Download Reducing Poverty: A Challenge

Economic and Social Update
April 2008
William E. Wallace, Lead Economist
World Bank, Indonesia
April 1, 2008
Indonesia had sustained GDP growth in 2007
%
%
Year-on-year
6
6
4
4
2
2
0
0
Quarterly
(seasonally adjusted)
-2
-2
2001
2002
2003
2004
2005
Sources: BPS; World Bank seasonal adjustment
2006
2007
Largely on domestic drivers
7.0%
48%
6.5%
6.0%
36%
Total GDP
(LHS)
Net Exports
RHS
24%
5.5%
12%
5.0%
0%
4.5%
-12%
Consumption
RHS
Investment
RHS
4.0%
-24%
Q1
Q2
Q3
2005
Q4
Q1
Q2
Q3
2006*
Q4
Q1
Q2
Q3
2007*
Q4
With capital goods and construction up &
consumption rebounding on falling interest rates
Investment
Consumption
(percentage change)
(percentage change)
80%
50%
Imported
capital goods
60%
Consumption credit
growth (y-o-y, LHS)
40%
15%
12%
SBI 1 month rate
40%
30%
20%
20%
Construction
0%
(RHS)
Total nominal consumption
growth (y-o-y, LHS)
6%
10%
Investment
9%
3%
(quarterly, SA)
-20%
0%
Domestic
0%
Total real consumption growth
(quarterly, seasonally adjusted; RHS)
-40%
2003
-10%
2004
2005
2006
2007
-3%
2004
2005
2006
2007
Which, in turn, supported a turn around in
employment growth
(and reduced unemployment)
15%
10%
Employment growth
(RHS)
12%
5%
Unemployment
(LHS)
9%
0%
6%
-5%
3%
-10%
2000
Source: BPS
2001
2002
2003
2004
2005
2006
2007
Trends continued
and services & Utilities continued strong
while tradables were mixed
%
10
Tradables
Agriculture
Manu
Mining
Non-tradables
Transport
Construct'n
Trade, restaur. Finance
Utilities
Services
8
Total
GDP
6
4
2
0
-2
Nontradables
Tradables
Q1
05
Q2
05
Q3
05
Q4
05
Q1
06
Q2
06
Q3
06
Q4
06
Q1
07
Q2
07
Q3
07
Q4
07
Domestic economy is drawing in imports;
while higher commodity prices supported exports
Growth (%)
25
Year-on-year percentage change
40
**
30
19.2
18.8
15.3
Non-oil
Exports
20
20
15
13.4
10.7
**
10
10
8.5
7.6
7.7
5.4
Non-oil
Imports
5
0
0
2005
-10
Volume growth
Mar-05
Sep-05
**Preliminary
Source: BPS Trade Statistik
Mar-06
Sep-06
Mar-07
Sep-07
2006
Price growth
2007
Growth of value of non-oil exports
But Indonesian exports are becoming less
dependent on the US
(and more on China and India)
Market Share in Non-Oil/Gas Exports
Contribution to Growth of Non-Oil Exports
19
20
17
18
15
16
14
12
11
%
%
13
10
9
8
7
6
5
4
3
2
1
0
2000
2001
2002
2003
2004
2005
2006
2007
China
India
Japan
Malaysia
Singapore
United States
China
India
2004
Japan
2005
Malaysia Singapore United
States
2006
2007
And commodities drove Indonesia’s stock market to
one of the best performances in the world
Equity Price Indices
1/2/2006=100
260.00
240.00
220.00
Jakarta Stock Exchange (JSE)
200.00
MSCI Emerging
Market
180.00
160.00
140.00
120.00
100.00
80.00
Jan-06
MSCI Developed Market
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
But challenges are mounting as oil prices
put pressure on fiscal policy
Central government debt
Central government balance
Percent of GDP
22%
Expenditure
(LHS)
19%
Percent of GDP
100%
S.O.E.s
Commerical
Export credit
Multilateral
Bilateral
Domestic
80%
3%
60%
Revenue
(LHS)
0%
16%
Proposed
Balance
13%
40%
(RHS)
(RHS)
Realized
-3%
20%
(RHS)
-6% 0%
10%
2000 2001 2002 2003 2004 2005 2006 2007*2008**
2000
2001
2002
2003
2004
2005
2006
2007
And energy subsides risk crowding
out other spending
(and distorting incentives)
180
50%
40%
Electicity
120
30%
20%
60
Fuel
10%
0%
0
Subsidies
Capital investment
Social assistance
Source: Ministry of Finance, 2008 RAPBN-P. Assumes oil at US$95.
