Kedutaan Besar Republik Indonesia
Ottawa
Embassy of the Republic of Indonesia
Ambassade de la RÉpublique d'Indonésie

Economic Overview

Executive Summary

  • Economic growth in upward trend, despite slower than the projection. Dwindling global demand and low commodity prices undermined exports. Domestic economic growth was recorded on the back of government consumption and greater investment, as government spending accelerated and more infrastructure projects were implemented. Private consumption remains stable, amidst indications of decreased in savings and less disposable income.
  • The current account deficit in 2015 is expected to improve from 3.1% to around 2% of GDP. The position of reserve assets at the end of December 2015 stood at USD105.9 billion, equivalent to 7.7 months of imports or 7.4 months of imports and servicing public external debt, which is significantly above the international adequacy standard of around three months.
  • The rupiah appreciated in December 2015 as uncertainty on global financial markets eased. Despite depreciating on average, point-to-point (ptp) the rupiah appreciated 0.36% (mtm) to a level of Rp13,785 per USD. Less uncertainty on global financial markets after the Federal Funds Rate hike on 17th December 2015 increased non-resident funds to government bonds.
  • Inflation in 2015 was recorded at 3.35% (yoy), which is significantly below that posted in 2014 but within the target corridor set by the government at 4±1%(yoy). Core inflation was low at 3.95% (yoy) as a result of anchored expectations. Inflation of volatile foods was recorded at 4.84% (yoy), considering the ongoing severity of the El Nino weather phenomenon. Administered prices recorded inflation of just 0.39% (yoy) as global energy prices fell against a backdrop of oil and gas reforms, as well as electricity rates. Inflation target in 2016- 2017 is within the range of 4±1% and 3.5±1% in 2018.
  • Financial system stability persisted, underpinned by a resilient banking system and relatively stable financial markets. In November 2015, the Capital Adequacy Ratio (CAR) was recorded at 21.1%, with non-performing loans (NPL) at 2.7% (gross) or 1.3% (net).
  • The BI Board of Governors agreed on 13-14th January 2016 to lower the BI Rate 25 bps to 7.25%, with the Deposit Facility Rate and Lending Facility Rate held at 5.25% and 7.75% respectively. The decision was in line with Bank Indonesia’s prior statements that room for monetary easing exists on the back of solid macroeconomic stability, taking into consideration the reduced global uncertainty post-FFR hike. The reduction of the BI Rate is expected to support previous macroprudential policy easing and the lowering of primary reserves in rupiah. Further easing will take place after rigorous assessments of the domestic and global economy, while maintaining macroeconomic and financial system stability.
  • On the fiscal front, Indonesia will continue its prudent fiscal management in 2015 with strong commitment to fiscal consolidation. Recent policy reforms represent an essential step and integral part of structural reforms to strengthen economic fundamentals in Indonesia. The budget deficit for 2015 will be maintained below the threshold of 3.0% of GDP.

*Quoted from the Executive Summary of the Recent Economic Developments, January 2016. For further information please click the image below


Investment

Indonesia put great importance with regard to investment, both domestic and foreign. Indonesia has advantages for investors:

  1. With a GDP of USD1 trillion (PPP), it is one of the world’s largest economy and a member of G20;
  2. A stable political and economic environment;
  3. With a population of more than 252 million (June 2014), it is the fourth most populous country in the world with a young demographic population. Around 60% of the population are under 39 years old;
  4. The middle to high class income population is expected to increase from 134 million (2010) to approximately 170 million (2015), making Indonesia a huge and promising market.

Investment Law No. 25 of 2007 regulates investment in Indonesia that, among other, accords equitable treatment to domestic investors and foreign investors with due regard to the national interest. The law also guarantees that investors be granted the rights to transfer and repatriate in foreign currencies.

The Government of Indonesia provides Fiscal and Non Fiscal Incentives for investment, among others:

A.    Tax Holiday (TH)

This facility can be offered to investors, whose business activities meet criteria as pioneer industries. Priorities are given to five business sectors: basic metals industry,  petroleum refinery industry, basic organic chemicals industry derived from petroleum and natural gas, machinery industry, renewable resources industry and telecommunications industry.

