Economic Report On Indonesia 2017 PDF

2017
ECONOMIC
REPORT
ON INDONESIA
ISSN 0522-2572
VISION
To be a credible institution and the best central bank in the region by
strengthening the strategic values held as well as through the achievement of
low inflation along with a stable exchange rate.
MISSION
To achieve rupiah exchange rate stability and maintain the efficacy of
monetary policy transmission in order to drive quality economic growth.
To nurture an effective and efficient national financial system that can

withstand internal and external shocks in order to support the allocation of
funding/financing that contributes to national economic stability and growth.
To ensure a secure, efficient and smooth payment system that contributes

to the domestic economy and helps maintain monetary as well as financial
system stability whilst broadening access in the national interest.
To build and maintain the organization and human resources of Bank

Indonesia, who are performance based and honour integrity, as well as
to enforce good corporate governance in the implementation of tasks as
mandated in prevailing laws.
STRATEGIC VALUES
The values that form the basis of Bank Indonesia, the management and
employees to act and or behave, consisting of Trust and Integrity –
Professionalism – Excellence – Public Interest – Coordination and Teamwork.
CONTENTS
Contents iv
Tables vii
Charts ix Chapter 1
Global Economy 1
Diagrams and Figures xvi 1.1. Global Economic Dynamics 2
1.2. Global Policy Responses 9

Bank Indonesia Board of Governors xviii
1.3. International Cooperation 13
Foreword xx
General Review xxv
Chapter 2
Economic Growth 17
2.1. GDP by Expenditure 18
2.2. GDP by Economic Sector 24
2.3. Employment and Welfare 27
2.4. Regional Economic Dynamics 28
Box 2.1. Household Consumption

and Income Dynamics 36
iv | Contents • 2017 ECONOMIC REPORT ON INDONESIA

Chapter 3 Chapter 6
Indonesia’s Balance of Payments 39 Fiscal Policy 83
3.1. Current Account 40 6.1. Fiscal Dynamics 84
3.2. Capital and Financial Account 47 6.2. State Revenue 85
3.3. External Resilience 50 6.3. State Expenditure 88
6.4. Deficit Financing 90
6.5. Regional Fiscal Policy 92
Box 6.1. The Impact of Infrastructure Development

on Indonesia’s Economy 99
Chapter 4
The Exchange Rate 55
4.1. Dynamics of the Rupiah Exchange Rate 56
4.2. Capital Flows on the Domestic

Foreign Exchange Market 60
Chapter 7
4.3. Structure of the Domestic Monetary Policy 103
Foreign Exchange Market 61
7.1. Interest Rate Policies And Minimum
Reserve Requirement Ratio 104
7.2. Exchange Rate Policy 106
7.3. Financial Market Deepening 109
7.4. Monetary Policy Transmission 112
Chapter 5 7.5. Monetary Policy Coordination 115

Inflation 65
Box 7.1. Implementation and Evaluation of
5.1. Core Inflation 66 the Minimum Reserve Requirement
5.2. Volatile Food Inflation 70
Averaging Policy 120
5.3. Administered Price Inflation 72
5.4. Regional Inflation 74
Box 5.1. Low Core Inflation Regime 79
2017 ECONOMIC REPORT ON INDONESIA • Contents | v

contents
Chapter 10
Chapter 8 Outlook, Challenges,
Macroprudential Policy 123 and Policy Direction 171
8.1. Loan/Financing to Value Ratio Policy 124 10.1. Economic Outlook 172
8.2. Loan-to-Funding Ratio 125 10.2. Economic Challenges 180
8.3. Countercyclical Capital Buffer (CCB) Policy 126 10.3. Policy Direction 191
8.4. Supporting the Development of Micro, Small, Box 10.1. Impact of Economic Policy Packages
and Medium Enterprises 126 on the Economy 199
8.5. Macroprudential Policy Coordination 128 Box 10.2. Regional Economic Growth Strategies 201
8.6. Developments in Financial System Stability 130 Box 10.3. Bank Indonesia’s Blueprint for Islamic
Economic and Financial Development 203
Box 8.1. Strengthening Bank Indonesia’s
Supervisory Function 144
Appendices 207
Chapter 9
Payment System and Currency
Management Policy 147
9.1. Non-cash Payment System Policy 148
9.2. Currency Management Policy 155
9.3. Payment System Performance 160
9.4. Currency Management Performance 162
Box 9.1. National Non-cash Movement and

Toll Road Electronification 167
vi | Contents • 2017 ECONOMIC REPORT ON INDONESIA

tables
1. Global Economy 1 6. Fiscal Policy 83
Table 1.1. Global Economic Growth 2 Table 6.1. State Budget (APBN) Macroeconomic
Variable Assumptions and Realization 84
2. Economic Growth 17 Table 6.2. State Revenues and Expenditure

2016-2017 86
Table 2.1. GDP by Expenditure 19
Table 6.3. Tax Amnesty Program Developments 87

Table 2.2. GDP by Industrial Origin 24
Table 6.4. Number of Taxpayers and

Compliance Level 88
3. Indonesia’s Balance of Payments 39
Table 3.1. Indonesia’s Balance of Payments 41

Table 6.5. Consolidated State Budget 2016-2017 93
Table 3.2. Non-oil and Gas Exports Based on Table 6.6. Surplus, Deficit, and Regional Budget
Goods Classification (Based on SITC) 43
Surplus (SiLPA) 94
Table 3.3. Non-oil and Gas Exports Based on Table 6.7. Regional Fiscal Capacity Index (IKF) 95
Primary Country of Destination 44

Table 6.8. Control of Transfers to Regions and
Table 3.4. Non-oil and Gas Imports (Based on SITC) 45 Village Funds 96
Table 3.5. Indicator of External Sector Resilience

in terms of Solvency 51
7. Monetary Policy 103
Table 7.1. Swap Arrangement Cooperation 108

