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Indonesia Economy Forum


May 16, 2011
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Indonesian middle-class households grow richer: Survey
Publication Date : 23-07-2012
Esther Samboh

Indonesia's booming economy has turned middle-class households richer, with increases in net worth, assets, income and ability to repay loans, central bank latest survey shows. The 2011 survey also found that the middle class comprises 60.9 per cent of Indonesians, while the low income segment with a net income of below 20.4 million rupiah (US$2,162) per year was 22.1 per cent of the population and the remaining 17 per cent were those who have high income of more than 65.6 million rupiah ($6,953).

"Households' growth is driven by improving overall economic growth and manageable inflation. High GDP [gross domestic product] creates economic potential for the people," said Yunita Resmi Sari, deputy director of banking research and regulation department at the Bank Indonesia (BI).

"Improving household conditions also triggered consumption and therefore spurred economic activities," she added.

Southeast Asia's largest economy is more than 50 per cent driven by domestic consumption, and therefore stable prices are keys to maintaining the over 6 per cent economic growth seen since two years ago. Last year, inflation turned lower at 3.8 per cent, versus almost 7 per cent in 2010. Household disposable income also rose 12.9 per cent to an average of 37.7 million rupiah ($ 3,996) throughout 2011.

"The increase in household income in 2011 was primarily driven by a 46 per cent increase in production activities. Meanwhile, investment activities gained in 2011 compared with losses in 2010," Sari said. Other than production activities, which account for 15 per cent of overall household income, the increase in income was primarily supported by the service sector, contributing 58.5 per cent. Income from trading activities account for 20.8 per cent of overall Indonesian households income.

The improving conditions of Indonesian household finances has brought up overall assets and net worth by 14 per cent to an average of about 200 million rupiah each in 2011. Cash positions also soared 80.2 per cent to 16 million rupiah, boosting households' savings.

"Higher savings has also strengthened the financing source for development," Sari said.

But still, more than half of Indonesian households still do not have access to savings and loans at financial institutions, according to the central bank, which surveyed 4,095 households in big cities in Java, Sumatra, Kalimantan, Sulawesi and Bali.

"There's a large untapped market for banks in Indonesia in terms of savings and loans," Bank Mandiri chief economist Destry Damayanti said.

The ratio of household total debt to total assets was only at 3.3 per cent last year, down from 3.6 per cent in 2010, indicating that almost all of household assets were funded not by debt, but by people's own incomes, according to BI survey.

Meanwhile, the ability of Indonesian households to repay their loan was high given strong cash conditions, with an assets-to-short-term-debt ratio of almost 22 times.

"That's why Bank Mandiri and many banks are now strategising on tapping into the retail segment," Damayanti added.

"Now, we need to ensure that the strong economic growth is also felt by the low income segment," World Bank senior economist for Indonesia Vivi Alatas said.
Indonesian middle-class households grow richer: Survey

The low income comprises 22.1% with a net income of below US$2,162 per year

The middle class comprises 60.9% of Indonesians with an annual net income of US$2,162 to US$6,953

The high income comprises 17% were those who have high income of more than US$6,953

Household disposable income also rose 12.9 per cent to an average of $ 3,996 throughout 2011.

More than half of Indonesian households still do not have access to savings and loans at financial institutions, according to the central bank

The ratio of household total debt to total assets was only at 3.3 per cent last year, down from 3.6 per cent in 2010, indicating that almost all of household assets were funded not by debt, but by people's own incomes, according to BI survey.
Investors favour Indonesia over Asian rivals
Publication Date : 26-07-2012

Foreign direct investment, which is measured every three months, reached an all time high in the second quarter of this year as Indonesia becomes increasingly more attractive when compared to other emerging economies, the Investment Coordinating Board (BKPM) reports. The figure reached 56.1 trillion rupiah (US$5.89 billion), up by 30.2 per cent from 39.5 trillion rupiah in the same period last year.

Foreign direct investment made up 70 per cent of total realised investment in the country for the given period, which stood at 79.6 trillion rupiah. Singaporean investors led the pack with investment totalling 7.2 trillion rupiah, followed by American and Australian investors with 6.7 trillion rupiah and 5.7 trillion rupiah respectively.

"Currently, foreign investors see Indonesia as the most profitable country in which to invest their money," BKPM's newly appointed chairman M. Chatib Basri told reporters at a press briefing yesterday.

