Download Bismillahirrahmanirrahim, Assalamu‟alaikum

KEYNOTE ADDRESS
BY
DR. DARMIN NASUTION
GOVERNOR OF BANK INDONESIA
AT THE INDONESIA INVESTMENT FORUM
JAKARTA, 29 SEPTEMBER 2010
Bismillahirrahmanirrahim,
Assalamu‟alaikum warahmatullahi wabarakatuh,
Peace be upon us,
Distinguished Guests, Ladies and Gentlemen,
Let us start by expressing our gratefulness to God almighty. I am
honored to be here today having the opportunity to deliver a keynote in
this very special conference, the Indonesia Investment Forum 2010.
Distinguished Guests, Ladies and Gentlemen,
During the 2008-2009 worldwide contraction, Indonesian economy
still enjoyed a positive growth of 6.0% in 2008 and 4.5% in 2009, mainly
due to high and inclusive growth of domestic demand particularly
consumption. We are now at end the the third quarter of 2010, the period
of increasing challenges for the Indonesian economy. In the second
quarter of 2010, our economy grew by 6.2% amidst persistent risks from
global uncertainties, particularly with regard to the slowdown in China's
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economy and the bleak outlook for US economic recovery. The major
improvement was a result from increase in exports and investment, while
private consumption has remained strong. By far, the economic data has
led us to believe that our economy, in line with the global development, is
moving toward better state.
I would like to reassure you that Indonesia‟s economic outlook is
indeed still favorable. Bank Indonesia‟s latest projection shows that the
2010 growth will reach the upper level of 5.5-6.0% range and in 2011 will
be 6.0-6.5%. Furthermore, the economy is expected to gradually return to
the trend growth rates of around 7.0 percent thereafter, supported by the
upturns in export growth following ongoing global economic recovery as
well as investment acceleration.
Stable rupiah is expected to damp pressure from higher commodity
prices and pave the way towards lower inflation expectation. Renewed
inflationary pressures have been noted with CPI inflation in August
reaching 0.76% (mtm) representing an annual rate of increase in the CPI
at 6.44% (yoy).
Alongside this, core inflation in August 2010 came to
4.53% (yoy). Going forward in 2011, apart from uncertainties in food
prices, inflationary pressures could also be spurred, partly, by an increase
in demand. We will keep a close watch on the rising inflationary pressure
and do any necessary monetary policy responses. While taking careful note
in those concerns, we are still confident with the current level of policy
rate, 6.5%.
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On the external side, our strong balance of payment posted a
significant surplus of USD 5.4 billion in the second quarter of 2010. Key to
this surplus has been positive contributions from both the current account
and the capital-financial account. The current account surpluses of USD 1.8
billion have been resulted from the upbeat performance in non-oil-and-gas
trade balance, gas trade balance and the current transfer.
Within the same period, the capital-financial account recorded a
surplus of USD 3.3 billion. All major components of the capital-financial
account - direct investment, portfolio investment and other investments recorded a surplus. As of August 2010, inflows of FDI capital were up
significantly, although portfolio capital inflows remain dominant in line with
positive foreign investor views of the Indonesian economy outlook. This
has contributed to a sizeable accumulation of official international reserves,
the total of which has approached USD 81.3 billion, providing Indonesia
with strong cushion against external shocks.
Favorable development of the economic fundamentals along with
ample market liquidity will increase the stability of financial sector,
especially in banking industry. This industry has been run prudently,
reflected in the well-maintained capital adequacy ratio of 16.55% and safe
level of gross non-performing loans of 3%, the July 2010 figures show. The
intermediary function effectiveness is significantly improving, indicated by
by high credit expansion of 20.29% (yoy) as of August 2010.
The latest figures on Indonesia‟s external debt, both public and
private, are showing a stable condition. Total outstanding of external debt
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in July 2010 was USD 186.9 billion, USD 109 billion for public and USD 77.9
billion for private. Q2-2010 external debt vulnerability was improved
vis-a-vis the previous quarter; the Q2 ratio of debt-to-GDP was 29.0% and
the short-term-debt-to-reserves ratio was 44.1%.
Distinguished Guests, Ladies and Gentlemen,
The year of 2010 seems to be filled with a continuous series of good
news as the acknowledgements of previous hard works. Our optimism is
also supported by latest assessment in the perception indicators such as
yield spreads, sovereign ratings, CDS spreads, and Credit Risk Classification
(CRC) - OECD.