Table 3.6. Indicator of External Sector Resilience
in terms of Liquidity 51
8. Macroprudential Policy 123
Table 8.1. Non-Bank Financing 137
5. Inflation 65
Table 8.2. Corporate Performance by Sector 142
Table 5.1. Contributors of Core Inflation 68
Table 5.2. Contributors of Volatile Food Inflation 71 9. Payment System and Currency
Table 5.3. Government Volatile Food Inflation
Control Policy 73 Table 9.1. GPN Pricing Scheme 151
Table 5.4. Contributors of Administered Table 9.2. Result of Survey on Quality of Currency
Prices Inflation 74 Fit for Circulation (ULE) 157
2017 ECONOMIC REPORT ON INDONESIA • Contents | vii

tables
Table 9.3. Commercial Banks as Bank Indonesia

Cash Custodian Administrators 159
Table 9.4. Outflow and Inflow by Region 165
10. Outlook, Challenges,

and Policy Direction 171
Table 10.1. Global GDP Outlook 172
Table 10.2. GDP Outlook by Expenditure

2018‑2019 173
Table 10.3. GDP Outlook by Industrial Origin

2018‑2019 175
Table 10.4. Indonesian Economic Outlook

2018‑2019 177
Table 10.5. Primary Objectives of Education 196
viii | Contents • 2017 ECONOMIC REPORT ON INDONESIA

charts
1. Global Economy 1 Chart 1.21. Historical Pace of FFR Normalization 10
Chart 1.1. Investment Growth of Advanced Countries 2 Chart 1.22. European Fiscal Space 10
Chart 1.2. Inflation Rates of Advanced Countries 3 Chart 1.23. Monetary Policy Interest Rate Changes
in Emerging Economies 12
Chart 1.3. US Mining Sector Investment 3
Chart 1.4. US Manufacturing PMI and

2. Economic Growth 17
Industrial Output 3
Chart 2.1. Real Exports of Non-oil and Gas 19

Chart 1.5. US Unemployment Rate and
Wage Growth 4 Chart 2.2. Developments in Real
Manufacturing Exports 20
Chart 1.6. Use of Part Time Workers in the US 4
Chart 2.3. Types of Investment and

Chart 1.7. European Labour Market Indicators 4
Utilization Capacity 20
Chart 1.8. Unemployment Rates of Chart 2.4. Contribution of Non-Building Investment

Advanced Countries 4
Growth to GDP 21
Chart 1.9. Japanese GDP Based on Contributions 5

Chart 2.5. Free Cash Flow of Multi-Sectoral Issuers 21
Chart 1.10. Japanese Industrial Production and Chart 2.6. Real Wages of Agriculture and
Export Index 5
Construction Workers 22
Chart 1.11. Japanese Inflation, Core Inflation and Chart 2.7. Consumer Confidence Index 22
Inflation Targets 5
Chart 2.8. Leisure vs Non-Leisure Consumption 23

Chart 1.12. Unemployment Rate and Part-Time
Workers in Japan 5 Chart 2.9. Types of Household Consumption 23
Chart 1.13. Growth of Developing Countries 6 Chart 2.10. Real Imports by Type 23
Chart 1.14. Chinese Manufacturing PMI and Chart 2.11. Imports of Transport Equipment
Industrial Profit 6 and Parts 23
Chart 1.15. Chinese Investment Developments 6 Chart 2.12. Contribution to GDP Growth from
the Mining Sector 25
Chart 1.16. Indian Currency Circulation Developments 7
Chart 2.13. Coal Exports by Country of Destination 25
Chart 1.17. Global Commodity Price Index 7
Chart 2.14. Industrial Production and Non-oil

Chart 1.18. Global Energy Prices 8
and Gas Export Index 25
Chart 1.19. Indonesia Exports Commodity Price Chart 2.15. Contribution to GDP Growth from the
Index (IHKEI) 8
Manufacturing Industry Sector 26
Chart 1.20. Financial Market Volatility and Chart 2.16. Construction Development Projects 26
Capital Flows of Developing Countries 9
Chart 2.17. Retail Sales and Motor Vehicle Sales 26
2017 ECONOMIC REPORT ON INDONESIA • Contents | ix

charts
Chart 2.18. Open Unemployment Rate 27 Chart 3.4. Growth of Natural Resource
Commodity Based Exports 42
Chart 2.19. Online Job Vacancy Indicator 27
Chart 3.5. Growth in Export Volume of Various

Chart 2.20. Employment Sectors and Types 27
Manufacturing Products 44
Chart 2.21. Developments in Poverty Rates 28

Chart 3.6. Growth of Manufacturing Product Exports
Chart 2.22. Gini Ratio and Income and Raw Materials Imports 44
Distribution Inequality 28
Chart 3.7. Oil and Gas Trade Balance
Chart 2.23. Export Growth by Region 29
and Oil Prices 45
Chart 2.24. Growth in Value of Major Commodity Chart 3.8. Primary Income Balance 46
Exports by Region 29
Chart 3.9. Balance of Service Account 46
Chart 2.25. Building Investment by Region 30

Chart 3.10. Ratio of Freight to International Trade 47
Chart 2.26. Investment by Region 30

Chart 3.11. Number of Indonesian Migrant Workers
Chart 2.27. Contribution of Government Consumption (TKI) and Remittances 47
by Region 31
Chart 3.12. Capital and Financial Account 48
Chart 2.28. Household Consumption by Region 31

Chart 3.13. Foreign Direct Investment by Major
Chart 2.29. Import Growth by Region 32
Investor Countries 48
Chart 2.30. Growth of Agriculture, Forestry, and Chart 3.14. Foreign Direct Investment by
Fishing Sectors 32
Economic Sector 49
Chart 2.31. Growth of Manufacturing Industry Sector 32