"Economic uncertainties in the West have made foreign investors turn to emerging economies. However, China is currently seeing slower economic growth, India has to cope with higher inflation, and Vietnam has had uncertainty in its exchange rate; making Indonesia the economy with the most stable outlook and the highest return of investment," he added.

Analysts said that foreign investors flocked to Indonesia mainly because of its robust annual economic growth, which stood at 6.3 per cent in the first quarter of this year, the second-highest among G20 members after China.

"Indonesia's macroeconomic indicators remain positive because its export sector only accounts for 28 per cent of its gross domestic product. China and India, meanwhile, depend heavily on exports, which have been hit the hardest by the current global economic slowdown," said Ahmad Erani Yustika, an economist at the Institute for Development of Economics and Finance (Indef).

Despite saying that the BKPM "would have no problem" in reaching its investment goal of 283.5 trillion rupiah (US$31 billion) by the end of this year, Yustika warned that the board had relied too heavily on foreign investors, which he argued made the economy vulnerable to external shocks.

"It is considered risky to have 70 per cent of our investment coming from abroad. The safer proportion is at least 60-to-40 [60 per cent foreign investors and 40 per cent domestic investors]," he said, suggesting the BKPM exert additional effort in attracting domestic investors.

Indonesia's soaring investment numbers could also be attributed to several policies introduced by the government to improve the country's investment climate, such as tax holidays and tax allowances, which went into effect earlier this year, said Bank Central Asia (BCA) economist David Sumual.
Investors favour Indonesia over Asian rivals

Indonesia won’t replace India in BRICS: Stanchart economist
Mumbai, Sun Jul 22 2012
George Mathew
Will Indonesia replace India in BRICS (Brazil, Russia, India, China and South Africa) — the league of powerful emerging nations — in the near future?

Although growth has slowed down in India, and Indonesia has emerged as the favourite for foreign investors, there’s no chance of Indonesia replacing India, says Standard Chartered Bank managing director and senior economist Fauzi Ichsan.

“India will remain in BRICS. What can happen is that Indonesia may join BRICS by 2014 and the league may become BRIICS. India is a much bigger economy which is expected to do well in the coming years,” Fauzi said.

“The growth rate of the Indian and Indonesian economies was 2nd and 3rd highest among the G-20 nations. Both economies have large domestic markets that helped shield them from global economic slowdown and global trade contracts. Indonesia also attracted global investors attention during this period when GDP growth has been over 6.5 per cent over the previous years,” Fauzi told The Indian Express.

According to him, with Indonesia likely to join the BRICS club by 2014, India-Indonesia economic relations will strengthen further.

“Moreover, political-economic similarities between India and Indonesia would foster Indian FDI into Indonesia, as Indian investors are used to challenges in a young democracy,” Fauzi said.

Despite global economic slowdown, trade between India and Indonesia has strengthened over the last decade.

“Indonesia which is a major coal producer in the world attracted several Indian corporates which are keen to invest in coal mines in the country. Nearly 70 per cent of India’s coal requirements are imported from Indonesia,” said Prakash Subramanian, MD and head, global markets, Stanchart, Indonesia.
Indonesia won’t replace India in BRICS: Stanchart economist - Indian Express
Indonesian Contractors to invest in Myanmar’s infrastructures
July 26, 2012

Indonesia, another ASEAN country is interested to invest in Myanmar and as a preparation the government will be sending representatives to assess and evaluate highly prospective business market in the country.

Sudarto who is the chairman of the Indonesian Association of Contractors said that representatives will pay a visit this coming month of November and to conduct meetings with the government, according to news reported from Investor Daily.

If given the opportunity to invest in Myanmar the Indonesian contractors are working on infrastructure ventures such as the construction of roads and bridges and the establishments of official buildings.

Since the Burmese government are undertaking reforms on infrastructure and on their economy, it’s so timely for the Indonesian companies to invest in such trade. PT Wijaya Karya, a state contractor will head the Burmese construction market.

Both countries have been conducting meetings and there already exists a cooperation contract on the construction services and other important details for implementation.

Moreover, the head of the Public Works Ministry’s construction guidance body Bambang Guritno disclosed that their main objective is to increase the manpower of contractors from Indonesia who are working abroad in the next years particularly in Southeast Asia. Only last year, six companies were able to work on foreign land, and this year around 10 companies. Next year they are expecting to increase it to 20 companies.

