread

2018 5.75 3.60 2.15 2.50 2.90 -0.40 2.55

2019 6.50 4.50 2.00 3.00 2.90 0.10 1.90

5.756.5

0

2

4

6

8

10

12

14

De

c-0

5

De

c-0

6

De

c-0

7

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

De

c-1

2

De

c-1

3

De

c-1

4

De

c-1

5

De

c-1

6

De

c-1

7

De

c-1

8

De

c-1

9

BI Rate (%) 7-DRRR (%) 7-DRRR (%) -Forecast

33

2,88

5,75

5

6,5

2

3

4

5

6

7

8

9

10

Sep

-13

O

ct-1

3

No

v-1

3

Dec

-13

Ja

n-1

4

Feb

-14

M

ar-1

4

Ap

r-1

4

May

-14

Ju

n-1

4

Jul-

14

A

ug-

14

Se

p-1

4

Oct

-14

N

ov-

14

D

ec-1

4

Jan

-15

Fe

b-1

5

Mar

-15

A

pr-

15

M

ay-1

5

Jun

-15

Ju

l-1

5

Au

g-1

5

Sep

-15

O

ct-1

5

No

v-1

5

Dec

-15

Ja

n-1

6

Feb

-16

M

ar-1

6

Ap

r-1

6

May

-16

Ju

n-1

6

Jul-

16

A

ug-

16

Se

p-1

6

Oct

-16

N

ov-

16

D

ec-1

6

Jan

-17

Fe

b-1

7

Mar

-17

A

pr-

17

M

ay-1

7

Jun

-17

Ju

l-1

7

Au

g-1

7

Sep

-17

O

ct-1

7

No

v-1

7

Dec

-17

Ja

n-1

8

Feb

-18

M

ar-1

8

Ap

r-1

8

May

-18

Ju

n-1

8

Jul-

18

A

ug-

18

Se

p-1

8

Inflation Rate 7 Days Reverse Repo Rate Deposit Facility Rate Lending Facility Rate

Indonesia’s policy rate and inflation: not binding yet, despite rising expectation

Source: Bloomberg

(%)

BI Policy rate is expected to reach 6.50% end of 2019

34

Global monetary policy will likely tighten until 2020 Emerging markets experience the highest impact from monetary tightening in advanced economies

Source: The Federal Reserves, European Central Bank, Bank of Japan, Bloomberg as of Oct-18

Monetary tightening in advanced economies

2018 2019 2020 Policy rates forecast

2.5%

0%

-0.1%

3.25% 3.5%

0.15% 0.75%

0% 0%

Response in emerging markets (YTD bps change in policy rates)

3.625

1.600

150 150 50

-25 -50

10Y Gov bond yield (ytd bps) Currencies vs USD (% ytd)

-2%

-6%

-7%

-9%

-12%

-14%

-16%

-17%

-62%

-102%

Thailand

Korea

Indonesia

Russia

Turkey

-20

0

20

40

60

80

Jan

18

Feb

18

Mar

18

Ap

r 1

8

May

18

Jun

18

Jul 1

8

Au

g 1

8

Sep

18

Gov bond Equity

Capital inflow/outflow in EM (USD bn)

7.9

73

Impact of tightening monetary policy of advanced economies to emerging markets

Argentina Turkey Indonesia Philippines India Russia Brazil

21

55

58

75

139

229

Malaysia

Thailand

Brazil

India

Russia

Indonesia

35

Indonesia’s economic fundamentals are not that bad, but pressures on the currency continue

No. Macro Indicators (Forecast) Argentina Turkey South Africa Brazil Indonesia Malaysia Philippines Thailand

1 CA to GDP (%) -5.0 -6.8 -2.9 -1.0 -2.7 3.3 -1.5 8.1

2 External debt to GDP (%) 41.5 58.4 47.8 32.2 34.3 56.2 24.0 32.0

3 Inflation (%) 24.0 13.6 4.4 3.3 3.6 1.6 4.3 1.0

4 Fiscal deficit to GDP (%) -5.3 -2.3 -3.6 -6.8 -2.1 -2.9 -2.8 -3.7

5 CDS level 774.0 567.0 236.0 304.0 128.0 94.0 80.0 41.0

6 Exchange rate YTD (%) 98.0 72.2 18.6 22.4 9.0 1.5 7.4 0.6

7 Economic Growth (%) 0.5 4.2 1.4 1.7 5.2 5.1 6.5 4.4

Overall Country Ranking 7.3 6.3 5.7 5.0 3.4 3.3 2.7 2.3

No. Market and Policy Response

(Ytd Aug18)

Argentina Turkey South Africa Brazil Indonesia Malaysia Philippines Thailand

10 Year GB (%)* 72.7 20.7 7.7 12.2 8.2 4.0 6.4 2.7

10 Year GB YTD (ppt) -36.6 9.3 0.4 1.9 1.9 0.1 1.5 0.4

CDS 771.7 558.4 230.4 302.0 123.8 91.9 79.6 41.2

CDS YTD (ppt) 539.4 393.6 73.4 140.1 38.5 33.5 12.3 -3.8

Policy Rate Level 60.0 17.8 6.5 6.5 5.5 3.3 4.0 1.5

Policy Rate Change YTD (ppt) 32.8 9.8 -0.3 -0.5 1.3 0.0 1.0 0.0

*) South Africa uses 2-year GB

Source: IIF, Bloomberg, Mandiri Sekuritas Estimate

1

2

3

36

Indonesia’s economic fundamentals are not that bad, but pressures on the currency continue

Source: Taken from Republic of Indonesia (2018) “Stability at the Forefront with Unwavering Reform Commitment,” August

37

External Debt Risk: it is not the level, but the ability to pay

-6.8-5-4.4

-4-3.2-3.1-2.9-2.7

-2.1-1.5-1.4-1.4

-10.30.5

1.11.8

3.33.33.5

4.78.1

-10 -5 0 5 10

TurkeyArgentinaRomania

EgyptUkraine

ColombiaSouth Africa

IndonesiaIndia

PhilippinesPeru

MexicoBrazil

Czech RepublicVenezuela

ChinaHungaryMalaysia

NigeriaRussiaKorea

Thailand

CA to GDP (%)