Chart 3.15. Non-Resident Portfolio Investment
in Indonesia 49
Chart 2.32. Growth of Construction Sector 33
Chart 3.16. Other Investment Developments 50
Chart 2.33. Open Unemployment Rate by Region 33
Chart 3.17. Basic Balance Developments 50
Chart 2.34. Poverty Rate 34
Chart 3.18. Developments in Type of Debt Service
Chart 2.35. Poverty Gap Index 34 Ratio (DSR) 52
Chart 2.36. Gini Ratio 35 Chart 3.19. External Debt to GDP Ratio 52
Chart 3.20. External Debt to GDP Ratio in

3. Indonesia’s Balance of Payments 39 Selected Countries 52
Chart 3.1. Indonesia’s Balance of Payments 40
Chart 3.2. Current Account 42

4. The Exchange Rate 55
Chart 4.1. Rupiah Exchange Rate 56

Chart 3.3. Commodity Prices and Indonesia’s
Non‑oil and Gas Exports 42 Chart 4.2. Exchange Rate Changes and Volatility
of Selected Currencies 57
x | Contents • 2017 ECONOMIC REPORT ON INDONESIA

charts
Chart 4.3. Developments in Volatility Index and Chart 5.6. Core Services Inflation 68
Credit Default Swaps 57

Chart 5.7. Demand Pull Inflation Indicators 68
Chart 4.4. Developments in US Dollar Index 58

Chart 5.8. Inflation Expectations 2017 69
Chart 4.5. Compliance Level of Prudential Principle

Chart 5.9. Consensus Forecast, Sticky Price CPI,
(KPPK) Reporting Based on Number of
and Core Sticky Price CPI 69
Companies 59
Chart 5.10. Asset Prices and CPI 69

Chart 4.6. Domestic Foreign Exchange Transactions
and Rupiah Exchange Rate 60
Chart 5.11. Property Price, Building Sector
Commodity Price, and Housing Service
Chart 4.7. Foreign Exchange Net Supply – Demand
Sector Rate 70
in Spot Market 60
Chart 5.12. Global Commodity Prices 70

Chart 4.8. Inflow of BI Certificate (SBI), Government
Bonds (SUN), and Stocks 60
Chart 5.13. Non-oil and Gas
External Pressure Indicator 70
Chart 4.9. Indonesian Government Bond Yields 61
Chart 5.14. Volatile Food Inflation 70

Chart 4.10. Comparison of Investment Yields
in Selected Countries 61
Chart 5.15. Dynamics of Volatile Food Inflation 71
Chart 4.11. Domestic Foreign Exchange Market 62

Chart 5.16. Climate Indicator 71
Chart 4.12. Bid-Ask Spread in US Dollar/Rupiah Chart 5.17. Domestic Food Commodity Supply
Spot Transactions 62
and Price 71
Chart 4.13. Spot Transaction Volume 62

Chart 5.18. Global Food Prices
and Volatile Food Inflation 72
Chart 4.14. Forward Transaction Volume 62
Chart 5.19. Changes in Global Price (Corn, Oil)

Chart 4.15. Swap Transaction Volume 63
and Domestic Price (Chicken and Egg) 72
Chart 4.16. Options Transaction Volume 63

Chart 5.20. Commodities Supply from Abroad 72
Chart 5.21. Household Electricity Rates

5. Inflation 65
73
Chart 5.1. Consumer Price Index (CPI) Inflation Chart 5.22. Dynamics of Administered Prices Inflation
and Its Targets 66
in 2017 74
Chart 5.2. Monthly CPI Inflation Patterns 66

Chart 5.23. Fuel, Air Transport, and Electricity Rate
Inflation 74
Chart 5.3. Core Inflation of Goods and Services 67
Chart 5.24. Distribution of Province Inflation 2017 75
Chart 5.4. Durable Goods and Non-durable
Goods Inflation 67
Chart 5.25. Regional Inflation Comparison 75
Chart 5.5. Monthly Core Inflation Patterns 68

Chart 5.26. Food Inflation by Region 76
2017 ECONOMIC REPORT ON INDONESIA • Contents | xi

charts
Chart 5.27. Disaggregation of Food Inflation Chart 6.15. Position of Government Debt
by Region 76 Based on Currency 92
Chart 5.28. Disaggregation of Sub-groups of Chart 6.16. Position of SBN Based on Currency 92
Selected Spices by Region 76

Chart 6.17. Comparison of Ministry/Institute Budget
Chart 5.29. Inter-regional Diversity Coefficient 76 Expenditure Allocations
and Transfer Funds 92
Chart 5.30. Contribution of Electricity Tariff Inflation
and Portion of Non-Subsidized 900 VA Chart 6.18. Revenue Budgets by Region 94
Electricity Customers 77
Chart 6.19. Composition of Revenue in State Budget
Chart 5.31. Air Transport Inflation by Region 77 by Region 2017 95
Chart 6.20. Locally-Generated Revenue (PAD)

6. Fiscal Policy 83 by Region 95
Chart 6.1. First Quarter and First Half Tax Revenue Chart 6.21. Composition of State Budget Expenditure 96
2013‑2017 85
Chart 6.22. Composition of State Budget Expenditure
Chart 6.2. Growth of Tax Revenue Components 86 by Region 96
Chart 6.3. Non-Oil and Gas Income Tax Growth 87 Chart 6.23. State Budget Expenditure by Region 97
Chart 6.4. Growth of Non-Tax State Revenue Chart 6.24. Distribution of Village Funds by Region 97
Components 88
Chart 6.25. Local Government Deposits in Banks 98
Chart 6.5. Tax Revenues and Tax Ratio 88
Chart 6.6. Growth of State Expenditure 88 7. Monetary Policy 103
Chart 6.7. Absorption of State Expenditure 89 Chart 7.1. Inflation Expectations and Realization
in 2017 105
Chart 6.8. Social Security Expenditure 89
Chart 7.2. Policy Rate and Overnight Inter-Bank

