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Anton H. Gunawan ~ Chief EconomistPT. Bank Mandiri (Persero), Tbk.Jakarta: January 8th, 2019
Indonesia’s Economic Outlook 2019 and Key Economic Challenges
1
New tariffs → Trade war• Washing machines (20%) and solar panels (30%)• Aluminum (10%) and steel (25%)• List of Chinese products worth USD34 bn (25%)• List of Chinese products worth USD16 bn (25%)• List of Chinese products worth USD200 bn (10%)
US Monetary PolicyTrumponomics
Monetary policy normalization• 100 bps increase in total in 2018, two
times year and no more in 2020
China’s Economy
Monetary Policy in EU and Japan
Balance sheet reduction • Fed’s balance sheet will shrink from
USD4.5 tn to USD2.5 – 3 tnTrend of US Dollar appreciation • Fiscal stimulus boost growth, making investments in
USA more attractive• USD appreciated mostly against EM currencies • ECB & BOJ will remain accommodative
this year • ECB is expected to hike rates next year• BOJ is expecting inflation to reach 2%
next year
Chinese economic slowdown• Chinese GDP growth is expected to slow
from 6.9% last year to 6.6% this year and 6.4% next year
Weakening Yuan• Possibility of competitive devaluation on
the brink of trade war with US
Excessive debt levels• Aggressive fiscal stimulus could add to
excessive debt levels
Global economic and geopolitical uncertainties
Geopolitics • Brexit prospect: soft Brexit or hard Brexit?• Middle east tensions: Saudi-Turkey-Iran tensions
and their impact to oil price • Elections in emerging markets (India, Indonesia,
Philippines, Thailand and South Africa)
2
China inclusions in several Global Financial Indices:• Both on equity and bond markets
may lead to EMs’ weight dilution• Aramco IPO plan (big ticket size), may
also dilute EM’s weight in Indices.
Source: Bloomberg
Impact of Global Monetary Tightening and Trade WarGlobal monetary tightening and trade war will slow down global economic growth
5.2
4
4.1
8
4.0
0
4.0
7
3.8
7
3.7
6
3.6
0
2017
2018
2019
2020
2021
2022
2023
Global Trade Volume Growth (%)
2018F 2019F 2020F
2.5 3.25 3.5
-0.1 0.0 0..0
0.0% 0.10 0.50
GlobalMonetary Tightening (%)
3.7
3
2.8
8
6.6
0
3.6
5
2.5
4
6.1
8
3.6
6
1.8
2
6.2
2
3.6
4
1.7
3
6.0
0
3.5
8
1.4
8
5.7
5
3.5
9
1.3
8
5.6
0
World United States China
2018 2019 2020 2021 2022 2023
Global Economic Growth (%)
2018F 2019F 2020F 2021F
73.88 75.63 71.75 69.40
102.78 91.52 84.59 93.50
2318 2325 2400 2550
Commodity Price
Notes : Oil in USD/Bbl, Coal in USD/t & CPO in RM/MTSource: Bloomberg Estimate
Oil
Coal
CPO
Trade War
Source: IMF
Source: IMF
Capital Outflow from Emerging Markets
China’s Great Rebalancing
GlobalDemand
US-China Trade War causes US and China’s exports to reduce,
leading to less imports from other countries
Increasing investors’ appetite for safe-haven assets
• Debt-cutting efforts• Falling in investment
3
4
Economic Data Latest YTD Prognosis 2018 2018F 2019F