11.21.61.72.22.22.73.13.23.33.64.34.44.54.65.2

11.411.7

13.620.8

24

0 10 20 30 40

ThailandPeru

MalaysiaKorea

Czech RepublicChina

HungaryRussia

ColombiaBrazil

IndonesiaPhilippines

South AfricaRomania

IndiaMexicoUkraineNigeriaTurkey

EgyptArgentinaVenezuela

Inflation (%)12089

9.514

23.12426.4

303232.234.335.337.438.739.841.5

47.849.3

56.258.4

80.691.1

96.3161.8

0 50 100 150 200

NigeriaChinaIndia

PhilippinesKoreaRussia

ThailandBrazil

IndonesiaPeru

EgyptMexico

ColombiaArgentina

South AfricaRomaniaMalaysia

TurkeyHungary

Czech RepublicUkraine

Venezuela

External Debt to GDP (%)

4.55.45.9

7.17.68.1

9.910.2

11.611.8

15.517.7

19.120.621.5

31.532.332.433.2

35.557.6

0 10 20 30 40 50 60 70

NigeriaMalaysiaThailand

KoreaPhilippines

HungaryCzech Republic

EgyptPeru

MexicoSouth Africa

IndiaRussia

RomaniaColombia

UkraineIndonesia

TurkeyArgentina

BrazilVenezuela

Debt Service Ratio (%)

38

Source: CEIC, Mansek calculation

External Debt Position by Remaining Maturity Short term non-bank corporate (non affiliation) external debt represented only 8.6% of total private external debt

39

Indonesia’s monthly need of USD

14,84

3,30

18,10

12

13

14

15

16

17

18

19

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 2013 2014 2015 2016 2017 Ytd 2018

Monthly Average Total Import (LHS)

Monthly Debt & Dividend Payment (LHS)

Total (RHS)

Source: CEIC

(USD bn)

2,30

12,50

14,84

0

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2017 Ytd 2018

Monthly Average OG Import

Monthly Average Non-OG Import

Monthly Average Total Import

(USD bn)

2,5

11,6

1,4 14,84

0

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2017 Ytd 2018

Monthly Average Capital Good Import Monthly Average Raw Material Import

Monthly Average Consumer Good Import Monthly Average Total Import

(USD bn)

40

Rupiah is undervalued

Source: BIS (as of Aug-18)

41

Interest rates and Currency Forecast 2018 - 19

42

Cost of funds has started to increase in June 2018 especially in BUKU IV and III

Cost of Funds – Third Party Yield of Loan – Third Party NIM – Earning Assets

Meanwhile, Yield of Loans is still decreasing especially in BUKU IV

Industry NIM has been increasing steadily since February, probably due to

earning assets other than loan

3,51%

3,23%

5,07% 5,17%

4,46%

4,23%

4,25% 4,37%

2,72%

2,45%

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

BUKU 1

BUKU 2

BUKU 3

BUKU 4

10,78% 10,28%

13,00%

13,70%

11,49% 11,08%

10,09% 10,15%

10,90%

10,95%

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

INDUSTRY

BUKU 1

BUKU 4 BUKU 2

BUKU 3

INDUSTRY

5,41%

5,23%

5,01%

5,63%

5,11%

4,88%

4,44%

4,27%

6,12%

5,91%

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

BUKU 1

BUKU 2

BUKU 4

INDUSTRY

BUKU 3

Banks have responded to market situation by increasing deposit rate faster than interest rates since May-June 2018 to maintain liquidity, despite loan yield still decreasing

Source: Indonesia FSA Banking Statistics

YTD YTD YTD

43

Securities Issued (IDR Tn)

Total IDR FOREX

Source : Indonesia FSA as of Jul-18, Bank Mandiri Office of Chief Economist Calculation

92,5

11,3

6,9

70

75

80

85

90

95

0

5

10

15

20

25

30

Jul-

12

N

ov-

12

M

ar-1

3

Jul-

13

N

ov-

13

M

ar-1

4

Jul-

14

N

ov-

14

M

ar-1

5

Jul-

15

N

ov-

15

M

ar-1

6

Jul-

16

N

ov-

16

M

ar-1

7

Jul-

17

N

ov-

17

M

ar-1

8

Jul-

18

LDR (%) RHS Loan Deposit

91,8

10,6

6,3 70

75

80

85

90

95

0

5

10

15

20

25

30

Jul-

12

N

ov-

12

M

ar-1

3

Jul-

13

N

ov-

13

M

ar-1

4

Jul-

14

N

ov-

14

M

ar-1

5

Jul-

15

N

ov-

15

M

ar-1

6

Jul-

16

N

ov-

16

M

ar-1

7

Jul-

17

N

ov-

17

M

ar-1

8

Jul-

18

IDR LDR (%) RHS Loan Deposit

96,6

15,8 10,5

70

80

90

100

-20

0

20

40

Jul-

12

N

ov-

12

M

ar-1

3

Jul-

13

N

ov-

13

M

ar-1

4

Jul-

14

N

ov-

14

M

ar-1

5

Jul-

15

N

ov-

15

M

ar-1

6

Jul-

16

N

ov-

16

M

ar-1

7

Jul-

17

N

ov-

17

M

ar-1

8

Jul-

18

FX LDR (%) RHS FX loan

89,1

101,1

90,3

81,7

60

70

80

90

100

110

BUKU IV BUKU III BUKU II BUKU I

Industry LDR : 92.5

BUKU IV

BUKU III

BUKU II

BUKU I

Total 106tn

51 (48%) 47

(44%)

7.3 (7%)

1.1 (1%)

Liquidity tightened as deposits grew slower than loans, pushing LDR above 92%, mainly due to high forex LDR BUKU-III banks have highest LDR of 101%, but still have good access to wholesale funding in the form of issued securities

Loan & deposit growth (% yoy)

Banks LDR by BUKU (%)

44

BI continue to support banking sector Rupiah liquidity by extending FX swap facility

Source: Bank Indonesia, and Manidiri estimates

45

Source: OJK and Manidiri estimates

Asset quality of banking sector still under pressures, despite declining NPLs. Profitability and capital adequacy still look fine, amid margin compression.