Chart 6.9. Realization of Education Budget 90
Money Market (PUAB O/N) Rate 105
Chart 6.10. Realization of Health Budget 90

Chart 7.3. Economic Policy Uncertainty (EPU) Index
Chart 6.11. Ratio of Subsidies, Infrastructure Budget, and Volatility Index (VIX) 105
and Social Security Budget to

Chart 7.4. Yield Curves for Monetary Operation
State Expenditure 90
Instruments 105
Chart 6.12. Fiscal Deficit and Primary Balance 91

Chart 7.5. Monetary Operation Instruments Position 106
Chart 6.13. Composition of Government Debt to GDP 91
Chart 7.6. Composition of Conventional Forex
Chart 6.14. Government Debt Ratios of Term Deposits by Tenor 107
Selected Countries 91
Chart 7.7. Domestic Corporate and Retail Foreign
Exchange Demand 107
xii | Contents • 2017 ECONOMIC REPORT ON INDONESIA

charts
Chart 7.8. International Reserves Position 108 Chart 8.3. Loan-to-Deposits Ratio (LDR)
and Loan-to-Funding Ratio (LFR) 125
Chart 7.9. Rupiah Money Market 109
Chart 8.4. Credit, Deposits and Securities Issued

Chart 7.10. Foreign Exchange Market 109
by Banks 125
Chart 7.11. Issuances Certificates of Deposit 110

Chart 8.5. Credit to GDP Gap Indicator 126
Chart 7.12. Value of Call Spread Option (CSO)

Chart 8.6. Financial Cycle 126
Transactions 110
Chart 8.7. MSMEs Credit Ratio Target Achievement 127

Chart 7.14. Jakarta Interbank Offered Rate (JIBOR)
and PUAB Rate Spread 111 Chart 8.8. MSMEs Credit Share 127
Chart 7.13. Repo Transactions 111 Chart 8.9. Financial System Stability Index 131
Chart 7.15. Policy Rate and Overnight Inter-Bank Chart 8.10. Growth of Bank Deposits 131
Money Market Rate Spread 112

Chart 8.11. Lending Standard Index 131
Chart 7.16. Time Deposit Rates by Tenor 113

Chart 8.12. Undisbursed Loan Ratio 132
Chart 7.17. Credit Growth and Credit Interest Rates 113

Chart 8.13. Credit Growth in Five Major
Chart 7.18. Credit Interest Rates by Bank Group 113 Economic Sectors 132
Chart 7.19. Time Deposit and Credit Interest Rate Chart 8.14. Credit Growth by Type of Use 132
Spread 114
Chart 8.15. Credit Growth by Region 132
Chart 7.20. Government Bonds (SBN) Yield by Tenor 114

Chart 8.16. Growth of NPL and NPL Ratio 133
Chart 7.21. Growth of M0 Components 115

Chart 8.17. NPL by Type of Use 133
Chart 7.22. Growth of M2 Components 115

Chart 8.18. NPL by Region 133
Chart 7.23. Contribution of Components

Chart 8.19. Banking Liquidity Ratio 133
to M2 Growth 115
Chart 8.20. Banking Efficiency 134

Chart 7.24. Contribution of Quasi Components 115
Chart 8.21. Banking Profitability 134

Chart 7.25. Contribution of Factors affecting M2 116
Chart 8.22. Capital Adequacy Ratio (CAR) 134
8. Macroprudential Policy 123 Chart 8.23. MSMEs Credit 134
Chart 8.1. Growth of Housing Loan (KPR) and KPR

Chart 8.24. MSMEs Credit Growth by Sector 135
Non-Performing Loan (NPL) 124
Chart 8.25. Gross NPL in MSMEs Credit by Sector 135

Chart 8.2. Growth of Housing Loan
by Type of House 125 Chart 8.26. Gross NPL in MSMEs Credit by Scale
of Business 135
2017 ECONOMIC REPORT ON INDONESIA • Contents | xiii

charts
Chart 8.27. Financing, Funding, and NPF 9. Payment System and Currency
of Financing Companies 136 Management Policy 147
Chart 8.28. Source of Funding Chart 9.1. Number and Composition of Financial
of Financing Company 136 Technology Participants 152
Chart 8.29. Hedging and Premium Swap Chart 9.2. BI-RTGS Transaction 161
of Financing Company 136

Chart 9.3. BI SSSS System Transactions 161
Chart 8.30. Efficiency and Profitability of Financing

Chart 9.4. SKNBI System Transactions 161
Company 137
Chart 9.5. ATM/Debit Transactions 162

Chart 8.31. Growth of Insurance Assets
and Investment 137 Chart 9.6. Electronic Money Transactions 162
Chart 8.32. Ratio of Premium to Gross Claim 137 Chart 9.7. Credit Card Transactions 162
Chart 8.33. Net Domestic Financing Composition 138 Chart 9.8. Growth of Delivery Channel Use 163
Chart 8.34. Interest Rate and Bond Yield 138 Chart 9.9. End-of-Year Position of Currency
in Circulation (UYD) 163
Chart 8.35. Corporate Bond Yield 138
Chart 9.10. Ratio of UYD to GDP

Chart 8.36. Volatility of Corporate Bond Yield 138
and Household Consumption 163
Chart 8.37. Government Bond (SBN) Yield 139

Chart 9.11. Daily UYD 163
Chart 8.38. Volatility of Government Bond

Chart 9.12. Currency in Circulation
(SBN) Yield 139
by Denomination 164
Chart 8.39. Composite Stock Price Index (JCI) 139