The Indonesian government is also eyeing the support and cooperation of South Korea, China and Japan to create and expand business markets through joint business trade partnership in the Middle East.

He further added that these three countries are more advanced because of global technology, the expertise and skills of contractors, and more equipped in terms of technical know-how. But with regards to the contractors of Indonesian government they are more accepted culturally, Investor Daily news reported.
Indonesian Contractors to invest in Myanmar
Indonesia Welcomes the $10 Billion Foxconn Factory
July 26, 2012
Terry Gou, chairman of Hon Hai Precision Industry, a Taiwanese manufacturing company which widely known as Foxconn, has met Susilo Bambang Yudhoyono some time ago to discuss the plan of Foxconn’s investment in Indonesia. In its statement, Foxconn confirms the company’s plan to build a factory in Indonesia, but at the same time also stated that for the time being, there is no final decision has been made, yet. Currently, Foxconn undergoes feasibility test for a year. The company is also working on a detailed and specific investment plan. For Foxconn, its presence in Indonesia is in order to produce affordable quality product.

Sofjan Wanandi, Chairman of Asosiasi Pengusaha Indonesia (Apindo) – Indonesia Entrepreneurs Association, who also had the chance to meet with Terry Gou, reveals his hope that Foxconn’s plan will be realized. Because, the investment value that planned is huge, reaching USD10 billion. According to Sofjan, Foxconn is planning to build an industrial town.

For that purpose, Foxconn will require 1,000 acres of land and at least 1000 engineers to join in the factory. Minister of Industry, M.S. Hidayat says that this will profit Indonesia because there will be more Indonesian workers to work in high-tech related industry. Moreover, Foxconn has stated its preparedness to transfer said high-tech related knowledge.
Indonesia Welcomes the $10 Billion Foxconn Factory

US Tourists Dominate Visits To Indonesia
July 27, 2012
Minister of Tourism and Creative Economi Mari Elka Pangestu claimed the tourism industry is still growing amid prolonged global crisis. Mari said the ministry notes regarding the growth on this industry has proven that tourism industry is resistant to crisis. The growth on this tertiary industrial sector is still supported by foreign tourist visit. Foreign tourists is still growing equivalent to Indonesia’s GDP of at least 6%.

“We’re still growing by 6.3% in quarter I/2012,” she said during a inter-ministerial meeting at Ministry of Industry office, Friday (07/27/2012).

The number of foreign tourists’ visits is still in stable condition in average. “It was a surprise that US and German tourists are still high, US is still dominated by 12% of total foreign visit.”

Mari explained the possibilities underlying the increasing visit from countries which most affected by global crisis.
US Tourists Dominate Visits to Indonesia - Bisnis.com

Indonesia's FDI numbers continue to impress
Foreign direct investment rose by 30.3% for the first half of 2012.

DBS Group Research noted:

Foreign direct investment (FDI) numbers continue to impress. For the first half of this year, FDI (figures from BKPM) rose by 30.3% compared to the same period last year.

FDI is important not just as a source of industry development, it is critical in the financing of the current account deficit (DBSf: 0.9% of GDP in 2012). This is even more pertinent considering that risk aversion has hit capital flows and may persist in the coming months amid further global economic uncertainty.

Primary sector FDI (mining and plantation) picked up in a big way in 1Q10 and the high level of investment was maintained in part due to elevated commodity prices. This has not been the case over the last two quarters.

Moreover, rules placing restrictions on the export of metal ores as well as a compulsory divestment scheme (foreign shareholders of Indonesian mining companies have to divest 51% of their shares 10 years after production commences) may deter foreign investors.

Notably, primary sector FDI made up a sizable 26% of total FDI in 1H, up from an almost negligible amount in 2009. It is not surprising that concerns have surfaced about the sustainability of overall FDI going forward.

However, other components of FDI have also showed strong improvement. In particular, FDI in the secondary sector (45.6% of total FDI) surged by 68% in 1H compared to the same period last year. The improvement was broad-based across the different industries including food, chemical & pharmaceuticals and motor vehicles.

Foreign interest in the secondary sector is encouraging and suggests that a drop off in primary sector FDI could be mitigated to an extent. It also reduces the risks that there is an over investment in commodity-related industries leading to the Dutch disease.
Indonesia's FDI numbers continue to impress | Hongkong Business
Indonesia should overtake South Korea as the 3rd largest economy in the Far Eastern Asia pretty soon.
Pipiru has singlehandedly , projected a lot of Indonesian Influence on this forum, good going man,keep up the good work.