46

Kepri 13.5%

Aceh 5.7%

Sumut 7.3%

Riau 10.3%

Sumbar 6.4% Jambi

8.5%

Bengkulu 6.3%

Sumsel 8.5%

Babel 6.7%

Lampung 6.5% DKI

8.1% Banten 8.1%

Jabar 10.3%

Jateng 6.7 %

DIY 8.6%

Jatim 8.4%

Bali 8.9% NTB

4.7% NTT 6.0%

Kalbar 5.1%

Kalteng 5.6%

Kaltim 15.2%

Kalsel 7.7%

Sulut 9.0%

Gorontalo 9.1%

Sulteng 7.3%

Sulbar 5%

Sulsel 15.3%

Sultra 7.3%

Malut 5.7%

Maluku 4.4%

Pabar 10.9%

Papua 10.7%

> 160 Triliun

10-40 Triliun

5 - <10 Triliun

1 - <5 Triliun

<1 Triliun

NPL & Special Mentions Value Classification:

Rising compared to June 2017 Declining if there is no arrow

Improvements of Asset Quality in many provinces

June 2018

NPL & Special Mentions: 8.3%

NPL: 2.7%

Special Mentions (Kol 2): 5.6%

Credit Growth (YoY): 10.75%

47

Economic Risks: Trade War and its impact on Indonesia

48

The US-China Trade War: Old problem of Global Imbalances

49

Source: CEIC, BPS

The indirect impact of the US-China Trade War could be larger as Indonesia’s exports to ASEAN, accounted for around 20% of total exports

Indonesia has the lowest export to GDP compared to other ASEAN countries

ASEAN Technology and electronic export to China/GDP Indonesia’s electronic import to total is considered minor

50

Source: CEIC, BPS

US is an important trade partner for Indonesia. Currently US is the second largest export destination from Indonesia

US economic recovery boost Indonesian export to US

0

1

1

2

2

3

3

4

4

2500

3000

3500

4000

4500

5000

Indonesia Export to USA (USD mn) (LHS) USA GDP Growth (%) (RHS)

No. Country Share export to total (%) No. Country Share export to total (%) No. Country Share export to total (%) No. Country Share export to total (%)

1 Japan 13.1 1 Japan 12.1 1 United States 11.3 1 China 13.2

2 China 10.0 2 United States 10.9 2 Japan 11.3 2 United States 10.6

3 Singapore 9.5 3 China 10.1 3 China 11.2 3 Japan 10.4

4 United States 9.4 4 Singapore 8.5 4 Singapore 7.9 4 India 8.4

5 India 7.0 5 India 7.8 5 India 6.9 5 Singapore 7.6

2014 2015 2016 2017

Ratio of export product to US is increasing

Sumber : Trade Map, CEIC

51

US is reviewing weather or not Indonesia deserve the facility of Generalized System of Preferences (GSP)

Up until now (July 2018) Indonesia still enjoys A category in US GSP facility that gives cut in tariffs of US imports for 3,500 products, including agricultural products, textile, garments and woods

Based on US GDP reports in 2016, Indonesia only received GSP facility of USD1.8 bn from Indonesian total exports to US in 2016 of USD20 bn.

US is evaluating whether or not Indonesia deserves US GSP facility based on : (1) evaluation of market access of Indonesian product to US business, (2) evaluation of protection of intellectual property rights, and (3) guarantee to labor rights.

Source : Trade Map, CEIC, OCE

USTR released GSP country practice review in April 2018 to India, Indonesia and Kazakhstan.

This GSP review is a serious step by US to minimize trade deficit with some of its trade partners

Review to Indonesia is based on market criteria of market access of goods, services and US investment that are stranded in Indonesia.

Countries that received largest GSP in 2017 1. India (USD5.6 bn) 2. Thailand (USD4.2 bn) 3. Brazil (USD2.5 bn) 4. Indonesia (USD1.9 bn)

52

Source : Bloomberg, Bank Mandiri calculation

Indonesia is currently is more sensitive to China’s economy compared to the US, the EU and to Japan

note: every 1% decrease in China’s GDP, Indonesia’s GDP will decrease 0.09%; every 1% decrease in US’s GDP, Indonesia’s GDP will decrease 0.07%

GDP Elasticity in Selected Countries

Country Elasticity

1.73 1.40 1.50 1.21

1.08 1.08 0.83 0.41

0.83 0.51 0.73 0.48

0.61 0.40 0.54 0.34

0.07 0.08 0.05 0.09

53

Brief Political / Election Map: Joko Widodo – Ma’ruf Amin vs PrabowoSubianto - Sandiaga Salahuddin Uno

54

The Candidates Jokowi – Amin still thus far leading by a large margin in the poll

The favorable president and vice president

towards towards

towards towards

55

Source: SMRC Sept18 Survey

Structural Problems: High dependency on Raw Commodity

56

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

100

200

300

400

500

600

1Q

01

3Q

01

1Q

02

3Q

02

1Q

03

3Q

03

1Q

04

3Q

04

1Q

05

3Q

05

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

3Q

15

1Q

16

3Q

16

1Q

17

3Q

17

1Q

18

3Q

18

An average price index of five top of export commodities (Crude oil, Crude Palm Oil, Coal, Cooper dan Rubber)

Estimates of the average price index of top five of export commodities

Quarterly economic growth

Estimates of quarterly economic growth

4Q

18

Pri

ce I

nd

ex (

20

00

=1

00

) Q

uarte

rly Econ

om

ic Gro

wth

(YoY

) Quarterly Economic Growth and The Average Price Index of

Top Five Largest of Export Commodities

Indonesia economy is highly dependent on commodity sector Commodity price rebound helps to speed up the economic recovery