Chart 9.13. Outflow and Inflow
Chart 8.40. JCI Sectoral Index 139 through Bank Indonesia 164
Chart 8.41. Assets, Disbursed Loans, Chart 9.14. Seasonal pattern of Outflow and Inflow 164
and Third Party Funds 140

Chart 9.15. Number of Cash Custodian
Chart 8.42. Sharia Banking Disbursed Financing and Rupiah Withdrawal 165
and NPF 140

Chart 9.16. Rupiah Withdrawal
Chart 8.43. Sharia Banking Placement in Sharia through Mobile Cash 165
Securities 141
Chart 9.17. Destruction of Currency Unfit
Chart 8.44. Sales Growth, Asset Turnover Ratio, for Circulation 165
and Inventory Turnover Ratio 142

Chart 9.18. Finding of Counterfeit Money
Chart 8.45. Debt-to- Equity Ratio (DER) by Police and Bank 166
and Interest Coverage Ratio (ICR) 143
xiv | Contents • 2017 ECONOMIC REPORT ON INDONESIA

charts
Chart 10.20. Corruption Perception Index 184

and Policy Direction 171 Chart 10.21. Composition of Indonesian Imports 185
Chart 10.1. Indonesia’s ‘Ease of Doing Business’ Chart 10.22. Composition of Indonesian Exports 185
Ranking 174
Chart 10.23. Share of Indonesian Sophisticated

Chart 10.2. Allocation of Subsidies and Social Product Exports 185
Assistance in State Budget 174
Chart 10.24. Relationship between Sophisticated

Chart 10.3. Tourism Competitiveness 176
Product Exports and GDP per Capita 185
Chart 10.4. Irrigation Development Progress 176

Chart 10.25. Share of Manufacturing Industries
Chart 10.5. Irrigation Rehabilitation Progress 177
in Various Countries 186
Chart 10.6. Inflation Forecasts 177

Chart 10.26. Comparison of Poverty Rates
and Economic Gaps of Asian Countries 186
Chart 10.7. Development of National Strategic

Projects and Electrical Power Programs 179
Chart 10.27. Regional Gross Domestic Product
per Capita of Regencies/Cities
Chart 10.8. Estimated Completion of PSN in Java and Sumatra 187
Infrastructure Projects 179

Chart 10.28. Educational Opportunities for Children
Chart 10.9. Global Economic Productivity 181 Until University Level in 2014 based on
Household Economic Status in 2000 188
Chart 10.10. Growth of GDP and Current Account 182
Chart 10.29. Asset Ownership Level

Chart 10.11. Indonesia’s Distance to Frontier 182
by Household Group 188
Chart 10.12. Infrastructure Ranking Comparisons 182

Chart 10.30. Bank Interest Rate Spread 189
Chart 10.13. Quality of Indonesia’s Infrastructure 183

Chart 10.31. Volume of Bond Trading
Chart 10.14. Digital Connectivity Comparisons 183 in Secondary Market 189
Chart 10.15. Average Comparison of School Year 183 Chart 10.32. Foreign Ownership of
Government Bonds 189
Chart 10.16. Quality of Education Comparisons 183
Chart 10.33. Internet Access and Cellular

Chart 10.17. Innovation Index 184
Telephones in Indonesia 190
Chart 10.18. Ease of Doing Business Ranking 184

Chart 10.34. Benefits of Digital Technology
Chart 10.19. Government Governance for Business, People, and Government 190
Indicator Ranking 184

Chart 10.35. Education Budget 197
2017 ECONOMIC REPORT ON INDONESIA • Contents | xv

diagrams and figures
2. Economic Growth 17 9. Payment System and Currency

Figure 2.1. Regional Economic Growth in 2017 29
Figure 9.1. National Payment Gateway

(NPG) Logo 149
5. Inflation 65
Figure 5.1. Determinants of Inflation in 2017 67

Figure 9.2. Interconnection and Interoperability 150
Figure 5.2. Regional Inflation in 2017 75

Diagram 9.1. NPG Ecosystem in Indonesia 150
Figure 5.3. Price Disparities of Nine Major Essential Figure 9.3. Rupiah Distribution Channel
Foods among Provinces in Indonesia 77
in Bank Indonesia 158
6. Fiscal Policy 83
and Policy Direction 171
Figure 6.1. Absorption of Local Government
Expenditure in 2017 98
Figure 10.1. National Strategic Projects 174
Figure 10.2. Achievements of Public-Private

7. Monetary Policy 103
Partnerships (KPBU) and Non-Budget
Investment Financing (PINA) 189
Figure 7.1. Number and Distribution of Regional
Inflation Control Teams (TPID) in 2017 117 Figure 10.3. Targets of Public-Private Partnerships
(KPBU) and Non-Budget Investment
Figure 7.2. Six Strategic Steps to Control Inflation Financing (PINA) 198
in 2017 118
Figure 7.3. Scope of National Strategic Food Price

Information Centres (PIHPS) in 2017 119
xvi | Contents • 2017 ECONOMIC REPORT ON INDONESIA

BANK INDONESIA BOARD OF GOVERNORS
AGUS D. W.
MARTOWARDOJO
GOVERNOR
SUGENG DEPUTY GOVERNOR
PERRY WARJIYO DEPUTY GOVERNOR
xviii | Board of Governors • 2017 ECONOMIC REPORT ON INDONESIA

MIRZA ADITYASWARA
SENIOR DEPUTY GOVERNOR
ERWIN RIJANTO DEPUTY GOVERNOR
ROSMAYA HADI DEPUTY GOVERNOR
2017 ECONOMIC REPORT ON INDONESIA • Board of Governors | xix

FOREWORD
Agus D. W. Martowardojo
The Governor of Bank Indonesia
xx | Foreword • 2017 ECONOMIC REPORT ON INDONESIA