The forum name should be changed into China and East Asia. We are not Far East, but East Asia. This is now time to abandon the Eurocentric name.
Major Indonesian Banks Report Solid 1st Half Results

Three major Indonesian lenders reported solid first-half results Monday, largely driven by growth in loans stemming from the country's relatively stable economy, though some banks said concerns about the uncertain global situation had made them cautious about the second half of the year.

Indonesia's economy relies heavily on domestic consumption, keeping it somewhat insulated from the worst of the global slowdown. The central bank expects a 6.1%-6.5% rise in the local economy this year, though with a recent bias toward the low end, adding to a 6.5% increase last year.

PT Bank Mandiri (BMRI.JK), Indonesia's largest bank by assets, said first-half net profit rose 12.7% to 7.1 trillion rupiah ($750.5 million) from IDR6.3 trillion a year earlier on the back of strong loan growth.

Chief Executive Zulkifli Zaini said "Bank Mandiri continues to show growth in credit above market growth, particularly in the [small and medium-sized enterprises] segment," where loans increased by 33.6% in the first half to IDR47.6 trillion.

Overall loans grew 26.6% to IDR350.4 trillion, with the bank's total assets rising 20.4% to IDR571.8 trillion from IDR474.9 trillion year earlier.

However, Mr. Zaini told reporters the bank had scaled back its loan growth slightly due to the continued global uncertainty. Loan growth in the first quarter was 29%.

"We don't want to be too aggressive because many of the loans could become nonperforming," Mr. Zaini said.

Chief Financial Officer Pahala Mansury said the bank was aiming for 22%-24% growth in loans for all of 2012.

PT Bank Central Asia (BBCA.JK), Indonesia's third-largest lender by assets, reported its first-half net profit rose 11% to IDR5.3 trillion from IDR4.79 trillion a year earlier, mainly because of robust loan growth.

"A favorable business environment with low interest rates has spurred strong loan demand, for both individuals and businesses," Jahja Setiaatmadja, president director, said in a news release.

Total outstanding loans were at IDR225.97 trillion as of June 30, up 41.5% from IDR159.71 trillion a year earlier. Year-to-date loan growth was 11%.

BCA said consumer lending increased more than 50% to IDR60 trillion in the first half, driven by high growth in mortgage lending, while corporate lending grew 42.6% to IDR77.3 trillion, led by loans to the financial services, agriculture and tobacco sectors.

SME loan growth increased 35% from a year earlier to IDR88.7 trillion.

Net interest income for the January-June period rose 14% to IDR9.19 trillion from IDR8.03 trillion a year earlier, the bank said.

"We believe that Indonesia's economy remains robust and that growth prospects remain strong," Mr. Setiaatmadja said. "Nevertheless, we remain cautious as global economic uncertainty continues."

PT Bank Negara Indonesia's (BBNI.JK) first-half net profit rose 21% to IDR3.29 trillion from IDR2.73 trillion a year earlier, owing mostly to higher net interest income.

Net interest income rose 19% to IDR7.23 trillion from IDR6.09 trillion thanks to higher lending growth.

Total outstanding loans at the nation's fourth-largest lender by assets were at IDR179.44 trillion as of June 30, compared with IDR152.90 trillion a year earlier.
Indonesia's economy up 6.4 pct in Q2
Indonesia's economy grew slightly by 6.4 percent in the second quarter on yearly basis, as consumption and investment offset decline of exports amid the gloomy global economy, the National Statistic Bureau said here on Monday.

"The economic growth in the second quarter reached 6.4 percent, " Suryamin, head of the bureau told a press conference at the bureau office.

Indonesia economy expanded by 6.3 in the first quarter, the bureau has said. Compared to the previous quarter, the economy grew by 2.8 percent at the second quarter, said Suryamin.

For the whole of the year, the government expects the economy to expand by 6.5 percent.
Indonesia's economy up 6.4 pct in Q2 - Globaltimes.cn

Indonesia sets ‘realistic’ 6.8% growth goal for 2013
Mon, August 06 2012
Indonesia will opt for a “more realistic” economic growth target for the next fiscal year as the country prepares for a prolonged economic crisis in the eurozone and its consequent impact on trade and investment, says Deputy Finance Minister Mahendra Siregar.