Source: Bloomberg, BPS and OCE Estiimation

57

0

100

200

300

400

500

600

700

800

900

1Q

00

2

Q0

0

3Q

00

4

Q0

0

1Q

01

2

Q0

1

3Q

01

4

Q0

1

1Q

02

2

Q0

2

3Q

02

4

Q0

2

1Q

03

2

Q0

3

3Q

03

4

Q0

3

1Q

04

2

Q0

4

3Q

04

4

Q0

4

1Q

05

2

Q0

5

3Q

05

4

Q0

5

1Q

06

2

Q0

6

3Q

06

4

Q0

6

1Q

07

2

Q0

7

3Q

07

4

Q0

7

1Q

08

2

Q0

8

3Q

08

4

Q0

8

1Q

09

2

Q0

9

3Q

09

4

Q0

9

1Q

10

2

Q1

0

3Q

10

4

Q1

0

1Q

11

2

Q1

1

3Q

11

4

Q1

1

1Q

12

2

Q1

2

3Q

12

4

Q1

2

1Q

13

2

Q1

3

3Q

13

4

Q1

3

1Q

14

2

Q1

4

3Q

14

4

Q1

4

1Q

15

2

Q1

5

3Q

15

4

Q1

5

1Q

16

2

Q1

6

3Q

16

4

Q1

6

1Q

17

2

Q1

7

3Q

17

4

Q1

7

Brent Oil Price CPO Malaysia Price LME Copper Price Rubber Price TOCOM Coal Price Newcastle

Commodity boom is over; the prices are back to normal level Price Index of Indonesia Five Top Largest of Export Commodities

Pri

ce In

de

x (1

00

=Jan

uar

y 2

00

0)

Normal Period

US Subprime Mortgage Crisis Europe Financial Crisis &

China Economic Slowdown

Source: Bloomberg

58

Indonesia Top Ten Export: Commodities dominant

Value (USD

Bio)% of Export

Value (USD

Bio)% of Export

Value (USD

Bio)% of Export

Value (USD

Bio)% of Export

Palm oil and its fractions, whether or not refined (excluding chemically

modified and crude)11 7.31 11.06 7.65 8.4 7.16 11.48 8.28

Coal, whether or not pulverised, non-agglomerated (excluding

anthracite and bituminous coal)7.5 4.99 6.53 4.52 5.1 4.33 8.52 6.15

Bituminous coal, whether or not pulverised, non-agglomerated 7.22 4.8 6.37 4.41 5.02 4.26 6.01 4.33

Petroleum oils and oils obtained from bituminous minerals, crude 6.48 4.31 5.2 3.6 4.35 3.69 4.28 3.09

Natural gas, liquefied 7.36 4.89 5.15 3.56 4.22 3.58 5.11 3.68

Copper ores and concentrates 3.28 2.18 3.48 2.41 2.72 2.31 2.47 1.78

Crude palm oil 4.39 2.92 3.31 2.29 2.44 2.07 3.86 2.79

Technically specified natural rubber "TSNR" 3.56 2.37 3.24 2.24 2.59 2.2 4.3 3.1

Natural gas in gaseous state 2.97 1.98 1.85 1.28 1.47 1.25 2.09 1.51

Lignite, whether or not pulverised, non-agglomerated (excluding jet) 1.88 1.74 2.12 1.28 1.23 1.04 2.1 1.52

Total Top 10 Commodities 55.63 37 48.3 33.43 37.58 31.89 50.22 36.23

Total Commodities on Top 100 64.37 42.81 56.9 39.38 80.3 68.14 88.4 63.77

All products 150.37 100 144.49 100 117.85 100 138.62 100

10M17

HS Definition

2015 2016 10M16

Source: BPS

59

0

1000

2000

3000

4000

Jan

-14

Jun

-14

No

v-1

4

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

Dec

-16

May

-17

Oct

-17

Mar

-18

Au

g-1

8

Historical Price Forward Price (as of December 30, 2016) Forward Price (as of March 31, 2017) Forward Price (as of June 30, 2017)

0

200

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Historical Price Forward Price (As of December 30, 2016) Forward Price (As of March 31, 2017) Forward Price (As of June 30, 2017)

30,0

80,0

130,0 Ja

n-1

4

Jun

-14

No

v-1

4

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

Dec

-16

May

-17

Oct

-17

Mar

-18

Au

g-1

8

Historical Price Forward Price (As of December 30, 2016) Forward Price (As of March 31, 2017) Forward Price (As of June 30, 2017)

0

0,5

1

1,5

2

2,5 Ja

n-1

4

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Historical Price Forward Price (as of September 29, …

(a) Brent Crude Oil Price (USD/Bbl) (b) Coal Price Newcastle (USD/Ton)

(c) CPO Price Malaysia (RM/Ton) (d) Rubber Price TSR 20 Singapore (USD/kg)

0

5000

10000

15000

20000

25000

Jan

-14

Jun

-14

No

v-1

4

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

Dec

-16

May

-17

Oct

-17

Mar

-18

Au

g-1

8

Historical Price Forward Price (as of December 30,2017) Forward Price (as of March 31, 2017) Forward Price (as of June 30, 2017) Forward Price (as of September 2017)

(e) LME Nickel Price (USD/Ton)

Forward prices are flattish up to December 2018

EOY 2018 Forward Price by period

Oil (USD /Bbl)

Coal (USD /Ton)

CPO (RM

/Ton)

Rubber* (USD /Kg)

Nickel (USD /Ton)

4Q16 57.9 76.8 2841 10410

1Q17 53.2 69.4 2556 10451

2Q17 50.6 66.3 2517 9554

3Q17 55.5 79.2 2604 2.04 10690

60

Structural Problems: Pre-mature De-industrialization

61

Value Added Constant Per Employment in Indonesia By Sector

Indonesia’s GDP Structure By Sector

*Utilization sector includes Electricity, gas, water Source: CEIC

Proportion of manufacturing sector to GDP tend to decrease

14,0

7,4

29,1

21,3

1,3

56,0

0

10

20

30

40

50

60

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

10

20

12

20

14

20

16

% o

f G

DP

Agriculture (% of GDP) Mining (% of GDP)

Manufacturing (% of GDP) Utilization (% of GDP)

Services (% of GDP)

