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INDONESIA ECONOMY AND
ITS IMPROVED COMPETITIVENESS
Mahendra Siregar
Vice Minister of Trade
Republic of Indonesia
Business Forum
Taipei, July 9, 2010
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Asia Leads the World Economy
Out of Recession
2
World Output
15%
10%
5%
0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-5%
2006
2007
2008
2009
2010
-10%
World
Source: World Economic Outlook, IMF
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Advanced economies
Emerging economies
2011
Asia GDP Growth
Indonesia GDP growth forecast remain increase for the next five years ….
%
14.00
12.00
10.00
8.00
6.00
Country
2007 2008 2009 2010 2011 2012 2013 2014
China
13.01 9.01 8.50 9.03 9.73 9.84 9.77 9.51
India
9.37 7.35 5.36 6.42 7.28 7.63 7.99 8.08
Indonesia
6.28 6.06 3.99 4.75 5.00 5.50 6.00 6.30
Korea
5.11 2.22 (0.99) 3.55 5.20 4.97 4.66 4.54
Malaysia
6.18 4.63 (3.63) 2.52 4.05 5.50 6.00 6.00
Philippines
7.08 3.84 0.99 3.21 3.80 4.50 4.50 4.50
4.00
2.00
(2.00)
2007
2008
2009
2010
2011
2012
2013
2014
(4.00)
(6.00)
China
India
Indonesia
Korea
Malaysia
Philippines
Thailand
Thailand
4.93 2.59 (3.46) 3.71 4.50 5.00 6.00 6.00
Source: International Monetary Fund, World Economic Outlook Database, October 2009
Note : green column is estimated
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The “Factory East Asia”
 Some are member of the
Map 2: Intra-Asian Trade Flows, 2004
20 largest economies in
the world
 East Asia (excluding
Japan) exported US$3.5
trillion of goods, more
than one-fifth of the
World’s exports
 East Asia region itself is a
market of approaching 2
billion people;
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Source: IMF Direction of Trade Statistics.
Source: Gill, Kharas (2006)
Trade Integration in Asia Differs with Europe
Drivers of Intra-Regional Exports Growth
(1995-97 to 2005-07)
 Trade integration in
Asia is unique;
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 More than 70% of East
50
40
%
Asia exports growth are
manufacturing products
in which machineries,
electronics and
transport equipment
contribute more than
3/5;
60
30
20
10
0
-10
EA-Japan
EU
Agriculture materials, fishery, food
Oil and gas
CTF
Other manufactures
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Mining, minerals
Chemicals
Electronics, machinery, transp
Source: staff calculation from UN-COMTRADE
The Asian noodle bowl*
FTAs under negotiation
European
Free Trade
Association
Myanmar
Hong Kong, China
Brunei Darussalam
Canada
China
Cambodia
Korea
Thailand
A
S
E
A
N
Malaysia
Philippines
United States
A
S
E
A
N
Mexico
F
re
e
Chile
T
r
a
d
e
New Zealand
Panama
Indonesia
Japan
Singapore
Vietnam
Lao PDR
Jagdish Bhagwati invented “spaghetti bowl” to illustrate the
complexity web and rules of free trade agreements which is
proliferating
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India
A
g
r
e
e
m
e
n
t
Sri Lanka
Source: Haddad (2007)
Australia
Peru
Qatar
Kuwait
Almost all have trade deficits with China
2
0
-2
-4
-6
Trade Surplus with China (billion $)
-8
-10
-12
2008
8
2004
Source: ASEAN Secretariat
But increasing surplus with all other trade
partners
50.0
Trade surplus (billion $)
40.0
30.0
20.0
10.0
0.0
2004
-10.0
2008
with China
2004
2008
with EU & US
2004
2008
with Korea & Japan
2004
with All excl. China
-20.0
-30.0
Indonesia
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Malaysia
Philippines
2008
Singapore
Source:UN-COMTRADE
Thailand
Updates on Indonesia Economy
10
Indonesia GDP Growth 2005 – 2010
Consumption and Government
Replace by Trade and Investment
2005
2006
2007
2008
2009
Q-I
2010
Household Consumption
3,9
3,2
5,0
5,3
4,9
3,9
Government Consumption
8,1
9,6
3,9
10,4
15,7
-8,8
9,9
2,9
9,2
11,7
3,3
7,9
8,6
9,2
8,0
9,5
-9,7
19,6
12,35
7,6
8,9
10,0
-15,0
22,6
5,6
5,5
6,3
6,1
4,5
5,7
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Expenditure
Gross Fixed Capital
Formation
Export of Goods and
services
Reduced Imports of Goods
and Services
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Expenditure
Gross Domestic Product
Indonesia has Diversified Exports
Destination
Share of Exports by Country in 2000
Share of Exports by Country in 2009
2009 (annualized)
2000
Japan
16%
Japan
23%
Others
41%
USA
9%
Others
49%
USA
14%
China
4%
Korea
7%
Singapore
11%
Singapore
9%
China
10%
Korea
7%
Source: Indonesia’s Central Board of Statistics
 Indonesia has succeeded in export market diversification. In 2000 the
contribution of the top five countries of destination was amounting to 59%.
The figure fell to 51% in 2009.
 Diversification of export destination countries has to be continued in order to
reduce too much dependence on a small number of countries.