CAD (% to GDP) 3.02a 2.63 2.88 3.0 – 3.1 2.5 – 2.6
GDP growth (% yoy) 5.17b 5.17 5.18 5.16 5.20
Inflation (% yoy) 3.16c 2.22 3.22 3.10 4.00
BI 7DRR (%) 6.00c 6.00 6.00 6.00 6.50
Latest macroeconomic data and forecastMacro indicators are mostly better than expected
Note: a) as of 2Q18 b) as of 3Q18 c) as of Nov-18
“Stability while maintaining the momentum of growth”
Facing a trade off: Current Account Deficit reduction (and thus tightening policies) versus maintaining strong economic growth
Argentina Brazil China India Indonesia Korea Malaysia Philippines South Africa Thailand Turkey
External Financing Vulnerability Index: 0.87 0.27 0.33 0.47 0.6 0.27 0.53 0.4 0.67 0.27 0.87
Current Account Balance/GDP (%, 2018f) -5.2 -1 0.7 -2.8 -2.4 4.7 2.3 -1.9 -3.3 8.1 -5
(Current Account Deficit -Net FDI)/GDP (%, 2018f) -3.1 2.9 2.2 -1.2 -0.6 5.5 4.2 1.5 -2.2 9.9 -3.8
Reserve Coverage Ratio (2018f) 0.4 2.5 2.9 1.6 0.8 1.6 1 2.5 0.8 1.7 0.3
Short-Term External Debt/Total External Debt (%, 2018f) 33 7 57 19 14 25 41 20 21 40 26
External Debt/GDP (%, 2018f) 60 36 15 22 34 29 58 23 46 27 60
Domestic Financial Vulnerability Index: 0.4 0.43 0.48 0.38 0.57 0.43 0.57 0.67 0.48 0.43 0.67
Non-Financial Corporate Debt/GDP (%, ∆ in 2013-2018) 1 -1 28 -7 4 -5 8 14 7 2 27
Households Debt/GDP (%, ∆ in 2013-2018) 1.3 0 19 2.1 1 16 3 5 -7 6 -2
Private Sector Real Credit Growth (% y/y, 2012-17 average) 3 1 14 4 8 5 6 13 0 6 12
Consolidated Foreign Claims/Domestic Credit (%, 2018) 52 17 5 15 42 13 39 19 23 29 70
Foreign Holdings of Local Currency Govt. Debt (%, Jun, 2018) 12 3 4 38 12 25 40 16 17
Foreign Holdings of Equities (%, Dec, 2017) 15 36 10 21 18 28 13 15 29 19 20
Nominal Home Prices (% y/y, 2013-2018 average) 2.2 3.7 11.4 6.1 1.7 8.1 10.7 5.9 3.8 14.1
Policy Vulnerablity Index: 0.72 0.61 0.33 0.61 0.39 0.22 0.28 0.67 0.56 0.33 0.72
2018-End Inflation Forecast (vs. Central Bank Target) 47.3 (17.0) 4.2 (4.5±1.5) 2.0 (~3.0) 4.0 (4±2) 3.5 (4±1) 2.1 (2.0) 0.6 (2.5-3.5) 6.9 (3±1) 5.0 (3-6) 1.4 (2.5±1.5) 26.0 (5±2)
Current Real Interest Rates 12.7 2.3 1.1 2.7 2.5 -0.4 2.7 -2.1 1.8 0.4 -2
Fiscal Balance/GDP (%, 2018f) -3.8 -7.3 -4.2 -6.6 -2.1 2.4 -2.7 -1.1 -3.9 -0.8 -4.9
Gross Government Debt/GDP (%, 2018f) 63 88 50 70 30 40 55 40 56 42 32
World Bank Worldwide Governance Indicators (2018 release) 0 -0.2 -0.3 -0.1 -0.2 0.8 0.3 -0.3 0.1 -0.3 -0.5
WEF Global Competitiveness Index (2017-18) 57.5 59.5 72.6 62 64.9 78.8 74.4 62.1 60.8 67.5 61.6
Parliamentary/Presidential Elections in 2019-20 19-Oct 19-May 19-Apr 19-May 19-May 19-Feb
Indonesia looks better than some EM Peers (Argentina, Turkey, S. Africa)
5Source: IIF (2018) “Heat Map of Emerging Markets Vulnerabilities,” Latest Update, December
Pressures on External Balances 1/2: rising CAD & de-industrialization
6
Sett
ing
the
fra
mew
ork
oil
Primary Income
Transport
Other Services
Non-Oil&Gas
Travel
The BoP pressure: is the factor global, domestic, or both?