“
In 2017, monetary policy was directed firmly at safeguarding macroeconomic
stability, while taking advantage of available space to optimize the momentum of
economic recovery.
W
hen I took the helm at Bank Indonesia in other agencies has met with a favorable response from
2013, the economy was faced with mounting economic actors. This is demonstrated in the onset of
uncertainty on global financial markets momentum for economic recovery, which in this case was
related to the change in direction of US monetary policy, not accompanied by pressures on economic stability.
a development known as the taper tantrum. Added to Of course, challenges to the economy remain and will
this, the domestic economy was burdened with internal always exist in keeping with the dynamics of the times.
and external imbalances. This was reflected in part by Nevertheless, the Indonesian economy is now better
rising inflationary pressure, flagging economic growth, a positioned to build a prosperous future for all citizens.
widening current account deficit and a significant drop in
the exchange rate. In the years since then, further changes The economy in 2017, which represents the focus of this
in the US monetary policy stance have taken place, with report, recorded a number of impressive achievements.
increases in the Federal Funds Rate and reductions in The economy has seen gradual improvement in growth,
the central bank balance sheet. These actions had no which reached 5.07% in 2017. This is the highest level
precedent that could serve as a reference in formulating of growth for four years and was underpinned by a more
policy responses capable of mitigating risk contagion, balanced structure and strong exports and investment.
while simultaneously catalyzing improvement in the Improvement also took place in the quality of growth,
domestic economy. In looking back over those years, we demonstrated by falling levels of unemployment and
have reason to be grateful that the policy choices made poverty and ameliorating levels of inequality. Alongside
have consistently steered the Indonesian economy along this, prudently managed macroeconomic stability was
the path of incremental improvement. reflected in positive developments in inflation, the current
account and the exchange rate. In 2017, inflation
Now the economy is in different shape. At the global reached 3.61%, coming within the 4±1% target range
level, there is steady progress in world economic on the strength of low core inflation, carefully managed
recovery and financial market risks are declining. The volatile foods inflation and the limited impact of increases
economies of advanced nations are charting steady gains in administered prices. Inflation became a noteworthy
alongside rising growth in emerging market economies. achievement in its own right, having come within the
Normalization of monetary policy in advanced nations target range for three consecutive years. On the external
is moving at a gradual pace, supported by good side, the current account deficit at 1.7% of GDP was
communication that allows financial markets to ready down from the previous year and remained well under
themselves for coming changes. The improvement in the the safe threshold of 3% of GDP. Meanwhile, the rupiah
global economy and prudently managed stability in the exchange rate underwent thin depreciation averaging
Indonesian economy has created room for Bank Indonesia 0.60% to reach IDR13,385 to the US dollar. This
to move. Consequently, it has embarked on relaxation heartening achievement was also borne out in the level of
of monetary and macroprudential policies in support international reserves that reached USD130.2 billion, a
of domestic economic recovery. The policy consistency record high for Indonesia.
maintained by Bank Indonesia, the government and
2017 ECONOMIC REPORT ON INDONESIA • Foreword | xxi

The macroeconomic policies put in place successfully For the government, the focus of fiscal policy was on
optimized the momentum for economic recovery, which delivering a stimulus for the economy while safeguarding
was also seen to be structured in a healthier and more fiscal sustainability. The government pursued measures
robust way. This was accomplished by focusing the policy to optimize revenues, improve the quality of expenditure
mix of Bank Indonesia, the Government and the Financial and ensure efficient and sustainable management of
Services Authority around three key objectives. First, financing. Government expenditure was targeted at
to mitigate cyclical risks from the global and domestic productive sectors, while efficiency was improved in
environment in order to safeguard macroeconomic and non-priority spending and measures were taken to
financial system stability and build economic growth. promote a better balance between central and regional
Second, to accelerate the completion of the consolidation government expenditure. This strategy led to a two-fold
process in the domestic economy in order to boost increase in infrastructure spending over the level in 2013,
economic growth. Third, to address the various structural before subsidy reforms were introduced. The strategy to
problems in the domestic economy. The policy mix was raise infrastructure expenditure was also balanced by
pursued through synergy that brought together monetary, continued prioritization of short-term stimulus actions in
fiscal, macroprudential and structural reform policies, order to strengthen domestic economic recovery. In other
and also policies for the payment system and rupiah cash actions, the government also made further progress with its
management. structural reforms.
In 2017, monetary policy was directed firmly at Bank Indonesia has implemented policy in a consistent,
safeguarding macroeconomic stability, while taking timely and measured manner and has coordinated soundly
advantage of available space to optimize the momentum with other relevant authorities throughout this process. This
of economic recovery. In the first half of 2017, the BI has had a positive effect on the sentiment of economic
7-Day Reverse Repo Rate, employed as the policy rate, actors. Policy consistency strengthens credibility, making
was held at 4.75% in view of persistently high inflation policy effective in supporting the performance of the
expectations and risks of global uncertainties. Space economy. In this way, strong positive sentiment can be
opened up for monetary relaxation during the second fostered among economic actors. The ratings issued by
half of 2017 in keeping with easing of risks within the various international agencies for the Indonesian economy,
context of prudently managed macroeconomic stability. in particular the investment grade ratings awarded by
Bank Indonesia responded by lowering the policy rate the three leading agencies, reflect Bank Indonesia’s
by 50 basis points in two rate cuts of 25 basis points success in applying this principle. Furthermore, significant
each, first in August and subsequently in September improvement took place in our ease of doing business
2017. It was envisaged that the cycle of interest rate and global competitiveness ratings. Of course, having
reductions underway since 2016 would accelerate the won this recognition, we will not rest on our laurels.
ongoing business consolidation and pave the way for Rather, these achievements have further convinced us of
a period of economic recovery. In other developments, the importance of policy consistency, even as short-term
Bank Indonesia took further steps in reformulating the interests or objectives also seek our attention. At this point,
operational framework by launching the averaging policy makers must have an accurate understanding of the
reserve requirement, managing exchange rate movement direction of movement in the economy amid the clamor
in line with fundamentals while safeguarding the operation of its dynamics in order to develop appropriate policy
of market mechanisms, and promoting financial market options.
deepening. Bank Indonesia also continued with the
accommodative macroprudential policies that had been The Indonesian economy continues to face challenges
put in place to reverse the financial downturn, needless in the pursuit of higher, more sustainable and more
to say while continuing to strengthen financial system equitable growth. In the short term, a number of external
stability. At the same time, policy in the payment system and domestic challenges still call for vigilance. The
focused on measures to support efficiency in the economy normalization of US monetary policy and geopolitical
and ensure the secure, efficient and smooth operation of dynamics represent external risks that must be monitored
economic transactions. continually. At home, limited fiscal space, the ongoing
xxii | Foreword • 2017 ECONOMIC REPORT ON INDONESIA