B.    Tax Allowance (TA)

TA is aimed at boosting downstream investment. Around 129 business sectors are eligible to this incentive, including infrastructure and renewable energy.

This incentive will give a 30 percent net income tax deduction of the total investment carried over 6   years, an accelerated depreciation and amortization, a 10 percent or lower charged income tax for dividend paid to foreign tax subjects in order to avoid double taxation and a carry forward loss compensation from 5 to 10 years, with certain additional requirements.

According to the Invesment Coordinating Board (Badan Koordinasi Penanaman Modal/BKPM), total investment realization between January – September 2014 was Rp. 342.7 trillion or an increase of 16.8% compared to the same period of 2013 at Rp293.3 trillion. The realization of investment in Q3 2014 consist of domestic direct investment (DDI) amounting Rp. 114.4 trillion (33.4%) and foreign direct investment (FDI) at Rp. 228.3 trillion (66.6%).

Investment Realization Q4 2015


For further information, please click image below

Trade

Source: www.kemendag.go.id; *Preliminary Figures

Five main destination countries for non-oil & gas export with the highest value in 2011-2013 are China, Japan, USA, India, and Singapore. These countries contributed to 51% of total Indonesian export of non-oil & gas products.

Indonesia’s main export products are  palm oil, textile,  electronics,  rubber products,  wooden products, pulp, furniture, chemical products, metal products, machineries, processed food and automotive.

MP3EI

In 2011, the government of Indonesia launched the Master Plan of Acceleration and Expansion of Indonesia’s Economic Development or MP3EI which provides the building blocks to transform Indonesia into one of the 10 major economies in the world by 2025. By utilizing the MP3EI, Indonesia aims to earn its place as one of the world’s developed countries by 2025 with expected per capita income of US$ 14,250 – US$ 15,500 with total GDP of USD4.0 – USD4.5 Trillion.

To achieve these objectives, real economic growth of 6.4% -7.5% is expected for the period of 2011-2014. This economic growth is expected to coincide with the decrease in the rate of inflation from 6.5 percent in 2011-2014 to 3.0 percent in 2025.

The MP3EI development focuses on eight main programs, namely the development of Agriculture, Mining, Energy, Industry, Maritime, Tourism, Telecommunication, and Development of Strategic Zones. These eight primary programs consist of 22 main economic activities, ranging from steel, food and beverages, transportation equipment, shipping, nickel/copper/bauxite, rubber, food agriculture to oil & gas, tourism, animal husbandry and fisheries.

In addition, six economic corridors are identified as growth centers and are expected to boost economic development throughout the nation. Investors and businesses can therefore clearly choose their desired sectors and preferred regions according to their business interest and specialization in accordance with the key economic drivers of the six corridors.

The six economic corridors are:

1. Sumatera, designated as the Center for Production and Manufacture of Natural Resources and Energy Resources;

2. Java, driver for National Industry and Service Provision;

3. Kalimantan, center for Production and Processing of National Mining and Energy Resources

4. Sulawesi, center for Production and Processing of National Agricultural, Plantation, Fishery, Oil & Gas, and Nickel Mining;

5. Bali – Nusa Tenggara, gateway for Tourism and National Food Support

6. Maluku – Papua, center for Development of Food, Fisheries, Energy, and National Mining

Since its inauguration in 2011, the total value of groundbreaking investment projects from 2011 until August 2014 was IDR863.5 trillion, consisting of 383 projects, of which 174 are investment projects in the real sector. The groundbreaking projects are spread in six economic corridors: (a) IDR134 trillion (65 projects) in the Sumatera Corridor; (b) IDR309.7 trillion (102 projects) in the Java Corridor; (c) IDR177.3 trillion (94 projects) in the Kalimantan Corridor; (d) IDR69.9 trillion (50 projects) in the Sulawesi Corridor; (e) IDR53.8 trillion (33 projects) in the Bali – Nusa Tenggara Corridor; and (f) IDR108,7 trillion (38 projects) in the Papua and Maluku Corridor. (source: www.ekon.go.id)