1
Poor
2
3
4
5
6
7
8
Household consumption decile
9
10
Rich
And Indonesia’s Fuel Prices are Very Low
(even adjusted for income)
Gasoline price (US cents/liter)
UnitedKingdom
KoreaRep
Japan
150
125
100
Singapore
75
China
50
25
0
100
Malaysia
Indonesia SaudiArabia
Venezuela Iran
Yemen
1,000
10,000
GDP per capita (log scale)
UnitedStates
UnitedArabEmirates
100,000
While other commodity prices
feed into domestic food costs
(with rice an exception)
CPI inflation
Wholesale & international rice prices
Year-on-year percentage change
%
IDR
5,000
Import
ban
Domestic
wholesale price
15
Food
4,000
10
3,000
Headline
5
2,000
Core
0
2004
2005
2006
2007
2008
1,000
2000 2001 2002
International
prices
(Vietnamese, 25%
broken, cif)
2003 2004 2005
2006 2007 2008
And borrowing spreads are rising, but remain
low in historical perspective
120
110
100
Emerging Market Spreads, January 2003=100
Indonesia Bond
Spread over US
90
80
JP Morgan US High Yield Spreads
70
60
50
40
30
EMBI Global
20
Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08
Source: Bloomberg
And International conditions continue to deteriorate
Industrial production growth, year on year (%)
9
OECD leading
indicator
6
OECD IP
3
0
-3
-6
2000M1
Source: World Bank, DECPG.
2002M1
2004M1
2006M1
2008M1
The global outlook for 2008
2005
Prelim.
Projected
2007
2008
2006
Real GDP growth (annual % change):
World
3.4
3.9
3.6
2.7
OECD
2.4
2.8
2.5
1.5
United States
3.1
2.9
2.2
0.4-1.4
Japan
1.9
2.2
2.1
1.5
Euro Area
1.5
2.8
2.7
1.6
Developing East Asia Pacific
9.1
9.7
10.2
8.8
World trade (% change in
volume)
7.8
10.1
9.2
4.5
CPI inflation G7 (% change)
2.0
2.0
1.7
1.7
Oil Price (USD per barrel)*
53.4
64.3
71.2
86.8
Non-oil commodity prices (%
change)
13.4
24.5
-0.7
13.4
Simple average of spot prices of U.K. Brent, Dubai, and West Texas Intermediate crude
oil.
Source: World Bank Development Economics Prospects Group (preliminary, March 2008)
*
But developing and high-income country growth
has been diverging
9
8
7
Developing countries
6
5
4
3
2
1
High-income countries
0
-11962
1967
1972
Source: World Bank, DECPG.
1977
1982
1987
1992
1997
2002
2007
With developing countries providing more
momentum especially to trade growth
Contribution to global nominal import growth in US$, year on year (%-points)
10
Developing countries
5
0
United States
-5
1991M1
1993M1
Source: World Bank, DECPG.
1995M1
1997M1
1999M1
2001M1
2003M1
2005M1
2007M1
But Indonesian growth to slow moderately
The outlook for the Indonesia economy
2006
GDP growth
2007
2008
2009
5.5
6.3
6.0
6.4
NIA real export growth
9.4
8.0
7.0
8.6
Fixed investment growth
2.5
9.2
10.5
10.0
BOP Current account (% of GDP)
2.7
2.5
1.7
0.9
BOP Capital account (% of GDP)
0.7
1.4
1.3
1.6
42.6
52.9
71.8
87.0
Central government bal. (% of GDP)
-0.9
-1.3
-2.2
-2.1
Government debt (% of GDP)
39.6
34.4
31.9
30.3
CPI Inflation (%)
13.1
6.6
6.5
5.5
Key policy interest rate (1 m SBI)
12.0
8.0
7.5
7.25
Foreign reserves (Bill.$)
Overview Indonesia
• 2007 was a good year
– Solid output growth
– Accelerating investment and
– Better employment outcomes.
• And there are strengths going forward
– Domestic momentum from credit expansion and growing infrastructure
investment.
– Relatively smaller trade shares (i.e. more focus on the domestic economy) with
trade concentrated in commodities where prices are expected to continue
relatively strong
– Reduced government debt exposure (<35% of GDP)
– Little exposure in the Banking system to the sub-prime debt
• But weaknesses as well
– Higher food prices feeding through into higher inflation and social insecurity
– A high subsidy burden on the budget from controlled domestic fuel prices
– High government borrowing needs
Thank You!
While growth and investment have fed into higher
imports and commodity prices supported exports
Description
January - December
in billion USD
2005
share to total
growth (%)
yoy (%)
2006
2007
2006
2007
2006
2007
Total Export
Non-oil and Gas
85.7
66.4
100.8
79.6
114.0
91.9
17.7
19.8
13.1
15.5
100
86.93
100
93.41
Oil and Gas
19.2
21.2
22.1
10.3
4.1
13.07
6.59
Total Import
Non-oil and Gas
Oil and Gas
57.7
40.2
17.5
61.1
42.1
19.0
74.4
52.5
21.9
5.8
4.6
8.6
21.9
24.8
15.5
100
55.26
44.74
100
78.02
21.98