Source: CEIC
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
0
2
4
6
8
10
12
-30
-20
-10
0
10
20
30
40
50
Mar
-11
Sep-1
1
Mar
-12
Sep-1
2
Mar
-13
Sep-1
3
Mar
-14
Sep-1
4
Mar
-15
Sep-1
5
Mar
-16
Sep-1
6
Mar
-17
Sep-1
7
Mar
-18
Correlation between capital goods import and
investment
Capital goods import (% YoY) GFCF (% YoY) - RHS
-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)
7
Pressures on External Balances 2/2: declining financial & capital inflows
8
Sett
ing
the
fra
mew
ork
Indonesia’s economic growth still heavily dependent on the prospects of commodity prices
Every 1 point increase in commodity price index contributes to 0,004% increase in Indonesian economic growth
0
100
200
300
400
500
600
0
1
2
3
4
5
6
7
8
9
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
(Co
mm
od
ity In
dex o
f To
p F
ive E
xp
orts
)
(Eco
no
mic
Gro
wth
in
% (
t+2))
Commodity Price and Economic Growth
GDP YoY Growth (t+2)
Commodity Index of Top Five Exports
y = 0.0041x + 4.1818R² = 0.202
0
1
2
3
4
5
6
7
8
9
150 200 250 300 350 400 450 500 550 600(E
co
no
mic
Gro
wth
in
% (
t+2))
(Commodity Price Index of Top Five Exports)
Commodity Price and Economic Growth Relationship
Sources: Trade Map, CEIC, Bank Mandiri calculation
9
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’ asset quality
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 services10
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
11
12
Improving investment climate (1/2)
Source: Taken from Republic of Indonesia (2018) “Stability at the Forefront Synergized Reform Moves,” November
13
Vietnam
Indonesia
Thailand
Malaysia
Singapore
25
23.5
13.2
13
8.1
Sources: Pelindo II, Ministry of Transportation
5.164.35
3.36 3.54
2014 2015 2016 2017Source: Indonesia Logistics and Forwarder Association (ALFI)
6.2 6.3 7.0 7.6 8.08.8 9.4 9.7
11.5
14.0
17.0
9.410.6
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018target
8M2017 8M2018
Sources: Indonesia Central Bureau of Statistics (BPS)
Number of Foreign Tourists Visiting Indonesia
Dwelling Time in Jakarta International Container Terminal (days)
9,5%
CAGR
Logistic Cost in South East Asia Countries(% to GDP)
1
3
2
Improving investment climate (2/2)
Sources: The Global Competitiveness Report 2017 - 2018
Indonesia still needs to further improve infrastructure quality
GDP 2017(USD Bn)
Competitiveness Ranking
12
13
18
66
199
294
313.6
313
374
873
0 1000
Brunei
Laos
Cambodia
Myanmar
Vietnam
Singapore
Philippines
Malaysia
Thailand
Indonesia 36
32
23
56
3
55
na
94
98
46
Infrastructure Ranking
52
43
22
97
2
79
na
106
102
60
65,065
8,4282,623 2,350 1,016
China Japan SouthKorea
Malaysia
Indonesia
Toll Road Length Among Asian Countries
(Km)
Sources: BJPT
9.6 0.38 0.1 0.33 1.97
Country Land Area (Million Km2 )
14
Government is currently still the major source of infrastructure financing development
15
Sources of infrastructure financing
-
100
200
300
400
500
600
2015 2016 2017 2018
Equity FinancingCorporate BondCommercial Bank LoanDeveloment Bank LoanGovernment
Sources: OJK,Bloomberg, ADB, WB, JICA, IDBNotes: Donors Disbursement in 2017 and 2018 are incomplete
86114.2
145.5 155.9 154.7
256.1269.1
388.3410.7
2010 2011 2012 2013 2014 2015 2016 2017 2018(APBN)
Government Infrastructure Spending (IDR Trillion)
Source: Ministry of Finance
42 51 59 71 83 94 101 124 154 149 17841 57 76 93 101 118
162180
205 230
294
3847
4360
6765
5443
53 43
44
2010 2011 2012 2013 2014 2015 2016 2017 1H2018 2018P 2019P
Logistics Utilities Oil and Gas
121154
178223 252
277318
347
422
517
17,0%
CAGR412
Bank Loan to Infrastructure Projects
Value Added Constant Per Employment in Indonesia By Sector
Indonesia’s GDP Structure By Sector
*Utilization sector includes Electricity, gas, waterSource: 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
200
1
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
2010
2011
2012
2013
2014
2015
2016
2017
Mill
ion
IDR
/Em
plo
ymen
t
Agriculture Mining
Manufacturing Utilisasi
Services
17
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 CompletedPrimary School
Primary School
Junior High School
Senior High School
Vocational high school
Diploma I-III/Academy
University
Aug-17
Aug-16
Aug-15
Source: Sakernas, BPS
Total Employment in Manufacturing Sector By Education (Million People)
50.2
43.3
32.1
15.517.9
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 speedEmployment quality in manufacturing sector relatively low. 57% of employment in manufacturing sector educated below Senior High School
18
Food products
Beverages
Tobacco products
Textiles
Wearing apparels
Leather & related products & footwear
Wood, cork, except furniture; articles of straw
& plaiting
Paper & paper productsPrinting & reproduction
of recorded media
Coke & refined petroleum products
Chemicals & chemical products
Pharmaceuticals, medicinal chemical &
botanical products
Rubber & plastic productsOther 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
Othermanufacturing
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 2010-2015Source: Industrial Statistic, BPS 19
Mapping of Medium and Large Manufacturing Industry 2010-2015% Exported Product vs Productivity
*Bubble Size show total labor on average in 2010-2015Source: 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
Electricalequipment
Machinery & equipment n.e.c
Motor vehicles, trailers &semi-trailers
Other transport
equipment
Furniture
Othermanufacturing
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
20
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”21
Labour Force Composition (%)
24
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)
25
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