0

100

200

300

400

500

600

700

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Mill

ion

IDR

/Em

plo

ymen

t Agriculture Mining

Manufacturing Utilisasi

Services

62

0,3

1,4

3,5

3,4

3,2

2,6

0,3

0,6

0,3

1,3

3,9

3,7

3,0

2,5

0,3

0,6

0,3

1,6

4,0

3,8

3,4

2,9

0,3

0,7

No Schooling

Not Yet Completed Primary School

Primary School

Junior High School

Senior High School

Vocational high school

Diploma I-III/Academy

University

Aug-17

Aug-16

Aug-15

Total Employment in Manufacturing Sector By Education (Million People)

50,2

43,3

32,1

15,5 17,9

22,4

34,3

38,8

45,5

0

10

20

30

40

50

60

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

10

20

12

20

14

20

16

%

Employment in agriculture (% of total employment)

Employment in industry (% of total employment)

Employment in services (% of total employment)

Employment Structure in Indonesia By Sector

Source: World Development Indicators, World Bank

Share of employment in industry sector increase but at low speed Employment quality in manufacturing sector relatively low. 57% of employment in manufacturing sector educated below Senior High School

63

Source: Sakernas, BPS

Food products

Beverages

Tobacco products

Textiles

Wearing apparels

Leather & related products & footwear

Wood, cork, except furniture; articles of straw

& plaiting

Paper & paper products Printing & reproduction of

recorded media

Coke & refined petroleum products

Chemicals & chemical products

Pharmaceuticals, medicinal chemical &

botanical products

Rubber & plastic products Other non-metallic mineral products

Basicmetals

Fabricated metal products, excepts

machinery & equipment

Computers, electronic& optical products

Electrical equipment

Machinery & equipment n.e.c

Motor vehicles, trailers &semi-trailers

Other transport equipment

Furniture

Other manufacturing

Repair & installation of machinery & equipment

0

10

20

30

40

50

60

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0 100,0

% im

po

rted

raw

mat

eria

l (av

erag

e 2

01

0-2

01

5)

% Exported Product (average 2010-2015)

Mapping of Medium and Large Manufacturing Industry 2010-2015 % Imported Raw Material Vs % Exported Product

*Bubble Size show that total labor in average 2010-2015 Source: Industrial Statistic, BPS

64

Mapping of Medium and Large Manufacturing Industry 2010-2015 % Exported Product vs Productivity

*Bubble Size show total labor on average in 2010-2015 Source: Industrial Statistics, BPS

Food products

Beverages

Tobacco products

Textiles

Wearing apparels Leather & related products &

footwear

Wood, cork, except furniture; articles of straw &

plaiting

Paper & paper products

Printing & reproduction of recorded media

Coke & refined petroleum products

Chemicals & chemical products

Pharmaceuticals, medicinal chemical & botanical

products

Rubber & plastic products

Other non-metallic mineral products

Basicmetals

Fabricated metal products, excepts machinery &

equipment

Computers, electronic& optical products

Electrical equipment

Machinery & equipment n.e.c

Motor vehicles, trailers &semi-trailers

Other transport

equipment

Furniture

Other manufacturing

Repair & installation of machinery & equipment

0

10

20

30

40

50

60

70

80

90

0 200.000 400.000 600.000 800.000 1.000.000 1.200.000

% e

xpo

rte

d p

rod

uct

(av

era

ge 2

01

0-2

01

5)t

Productivity (Thousand IDR) – average 2010-2015

65

Details of industrial sector growth: Natural Resource based and labor intensive industries are slowing, while domestic market based industries speed up

Source: BPS

Industry

Growth (%yoy) Proportion (%)

2014 2015 2016 2017 2014 2015 2016 2017

Food & Beverages 9.5 7.5 8.3 9.2 25.2 26.8 29.1 30.5

Chemicals, Pharmaceutical & Traditional Medicine 4.0 7.6 5.8 4.5 8.1 8.7 8.8 8.6

Basic Metals 6.0 6.2 1.0 5.9 3.7 3.7 3.5 3.6

Machinary & Equipment 8.7 7.6 5.0 5.6 1.5 1.5 1.6 1.6

Metal Product, Computer, Electronic, Optic & Electricity Equipment 2.9 7.8 4.3 2.8 8.9 9.4 9.5 9.2

Furniture 3.6 5.2 0.5 3.7 1.3 1.3 1.3 1.2

Leather, Leather Products & Footwear 5.6 4 8.4 2.2 1.3 1.3 1.4 1.4

Transport Equipment 4.0 2.4 4.5 3.7 9.3 9.1 9.3 9.0

Rubber & Product of Rubber & Plastics 1.2 5 -8.5 2.5 3.6 3.6 3.1 3.1

Textile & Wearing Apparel 1.6 -4.8 -0.1 3.8 6.2 5.8 5.6 5.5

Tobacco Processing 8.3 6.2 1.6 -0.8 4.3 4.5 4.6 4.5

Paper, Paper Products, Printing & Reproduction 3.6 -0.2 2.6 0.3 3.8 3.6 3.5 3.5

Coal; Oil & Gas Refinery -2.1 -1.1 2.8 -0.3 15.1 13.3 11.3 11.3

Other Manufacturing, Repair Services & Installation of Machinery 7.7 4.7 -3.0 -1.7 0.8 0.9 0.8 0.8

Wood, Articles of Wood-Cork & Woven Goods of Bamboo, Rattan & the like 6.1 -1.6 1.7 0.1 3.4 3.2 3.1 3.0

Non-Metallic Quarrying 2.4 6.0 5.5 -0.9 3.5 3.4 3.5 3.3

Total Manufacturing Industry 4.6 4.3 4.3 4.3 100 100 100 100

66

Market share of Indonesia main exports

67

Revealed comparative advantages

68

Better freight logistics can connect resources producing regions in outer islands with markets and manufacturing concentrations in Java and Sumatera

Source: World Bank Group (2015) “Reducing freight logistics costs in Indonesia”

69

Challenges & Opportunities: Labour Force & Underemployment

70

Labour Force Composition (%)

Declining unemployment rate, but mainly because of higher underemployment

30,0% 30,4% 31,3% 31,5% 31,6% 29,8% 30,5% 30,6% 32,0%

62,6% 62,6% 62,3% 62,7% 62,7% 64,4% 64,0% 64,1% 62,9%

7,4% 7,0% 6,4% 5,9% 5,7% 5,8% 5,5% 5,3% 5,1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018

% Underemployment (0-34 hours) % Full-time Emp. (≥35 hours) % Unemployment

11,16

9,63 9,48

0

2

4

6

8

10

12

2015 2016 2017

Unemployment Rate by Level of Education (%)

Never attended school

Primary School

Mid-High School

Higher Education

While % of full employment rate decreasing, underemployment contribute more to labour force • Employment: 64% (2016) →

62.9% (2018) • Underemployment: 30.5% (2016)

→ 32% (2018)

Secondary graduates (Middle & High School) posses greater risk for not entering job market Why? Lack of skills?