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Indonesia Export Products Diversified
Jan-Feb 2010
Jan-Feb 2009
Other Products
49%
10 Main
Products
51%
10 Main
Products
45%
Other Products
55%
Growth (%)
Value Export (US$ Million)
COFFEE
SHRIMP
Jan-Feb '10
Jan-Feb '09
73.6
103.0
130.1
145.5
-10.6
TEXTILE'S
FOOTWEAR
AUTOMOTIVES
PRODUCT
1,459.7
335.9
279.8
20.0
1,125.3
1,454.0
234.1
179.8
Source: BPS (processed by
TREDA)
29.2
30.2
1,100.2
FOREST PRODUCTS
RUBBER&RUBBER
PRODUCT
13.3
15.7
OIL PALM
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1,653.9
352.0
304.2
ELECTRONICS
COCOA
-28.6
1,021.4
582.2
1,175.5
1,480.9
1,390.9
34.6
36.2
101.9
Imports reflect investment picking
up
Consumption
goods
8%
Capital goods
15%
Raw materials
78%
Jan-Mar 2005
14
Source: BPS (processed by
TREDA)
Consumption
goods
7%
Capital goods
19%
Raw materials
73%
Jan-Mar 2010
Effective Policy Responses in 2010
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Fiscal Incentive to Support Real Sector 2010
1. Incentive on Taxation
• Income tax rate decrease 3% and 5%
further and for listed companies in
ISX
• Non-taxable primary agriculture
product
• Abolishment part of Luxury Tax
• Income tax facilities for special
industry and location.
2. Energy
• Geothermal: Income Tax, VAT and
Financing
• Oil and Gas: VAT exploration
• Bio-energy: Subsidy and VAT
• Govt. guarantee: Electricity 10.000
MW (phase I and II)
3. Infrastructure
• Funding for land acquisition and land
capping
• Operational funding for Infrastructure
Fund and Guarantee Fund
• Guarantee for State Water Company
and clean water subsidy
16• Housing Finance
4. Trade and Industry
• NSW enactment, 24/7 services
in major terminals, and import
early warning
• Import duties -DTP special
industry
• Import duties 0% for capital
goods
• Revitalization fund for plantation
and sugar refinery industry
5. Other Sector – Local
• Incentive for local government
(Unqualified Opinion and Local
budget submission)
• Bureaucracy Reformation Fund
for 11 ministries/institution
(laws, finance and national
security)
• Capital injection for Indonesia
Exim Bank and Indonesia Credit
Insurance Company
Fiscal Policy to Promote Economic Recovery
Fiscal policy aims to promote economic recovery by providing tax incentives to various sectors and
businesses which further promotes private consumption and investment spending
Fiscal Policy for 2010 to Promote Economic Recovery
Incentives on
General
Taxation






Reduce income tax rate for corporations from 28% to 25%
Reduce income tax rate by 5% for listed companies with 40% public ownership
Provide income tax facilities for businesses in specific industries or areas
Free VAT for primary agriculture products
Eliminate many luxury tax items
Provide tax and custom incentive for special areas in accordance with law on tax and
customs
 Eliminate non tax revenue for export and import documentation
 Provide incentive for geothermal energy through income tax and VAT
Energy
Incentives
 Provide tax incentive on imports (both income tax and VAT on imports) for the oil and gas exploration
sector
 Provide incentive for green energy through VAT and subsidy
Incentives for
Industry
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 Provide custom incentives for selected industries
 Provide custom incentives for imported capital goods and capex
Fiscal Policy to Enhance Indonesia’s Competitiveness
The Indonesia government continues to support the development of infrastructure and enhance
social welfare through effective fiscal policy and incentives for specific sectors
Fiscal Policy for 2010 to Enhance Indonesia’s Competitiveness
Infrastructure
Development
and Social
Welfare
Assistance to
Support
Specific
Sectors
 Guarantee for 10,000 MW electricity program and IPP
 Additional funds for land clearing for toll road building
 Guarantee obligation for State Water Company; subsidy on interest for clean water, and interest
credit for State Water Company
 Subsidy and VAT for people’s housing (low income housing)







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Credit for green fuel development
Credit for farming and cow growers
Subsidy for fertilizers, seeds and inventory
Direct assistance for seeds at competitive price in order to revitalize plantation for cocoa and
sugar industry
Additional capital for Indonesia Exim Bank to finance export related activities, including for SMEs
Provide incentives for high performance regions (e.g. performance on financial, economic and
social welfare)
Resolution for troubled asset at SOEs, and SMEs loans
Bilateral Trade Relations
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Balance of Trade Between Indonesia - Taiwan
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Maintaining Indonesia’s Economic
Reform Agenda
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Improved Competitiveness
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Improving Efficiency in Import Procedures
 Improve efficiency in import procedures
 Create better tracking system of products with potential health and
safety hazards
Key points:
 Establish new registration system as part of National Single
Window program, which will ultimately be part of ASEAN Single
Window program – Registration requires 7 working days
with completed requirements
 Technical verification and investigation to be conducted as part of
creating tracking system
 Registered importers who have undertaken verification can go to
the green lane
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Opportunities for Trade and Investment
 Indonesia and Taiwan can serve as
production base:
 Indonesia is member of AFTA and other FTAs: ASEAN-
China and ASEAN-Korea, ASEAN-Japan, ASEAN- India,
ASEAN-ANZ;
 Come and join the 25th Indonesia Trade
Expo (largest trade expo in Indonesia)
 13 – 17 October 2010, Jakarta International Expo
http://www.nafed.go.id/ (National Agency for Export
Development)
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Several Competitive Advantages for Investors:
• Large domestic market
 Indonesia is a large and growing market (retail sales
are growing fast) and part of Asian market
•
•
•
•
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 Major expansions expected in infrastructure and
resource based sectors, as well as increasing the
competitiveness and value added of manufacturing
industries
Market-based macroeconomic policy
Potential outsourcing partners
Abundance of diversified natural resources
Strategic location
Summary
Government is committed to progressive
reforms
 Policies to support trade and investment
 Maintaining macroeconomic stability
 Strong and sustainable economic growth
 Enhance economic coordination and development
cooperation with other main global economies
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THANK YOU
www.depdag.go.id
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