0
2
4
6
8
10
12
14
16
18
15-19 20-24 35-39 40-44
Underemployment Rate by Age (%)
2015 2016 2017
8.99.7
6.9
5.7
7.48.4
6.9
5.5
8.0 8.4
6.9
4.8
0123456789
10
Never attendedschool
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
Source: Sakernas (BPS)
26
19.7
21.0 21.422.0
22.6
24.123.2
14.214.7
15.3 15.716.8 16.5
17.1
4.4 4.14.8 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 0.80
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)
Source: Sakernas (BPS)
27
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
sR
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)
29
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
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
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
30
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
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
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
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2011 2012 2013 2014 2015 2016 2017
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
31
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
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
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
32
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
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
0
20
40
60
80
100
120
140
2012 2013 2014 2015 2016 2017
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
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
33
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 DepositJune 2018
49
36
277
213
202
121
84
71
77
64
57
60
61
61
41
4456
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
Comparison of asset, market cap, loan, and Deposit of
ASEAN banksSingaporean banks still dominate in terms of total asset, loan and deposit
Source: Bloomberg, Bank Mandiri
34
DIMENSION MATRIX FOR ASSESSMENTCURRENT
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)
2015Current
Current status relatively same as in 2015
35
DIMENSION MATRIX FOR ASSESSMENTCURRENT
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
2015Current
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)
Source: World Federation Exchange, IDX, OJK, Mandiri analysis. *As of August 2018. 36
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 598613 639 656 688 692775 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 status2015CurrentIssuers (equity market)
37
Meanwhile, the number of issuers in the bond market does
not grow significantly
Metrics
Number of issuers
106 110 110 115 113569 493 433 381 344
1,842 1,930 2,039
2,7653,286
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)
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
40
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%
poor low-expend mid-expend high-expend
2013 food 2013 non-food
65% 64%56%
35%
35% 36%44%
65%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
poor low-expend mid-expend high-expend
2015 food 2015 non-food
67% 65%58%
40%
33% 35%42%
60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
poor low-expend mid-expend high-expend
2017 food 2017 non-food
Source: Susenas (BPS)
41
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
poor low-expend mid-expend high-expend
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
poor low-expend mid-expend high-expend
Tho
usa
nd
s R
p
Spending for pre/post paid cellular
2013 2015 2017
1 15
32
1 3
13
65
3 7
25
87
-
10
20
30
40
50
60
70
80
90
100
poor low-expend mid-expend high-expend
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)
42
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
poor low-expend mid-expend high-expend
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
poor low-expend mid-expend high-expend
Tho
usa
nd
s R
p
Spending for clothing
2013 2015 2017
Source: Susenas (BPS)
43
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
poor low-expend mid-expend high-expend
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
poor low-expend mid-expend high-expend
Tho
usa
nd
s R
p
Spending for land transport
2015 2017
3
54
4
67
-
10
20
30
40
50
60
70
80
poor low-expend mid-expend high-expend
Tho
usa
nd
s R
p
Spending for air transport
2015 2017
Mid-expend people spend more for air transport and accommodation
Source: Susenas (BPS)
45
Internet still luxurious good: consumed by higher spending groups
Internet Purpose Number of People (2017)
News & Info 51,652,374
School Assign 19,847,521
Email 16,186,523
SocMed 60,715,691
Entertain 34,582,406
Trade Act. 8,299,532
e-Banking 3,896,740
Total people accessing internet reach 76.7 million in 2017. The rest, about 160.4 million never touch internet in the last 3 months in 2017.
However, people tend to use this technology with unproductive purposes (75%): Entertainment (games, video, streaming), Social-Media, News/Info
While the use for e-Banking only reach 3.9 million (2%)
Source: Susenas (BPS)
0
5
10
15
20
25
1 2 3 4 5 6 7 8 9
Mill
ion
s
Number of People Accessing Internet in 2017 (Decile of Spending)
Yes No
46
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 AvgExpen
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 AvgExpen
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
Source: Susenas (BPS)
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 estimation48
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%
49
Source: World Bank Group
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
50
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%
99.1%93.8%
69.6%
SD SMP SMA
School Participation Rate (APS)
Wanita Pria
766 704
1,0861,022
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)51