Mahendra, who also serves as Indonesia’s G20 sherpa, said that regardless of the progress made by European policy makers, Indonesia would have to assume that the crisis in the bloc of 27 economies would persist.

“We need to make an assumption that the crisis in that region is long term so that we can avoid being trapped in the uncertainties of European economic development,” Mahendra told reporters.

He said that based on ongoing discussions with the House of Representatives, the government was likely to set a 6.8 percent economic growth level in the 2013 state budget.

“The initial target was set between 6.8 percent and 7.2 percent. But by looking at the current developments [in Europe] we believe it will be more realistic to target the lower limit of 6.8 percent of growth,” Mahendra said.

This year the government has targeted 6.5 percent economic growth, well over the forecast of the International Monetary Fund, which was 6.1 percent.

Assuming that the Europe-led global economic crisis will persist, the World Bank has revised down its annual economic growth forecast for Indonesia from 6.2 percent to 6 percent. The development agency also calculates a 6.4 percent economic growth rate for Indonesia next year.
Indonesia sets
Indonesia aims to be one of world's top 10 largest economies
Indonesia aims to be one of the world's top 10 largest economies by 2025. And that would take its gross domestic product to some US$4.5 trillion. Per capita income would also jump five times from US$3,000 currently to US$15,000.

Speaking at a business forum in Singapore, Indonesia's Coordinating Minister for Economic Affairs Hatta Rajasa said Jakarta plans to achieve this through the government's economic acceleration programme.

The programme focuses mainly on infrastructure development in six regional economic growth corridors spread across Indonesia. However, such a programme will require the investment of billions of dollars to trigger growth. To do so, Jakarta plans to attract foreign investment in mainly in the infrastructural and economic production sectors.

Hatta Rajasa, Indonesia's Coordinating Minister for Economic Affairs, said: "The policies that we have taken are all in line with the international commitments and we remain open for business. I do not believe in trade protectionism. I am fully committed to an open, fair and competitive trade regime for Indonesia."
Indonesia aims to be one of world's top 10 largest economies - Channel NewsAsia
Indonesia's Economy to Surpass Germany, UK by 2030: McKinsey
Published: Tuesday, 18 Sep 2012 | 3:32 AM ET
By: Shivali Nayak
News Assistant, CNBC Asia-Pacific


Southeast Asia's most populous nation is on track to become the world's 7th largest economy by 2030, putting it ahead of the developed nations of Germany and the U.K., a new report by McKinsey Global Institute showed Tuesday.

The report cites the country's young population, new consumer class and the rapid urbanization of cities as reasons that will elevate Indonesia's $850 billion economy up nine spots from its current place of 16th largest economy globally.

The findings do not reveal the projected rankings of other economies, and are based on a "proprietary modeling" method which McKinsey declined to elaborate on.

According to the report, Indonesia's economy will be powered by an estimated 90 million additional consumers with considerable spending power by 2030, making its "consuming class stronger than in any economy of the world apart from China and India."

Its relatively younger population will also keep the economy's productivity edge. McKinsey estimates that 70 percent of the country's population will remain of working age of between 15 and 64 in the next 18 years.

"Indonesia has a much younger, productive, and growing population. That is a different demographic outlook to the situation in many Western European economies, where the labor force will be either static or decline in size in the future," said Raoul Oberman, Chairman of McKinsey & Company, Indonesia.

The country's rapid pace of urbanization-especially in its smaller cities-as it moves up the value chain will contribute significantly to the country's growth. McKinsey estimates that 86 percent of GDP in the country will come from urban areas by 2030.

"The greater areas around Jakarta and Surabaya are the economic powerhouses of Indonesia today, but we expect strong growth in cities like Pekanbaru, Pontianak, Karawang, Makassar, and Balikpapan which are all outside of Java," Oberman said.

The report highlights the key challenges facing the economy, which involves low productivity, rising inequality and soaring consumer demand, and says the country is at a "critical juncture."

"It (Indonesia) needs to build on its recent impressive performance to boost labor productivity to 4.6 percent - that's 60 percent higher than in the past decade," said Oberman. "It also needs to tackle concerns about rising inequality and manage soaring demand from its expanding consumer class to meet the government's longer term GDP growth targets."
© 2012 CNBC.com
Indonesia's Economy to Surpass Germany, UK by 2030: McKinsey - Asia Business News - CNBC - CNBC
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