Source: Sakernas (BPS)

72

Zoom-in underemployment: Dominated by young ages in rural areas

17,7

12,9

7,9 7,6

16,5

13,2

6,8 6,5

16,4

11,8

7,3 6,9

-2

3

8

13

18

15-19 20-24 35-39 40-44

Underemployment Rate by Age (%)

2015 2016 2017

8,9 9,7

6,9

5,7

7,4 8,4

6,9

5,5

8,0 8,4

6,9

4,8

0 1 2 3 4 5 6 7 8 9

10

Never attended school

Primary School Mid-High School Higher Education

Underemployment Rate by Level of Education (%)

2015 2016 2017

5,47 5,08 4,91

11,7

10,28 10,52

0

2

4

6

8

10

12

2015 2016 2017

Underemployment Rate (%) by Location

City Rural

Underemployment is dominated by uneducated and primary schools. Bring more evidence that not enough skills obtained from Secondary Schools


73

19,7

21,0 21,4 22,0

22,6

24,1 23,2

14,2 14,7 15,3 15,7

16,8 16,5 17,1

4,4 4,1 4,8 4,8 5,1

5,6

7,1

4,8 4,7 4,8 4,7 4,6 4,7 4,9

1,1 1,5 1,6 1,6 1,8 1,7 1,8

0,9 0,5 0,6 0,7 0,6 0,6 0,8 0

5

10

15

20

25

2011 2012 2013 2014 2015 2016 2017

Mill

ion

s La

bo

ur

Trade & Reparation Manufacturing Accomodation, F&B Transport & Storage Finance & Insurance ICT

What type of skills? Start from sectors demand more labour

Service sectors (except trade & reparation) absorb more employment in the last 3 years: Accommodation, F&B: 5.1 mio (2015) → 7.1 mio (2017) Transport & Storage: 4.6 mio (2015) → 4.9 mio (2017) ICT: 0.6 mio (2015) → 0.8 mio (2017)


74

Indonesia score improving in 2015, but still below OECD and it peers

386

375

397

396

403

382

360 370 380 390 400 410

2015

2012

2015

2012

2015

2012

Mat

hem

atic

s R

ead

ing

Scie

nce

Indonesia PISA Score, 2015 vs 2012

Country Mathematics Reading Science

International Average (OECD) 490 493 493

Singapore 564 535 556

China 531 494 518

Switzerland 521 492 506

Netherlands 512 503 509

Viet Nam 495 487 525

Russia 494 495 487

Australia 494 503 510

Italy 490 485 481

United States 470 497 496

Malaysia 446 431 443

Thailand 415 409 421

Indonesia 386 397 403

Brazil 377 407 401

Tunisia 367 361 386

Indonesia improve significantly in science and mathematics, and has the chance to match other developed countries in 2030 (the year of SDGs Target for quality education)

75

Challenges & Opportunities: Shallow Financial Sector Constraining the Development Financing

76

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017

Indonesia Malaysia Philippines

Singapore Thailand Vietnam

Domestic credit to private sector by banks (% of GDP)

40

60

80

100

120

140

160

180

200

220

2012 2013 2014 2015 2016 2017



Bank asset to GDP ratio (%)

Relative to GDP, Indonesia's banking assets and lending to

the private sector tend to be stagnant and considered the

lowest in ASEAN

Source: CEIC, World Development Indicator (World Bank), BI, OJK

77

Bank office coverage is increasing and the highest in

ASEAN, but the proportion of borrowers covered tends to be

stagnant and is the lowest in ASEAN

Borrowers from commercial banks (per 1,000 adults) Commercial bank branches (per 100,000 adults)

2

4

6

8

10

12

14

16

18

2012 2013 2014 2015 2016 2017



0

200

400

600

800

1.000

1.200

1.400

2012 2013 2014 2015 2016 2017

Indonesia Malaysia Singapore Thailand

Source: World Development Indicator (World Bank), BI

78

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

2010 2011 2012 2013 2014 2015 2016 2017



Bank nonperforming loans to total gross loans (%)

Source: World Development Indicator (World Bank). *Bank lending rate minus deposit rate. The margin between the cost of mobilizing liabilities and the earnings on assets, measures

financial sector efficiency in intermediation. A narrow spread means lower transaction costs, which reduces the cost of funds for investment. This is crucial to economic growth.

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016 2017



Interest rate spread (%)*

Bank interest rate spread in Indonesia, as an indicator of

efficiency in intermediation, relatively higher compared to

peers

Lower proportion of borrowers partly contributed by less efficient in bank’s

transaction costs and increasing number of bad loans

79

ATM (per 100,000 adults) Depositors with comercial banks (per 1,000 adults)

400

800

1.200

1.600

2.000

2.400

2012 2013 2014 2015 2016 2017



0

20

40

60

80

100

120

140

2012 2013 2014 2015 2016 2017



Conversely, banks as a place to deposit money tends to

increase. This makes banks increasingly invest in ATMs to

provide convenience for customers.