Without intending to be too big for my boots, please allow me quote
The World Economic Forum‟s Global Competitiveness Report 2010-2011
which was released on September 9, 2010. “Indonesia is now in the 44th
position. It posts an impressive gain of 10 notches, mainly driven by a
healthier macroeconomic environment and improved education indictors.
Indonesia managed to maintain a relatively healthy macroeconomic
environment throughout the crisis. While most other countries saw their
budget deficits surge, Indonesia kept its deficit under control. Public debt
remains low at 31 percent of GDP, and savings rose to 33 percent of GDP.
Moreover, Indonesia has improved across all education-related indicators
included in the GCI”.
From rating agencies, Japan Credit Rating Agency (JCRA), Ltd on July
13rd, 2010 upgraded Indonesia's sovereign rating to Investment Grade
from BB+ to BBB- with stable outlook. In its report, JCRA mentioned that
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this first upgrade to reach investment grade in the last 13 years reflects
enhanced political and social stability, sustainable economic growth,
alleviated public debt burden as a result of prudent fiscal management,
reinforced resilience to external shocks stemming from the reserves
accumulation and improved capacity for external debt management, and
efforts made by the current administration to outline the framework to deal
with structural issues such as infrastructure development.
Moreover, on June 21st, 2010 Moody‟s Investors Service revised the
outlook of Indonesia‟s foreign and local-currency Ba2 sovereign debt
ratings, from stable to positive.
Organization for Economic Cooperation and Development (OECD)
upgraded Indonesia‟s Credit Risk Classification (CRC) from category 5 to 4
on April 2nd, 2010. Indonesia was the only country of 161 countries that is
given a CRC upgrade in the latest OECD committee meeting in April 2010.
The main factor supporting the upgrade is a list of Indonesian impressive
macroeconomic indicators, as the economy is one of the most resilient
amid the global financial crises and one of few countries that experienced
positive economic growth in 2009. This upgrade would significantly
improve Indonesia‟s credit standing in front of the creditor countries
especially the credit exports creditor countries which eventually would
decrease the debt burden.
Prior to this upgrade, Standard & Poor‟s upgraded Indonesia‟s longterm foreign currency rating from BB- to BB with positive outlook in March
12nd, 2010, which indicates that Indonesia has a good possibility to be
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upgraded within a year, or even faster. The main factor supporting this
decision are steadily improving debt metrics and growing foreign currency
reserves which reduced vulnerability to shock with continued cautious fiscal
management.
Also, Fitch Ratings upgraded the Republic of Indonesia‟s sovereign
rating from „BB‟ to „BB+‟ with stable outlook earlier in January 25th, 2010.
The rating action reflects Indonesia‟s relative resilience to the severe global
financial stress test of 2008-2009 which has been underpinned by
continued improvements in the country‟s public finances.
Distinguished Guests, Ladies and Gentlemen,
We do realize that it is not going to be an easy task to be sustained,
but Indonesia will put everything to move forward, generate higher growth
and reach the investment grade. Overall, so far we have proved that we
have a strong willingness to improve the condition.
However, despite these achievements, challenges are waiting in front
of us and hence much improvement and breakthroughs are still needed.
We are now focusing to facilitate and promote longer term investments,
maintain markets confidence especially on short-term investment, and thus
prevent the economy from sudden reversal. Attracting more significant
long term capital inflows while having a stable exchange rate are the
biggest challenge for a stable macroeconomic condition.
Gaps in infrastructure are acknowledged and rooms to improve the
investment climate are detected. Indonesian government has taken steps
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to address different aspects of investment climate through policy reform
packages covering key areas of concerns, mainly from private investors,
such as taxes, customs, investment frameworks, and the financial sector.
On the institutional transformation, the government is working to set
up institutional frameworks, coordinating mechanisms and enhanced
governance. On the provincial side, a number of sub-national governments
have undertaken major reforms in their public sector systems, introducing
among others, the performance-based budgeting and one-stop public
services. Indonesian investment coordinating board (BKPM) has formed the
one-stop-shop system (PTSP) to cut bureaucratic red tape and allow
investors to process business licenses faster.
Distinguished Guests, Ladies and Gentlemen,
I am very optimistic on the direction of the Indonesian economy
ahead, the improvement in investment climate and therefore expect that
you all share that same view. Before I complete my remarks, I would like
to extend my sincere gratitude to the organizer and all distinguished
speakers who have dedicated their valuable time with us today, just to
share. For that reason, let us now proceed with the conference. I wish all
of you a fruitful and enjoyable discussion.
Thank you. Wassalamu‟alaikum Wr. Wb.
Dr. Darmin Nasution
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