Increased customer funds in banks must be accompanied by an increase in lending

to private sector

Source: World Development Indicator (World Bank), BI 80

Comparison of asset, market cap, loan, and Deposit of

ASEAN banks Singaporean banks still dominate in terms of total asset, loan and deposit

Total asset

245

182

177

117

77

62

Market Cap

73

63

55

58

59

56

USD bn

1

2

3

4

5

6

7

8

9

10

11

12

14

13

Loan Deposit June 2018

49

36

277

213

202

121

84

71

77

64

57

60

61

61

41

44 56

63

83

84

86

91

93

94

95

121

182

268

339

376

39

8

26

7

24

14

12

21

11

12

23

33

36

50

Source: Bloomberg, Bank Mandiri

81

DIMENSION MATRIX FOR ASSESSMENT CURRENT

STATUS

RECENT

TREND

Capital users

Number of issuers (stock)

Number of issuers (bond)

Capital providers

Relative share of bank funding to bonds and equity

Ratio of foreign to local ownership (Bonds, Equity)

Intermediaries

Mutual funds asset to GDP

Insurance asset to GDP

Instruments

Market volume to GDP (Bonds, Equity)

Interbank lending to GDP

Turnover (Bonds)

Turnover (Equity and FX)

Bid-ask spread

Market infrastructure

Credit bureau coverage

World Bank – depth of credit information index

Assessment on current financial deepening indicates Indonesia shown

improvement across most dimensions of the financial market ecosystem (1/2)

2015 Current

Current status

relatively same

as in 2015

82

DIMENSION MATRIX FOR ASSESSMENT CURRENT

STATUS

RECENT

TREND

Regulatory, legal, and

macro environment

Level of inflation

World Bank – ease of doing business index

World Bank – strength of legal rights index

Time for issuance

Tax related regulation

2015 Current

Current status relatively same as in 2015

Assessment on current financial deepening indicates

Indonesia shown improvement across most dimensions of

the financial market ecosystem (2/2)

83

Source: World Federation Exchange, IDX, OJK, Mandiri analysis. *As of August 2018.

Metrics

Growth in number of issuers, 2018 compared to 2015 (%)

Remarks

POJK No 7/POJK.04/2017, March 2017

OJK cut a number of documents in the securities

registration statement and prospectus. The

simplification was made to make it easier for issuers to

enter the capital market, while at the same time

making it easier for prospective investors to see the

profile of the issuers who will conduct a public offering.

The prospectus is sufficient to use only last 3 years

financial data where previously requested last 5 years.

POJK No 53/POJK.04/2017, July 2017

The objective is to provide wider opportunities for

issuers with small scale assets or issuers with medium

scale assets obtain funding through capital market.

Previously, SME issuers are listed on the development

board which requires prospective issuers to have a

minimum of IDR 5 billion in net physical assets. By this

regulation, acceleration board will be a place for SME

issuers who are still in the early stages of operations,

such as resource-based companies like plantations,

minerals, and oil and mining that have not recorded

profits.

Growth of issuers for the stock market in Indonesia is

highest compared to other ASEAN countries

506 521 537 566 598 613 639 656 688 692 775 769 757 750 745

905 902 900 901 909

263 265 265 267 268

2014 2015 2016 2017 2018*

Indonesia Thailand Singapore Malaysia Philippines

3,9

0,4

1,9

12,9

18,2

Singapore

Malaysia

Philippines

Thailand

Indonesia

2

0

2

4

6

2015 2016 2017 2018*

Indonesia Thailand Singapore

Malaysia Philippines

Growth in number of issuers (yoy, %)

Number of issuers Current status 2015 Current Issuers (equity market)

84

Meanwhile, the number of publishers in the bond market

does not grow significantly

Metrics

Number of issuers

106 110 110 115 113 569 493 433 381 344

1.842 1.930 2.039

2.765 3.286

30 26 27 24 24

2014 2015 2016 2017 2018*

Indonesia Thailand Singapore Malaysia

20

0

20

40

2015 2016 2017 2018*

Indonesia Thailand Singapore Malaysia

Growth in number of issuers (yoy, %)

39,5

20,0

6,6

78,4

Thailand

Malaysia

Indonesia

Singapore

Growth in number of issuers, 2018 compared to 2015 (%)

Remarks

The process of issuing bonds is considered more

complicated than borrowing from a bank.

In a certain period, interest rate of bonds issued are

relatively not much different than bank loans.Hence,

companies tend to choose banking because the

process is simpler.

Not all companies can issue bonds. Only companies

that get investment grade can issue bond, which is

relatively limited.

Lack of knowledge from domestic companies

regarding the way and process of issuing bonds or

accessing the capital market. The lack of education

from regulators contribute to this.

Not all companies are willing to fulfill the obligation to

open company information to the public as a condition

to raise public investor funds.

Current status

Source: World Federation Exchange, IDX. *As of August 2018.

Current status

relatively same as

in 2015

Issuers (bonds market)

85

Indonesia Vision of 2045: Riding on Growth and Demographic Dividend

86

Source: Bappenas (2018) “Indonesia Vision 2045” , as of August

Global Mega Trend 2045

87

So

urc

e:

Ba

pp

en

as

(2

01

8)

“In

do

ne

sia

Vis

ion

20

45

” , a

s o

f A

ug

us

t

88

89



Development Pillar of Indonesia 2045

90


Infrastructure and Maritime Connectivity within the Archipelagic Concept

91

Thank you

Appendix

92

Challenges & Opportunities: Internet and Tourism

93

Mid-expenditure people could maintain consumption growth above 25% for 2 year (or around 12.5%/year)

Shifting of consumption from food to non-food in 2015 didn’t continue in 2017

Middle-expenditure consumption growth remain strong

224 297

600

1.725

267 371

753

2.096

304 444

945

2.405

1.036

-

500

1.000

1.500

2.000

2.500

3.000

poor low-expend mid-expend high-expend

Tho

usa

nd

s R

p

Per Capita Spending

2013 2015 2017 avg spend 2017

67% 66% 59%

38%

33% 34% 41%

62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 food 2013 non-food

65% 64% 56%

35%

35% 36% 44%

65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



67% 65% 58%

40%

33% 35% 42%

60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



Source: Susenas (BPS)

94

Slowdown consumption growth of cigarette, and the raise of internet

78

113

210

285

102

160

267 272

117

182

335 362

-

50

100

150

200

250

300

350

400


Tho

usa

nd

s R

p

Spending for cigarette

2013 2015 2017

17 28

61

188

23 36

81

238

16 31

67

170

-

50

100

150

200

250

300


Tho

usa

nd

s R

p

Spending for pre/post paid cellular

2013 2015 2017

1 1 5

32

1 3 13

65

3 7

25

87

-

20

40

60

80

100


Tho

usa

nd

s R

p

Spending for internet

2013 2015 2017

Cigarette consumption growth declining for low-

expend & poor category in 2017

Poor: 30% in 2015 (compare to 2013) become

14.7% in 2017 (compare 2015)

Low-expend: 42% in 2015 (compare to 2013)

become 14% in 2017 (compare 2015)

All level of expenditure reducing spending for pre/post paid

cellular in 2015;

While consumption for internet increased significantly,

especially low-expenditure people Source: Susenas (BPS)

95

An indication a lower health spending triggered more clothing consumption

BPJS significantly reduced spending for

health of all expenditure category in 2015:

Overall: -25.6% compare to 2013, with the

highest contribution from high-expenditure (-

34%)

While consumption of clothing jumped 70% in 2015,

an indication that people taken benefit of lower

health spending

Low-expend and Mid-expend were the biggest

contributor for increased clothing consumption in

2015

18 25 66

341

17 23 60

225

19 30 79

259

-

50

100

150

200

250

300

350

400


Tho

usa

nd

s R

p

Spending for health

2013 2015 2017

14 19 48

186

38 49

97

251

44 60

129

286

-

50

100

150

200

250

300

350


Tho

usa

nd

s R

p

Spending for clothing

2013 2015 2017 Source: Susenas (BPS)

96

Spending for tourism and travel industry, as

indicated by air transport, land transport,

accommodation, increase overall by 27%,

30%, and 21% respectively

Mid-expend spending for air transport and

hotel jumped significantly in 2017 (51% &

63%)

0,6

19

1

23

-

5

10

15

20

25


Tho

usa

nd

s R

p

Spending for accomodation

2015 2017

12 15

35

82

13 19

45

108

-

20

40

60

80

100

120


Tho

usa

nd

s R

p

Spending for land transport

2015 2017

3

54

4

67

-

10

20

30

40

50

60

70

80


Tho

usa

nd

s R

p

Spending for air transport

2015 2017

Mid-expend people spend more for air transport and accommodation


97

Challenges & Opportunities: Internet & Digitalization

98

Why technology (internet) & digitalization importance? Snapshot of Spending

1,5

0,8

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

1 2 3 4 5 6 7 8 9 10 Avg Expen

Mill

ion

s (R

p)

Internet & Expenditure per Capita (Decile of Spending)

Yes No

3,1

1,0

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

1 2 3 4 5 6 7 8 9 10 Avg Expen

Mill

ion

s (R

p)

e-Banking & Expenditure per Capita (Decile of Spending)

Yes No

At the lower spending/expenditure level, the difference in spending from 1st to 7th decile not much However, start from 8th decile, spending of people who accessed internet are higher

For e-banking the result is clearer: people use e-banking spend significantly more than people who don’t


99

Challenges & Opportunities: Woman Empowerment & Financial Inclusion

100

Woman tend to be Entrepreneur

Woman as entrepreneur is higher than man (58% vs 46%)

35,2% 33,9% 33,3% 32,6% 30,1% 29,3%

15,8% 15,7% 15,4% 15,7% 16,0% 15,9%

49,0% 50,4% 51,2% 51,7% 54,0% 54,8%

0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015 2016 2017

Woman Employment by Sector (% total woman employment)

Sektor Pertanian Sektor Industri Sektor Jasa

50,82% 49,55% 48,98% 46,43% 46,76% 46,73%

61,40% 60,35% 60,33% 58,42% 58,08% 58,05%

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017

Wirausaha pria (% jumlah pria bekerja)

Wirausaha wanita (% jumlah wanita bekerja)

Trend of working in services sectors is also increasing for woman • Agriculture: 35% (2012) to 29% (2017)

• Service: 49% (2012) to 55% (2017)

Source: BPS dan ILO. 2017 is an estimation

101

Global Findex Data - Indonesia

Financial inclusion rapidly increases due to non cash transfers for social assistance

General Information 2011 2014 2017

Has a national identity card (% age 15+) 90%

Account (% age 15+) 20% 36% 49%

Account, male (% age 15+) 20% 35% 46%

Account, female (% age 15+) 19% 37% 51%

Account, young adults (% ages 15-24) 13% 35% 47%

Account, older adults (% ages 25+) 22% 36% 49%

Financial institution account (% age 15+) 20% 36% 48%

Financial institution account,male(% age 15+) 20% 35% 46%

Financial institution account,female(% age 15+) 19% 37% 51%

Financial institution account,young adults(% age 15-24) 13% 35% 45%

Financial institution account, older adults(% age 25+) 22% 36% 49% Source: World Bank Group

102

Financial Inclusion in Indonesia: Man vs Woman

19%

10%

0%

8%

37%

26%

2%

11%

51%

32%

2%

17%

0%

10%

20%

30%

40%

50%

60%

Woman (% of Age 15+)

2011

2014

2017

20%

12%

1%

9%

35%

25%

1%

15%

46%

29%

3%

18%

0%

10%

20%

30%

40%

50%

Male (% of Age 15+)

2011

2014

2017

Account Ownership Debit Card Credit Card Borrow at Fin. Institution

Access of finance for woman show

greater improvement compare to

man

Significant increase of account

ownership at financial institution:

19% (2011) to 51% (2017)

The improvement also trigger the

increase of credit card holder by

woman: 10% (2011) to 32% (2017)

Account Own Debit Card Credit Card Borrow at Fin. Institution

Source: World Bank Group

103

Financial Inclusion for Woman: Needs and Potential

27%

67% 59%

28%

67%

49%

0-14 15-64 65+

% working ages

Wanita Pria

96,1% 96,0%

72,1%

99,0% 93,8%

69,6%

SD SMP SMA

School Participation Rate (APS)

Wanita Pria

766 704

1.086 1.022

Wanita Pria

Average Spending of Household (Gender of KRT)

2012 2017

Woman has the same proportion of working ages with man. However, APS for woman is higher for secondary and higher education

Household with woman as the head spend more compare to the man. The difference is about 42% in 2017

Sumber: Susenas (BPS)

104

presented by anton h. gunawan ~ chief economist · 2018-11-09 · presented by anton h. gunawan ~...

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