corporate consolidation and suboptimal banking The 2017 Economic Report on Indonesia is a
intermediation are causes for shared concern. In the comprehensive record of the dynamics of the Indonesian
longer term, a number of domestic risks warrant attention economy. These dynamics are of interest for their own
from us all. These challenges relate to the competitiveness sake and also serve as lessons for the future. The book
of the economy, the strengthening of industrial capacity has been prepared by parties directly involved in
and capabilities, the provision of domestic sources of developing policies at Bank Indonesia. That in itself lends
economic financing and the harnessing of advancements a distinctive touch with a wealth of data, analysis and
in digital technology. outlooks that were taken into account at the time policies
were formulated, but could not be fully communicated until
In the face of these challenges, Bank Indonesia is now. This book is also arranged with a smaller number of
continuing with a policy mix directed at safeguarding the chapters than in previous years, which we hope will make
macroeconomic and financial system stability achieved comprehension easier for the reader.
thus far. To achieve this, it is necessary to focus on
monetary policy, macroprudential policies and payment On behalf of the Board of Governors of Bank Indonesia,
system and rupiah cash management policies. On the permit us to present this 2017 Economic Report on
government side, fiscal policy will consistently aim to Indonesia. Our hope is that this report will serve as a
stimulate the economy while safeguarding the outlook quality, trusted reference in preparing measures that will
for fiscal sustainability. In 2018, fiscal policy will be bring greater prosperity to the Indonesian economy amid
pursued under the three key strategies of optimization of ever-present challenges. To borrow from words coined
revenues, quality expenditure and sustainable financing. by Bung Hatta, who proclaimed the independence of our
As before, these cyclical policies will be supported by nation, “Let the experience of our past be a guidepost,
structural policies aimed at resolving the structural issues and not a rod that keeps us in bondage.”
that remain.
May God the Almighty always bestow on us the
With these policy responses and the synergy forged with abundance of His blessings and protect every step we
other authorities also responsible for the economy, Bank take and all that we do.
Indonesia expects that economic stability will remain
well in hand in 2018 and will be accompanied by
steady improvement in growth. The economy is forecast
to grow in a range of 5.1% to 5.5%, buoyed primarily
by domestic demand. Meanwhile, inflation in 2018
is predicted to remain under control within the target Jakarta, March 2018
range of 3.5%±1%, although we must remain alert to The Governor of Bank Indonesia
risks related to food and energy prices. With conditions
improving in the domestic economy, a slight increase is
projected in the current account deficit, driven by the need
for imports of raw materials and capital. The deficit will,
however, remain at a sound level. Agus D. W. Martowardojo
2017 ECONOMIC REPORT ON INDONESIA • Foreword | xxiii

GENERAL REVIEW
Optimizing Momentum,
Reinforcing Structures
M
acroeconomic stability in Indonesia strengthened further in 2017, in tandem with gradual
progress in the economic recovery. Economic growth edged upwards and improvement in the
structure of growth set in during the second half of the year. Economic gains were bolstered
by positive momentum from both global and domestic factors, although several challenges emerged that
prevented a faster recovery. Bank Indonesia, the Government and the relevant authorities implemented
policies aimed at leveraging positive momentum on several fronts to accelerate economic recovery.
Simultaneously, measures were taken to reinforce the economy at a structural level. The policy stance
remained consistent and successfully preserved macroeconomic and financial system stability, thereby
paving the way for continued economic recovery. Looking ahead, policy responses will be strengthened
further not only to bolster stability and mitigate risks, but also to support the economic outlook by making
further structural improvements.
Indonesia’s economic recovery progressed gradually and the economy. Indications of structural improvement in
at the same time became more stable. Economic growth economic growth became visible only during the second
edged upwards and improvement in the structure of half of 2017, as private sector investment showed gains
growth were seen in the second half of the year. Growth and exports of some manufactured products rose.
in 2017 was recorded at 5.07%, up slightly from 5.03%
in 2016. Macroeconomic stability was also well in hand, Indonesia’s economic recovery in 2017 would not have
with inflation remaining within the target range, a prudent been possible without positive momentum in a variety of
current account deficit level and a sufficiently stable areas, which countered the multifaceted and lingering
exchange rate. Financial system stability was also carefully global and domestic challenges that arose. Positive
maintained, despite unresolved challenges relating to the momentum was generated by favorable global conditions,
still-limited performance in banking intermediation. ongoing stability in the domestic economy and improving
confidence among economic actors. Global challenges
The direction of this economic recovery is reasonably arose from normalization in the monetary policy of
positive, even though growth rose only marginally some advanced countries, which could have triggered
and was insufficiently broad-based. The government capital reversal and threatened economic recovery in the
stimulus again provided an important source of growth developing world. Domestic challenges include the still
during 2017, but private consumption also rose and the incomplete consolidation within Indonesia’s corporate
commodities sector continued to play a major role in lifting and banking sectors and the short-term impact of changes
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxv

in household behavior following changes in government including payment system and rupiah cash management
spending, which were designed to improve the quality policies, will be deployed to promote stronger and more
of its outgoings. In this regard, the policy responses of balanced, sustainable economic growth.
Bank Indonesia, the Government and relevant authorities
focused on leveraging the positive momentum to promote
more rapid economic recovery and reinforce the structure Momentum of Economic Recovery
of the economy.
In 2017, Indonesia’s economic recovery was closely
The recovery in the Indonesian economy is expected to tied to positive momentum in three areas, triggered by
continue. The path for further improvement is indicated favorable global and domestic conditions (Diagram 1).
by the structure of growth in 2017, which is marked by This positive momentum boosted the economic recovery
the beginning of increased private investment. Within this and strengthened national economic resilience.
context, the rising levels of non-construction investment and
imports of raw materials and capital goods give particular The most significant positive momentum came from the
cause for optimism. Structural improvement in the economy global economy. Rising global economic growth led to
was also supported by the onset of growth in exports of increases in world trade volumes and commodity prices
some manufactured products. Thus the economic outlook and underpinned flows of capital to emerging market
is optimistic, with policies for structural reform pursued economies. In 2017, world GDP grew by 3.7%, ahead of
consistently. Economic growth is expected to continue both the 3.2% recorded in 2016 and forecasts made at
upwards, reaching a range of 5.1% to 5.5% in 2018 and the start of the year. Among Indonesia’s trading partners,
a range of 5.8% to 6.2% in 2022, bolstered by increased advanced economies including the United States, the
productivity and economic competitiveness. Inflation will European Union (EU) and Japan charted more robust
remain within the 3.5±1% target range in 2018 and will economic growth. In a similar vein, China, Indonesia’s
progressively ease to reach 3.0±1% in 2022. In addition, most important trading partner among emerging market
the current account deficit is predicted to remain at a nations, managed to avoid a drastic economic slowdown
sound level and to trend downwards in the medium term. by gradually rebalancing. This improvement in the global
economy fueled increased demand and led to high growth
The drive to further strengthen the economy going in global trade volumes. This growth in world demand
forward will continue to face cyclical and structural provided momentum for growth in Indonesia, by lifting its
challenges arising from global and domestic conditions. exports.
The cyclical or short-term global challenges arise from the
ongoing normalization of monetary policy in advanced A significant increase in commodity prices in 2017
nations, renewed geopolitical turmoil and signs of rising also gave Indonesia the opportunity to accelerate its
protectionism. At home, the challenges relate to efforts to domestic economic growth. These high commodity prices
safeguard macroeconomic stability amid mounting risk were driven by escalating demand and by supply-side
of inflation and to speed up completion of the corporate problems in other producing countries. Prices for several
and banking sector consolidation. Meanwhile, structural key Indonesian export commodities, particularly coal,
or medium-term challenges from the global environment crude palm oil (CPO) and some metals, were significantly
will arise from the downward trend in productivity and higher in comparison to 2016. The composite price for
the ageing populations in advanced nations. At home, Indonesia’s non-oil and gas exports increased by 21.7%
structural challenges will arise from the drive for structural in 2017, sharply higher than the 5.4% price growth in
reinforcement of the economy in both the real and the 2016. This in turn strengthened Indonesia’s terms of trade
financial sector. Advances in the digital economy present and boosted domestic incomes.
challenges that may transform the economic landscape
of a range of sectors and, in this regard, Bank Indonesia, The second factor behind the increased momentum
the Government and the relevant authorities are firmly for economic recovery is the ongoing and consistent
committed to stability and economic recovery. Fiscal, macroeconomic and financial system stability. This has
monetary, macro-microprudential and structural policies,
xxvi | General Review • 2017 ECONOMIC REPORT ON INDONESIA

Diagram 1. Dynamics of Indonesia Economy 2017
1 GLOBAL ECONOMY
IMPROVED
World Trade Volume Increased Capital Inflows to

Commodity Prices Increased Emerging Markets Continued
Short
Term
es Co
mi Medium ns
2 WELL MAINTAINED no o
co Term
MACRO AND E Ec
lid
ed
on CONFIDENCE
FINANCIAL SYSTEM ng
ati
nc
LEVEL
GDP
va
om
STABILITY i
on
nc
Ad
ic
IMPROVED
ina
Co
Con
n of
cF
mp
Current Account Deficit Decreased Rating Improved to
Normalizatio
etitiv
Economi
Gradual Investment Grade
tinued
eness
Inflation Maintained Ease of Doing Business
Narrow Based Ranking Increased
Stable Exchange Rate Global Competitiveness
Indus
omy
Index Increased
Financial System Adjustment of
try
tion
on
Corporate Investment
Economic Agents
Na
Ec
Stability Maintained
Ca
Increased
dia
al
p
ab
rro
t
gi ilit
e
Di
w
y
rm
F
e Inclusi
ve Econom
y isc
Int al
nking Sp
ace
Ba
POLICY
MIX
RESPONSE
PAYMENT SYSTEM AND

FISCAL MONETARY MACROPRUDENTIAL MICROPRUDENTIAL STRUCTURAL
MONEY MANAGEMENT
been maintained since 2014 and is the result of prudence level of the official debt burden. Alongside this, financial
and consistency in the macroeconomic policies pursued by system stability was kept well in hand, as evident from
Bank Indonesia and the Government. Further, it has laid improving performance in the banking system and
the foundations for continued economic recovery. More financial markets.
robust macroeconomic stability in 2017 was reflected
in on-target inflation and a sound current account deficit The firm economic stability itself engendered the third
that was kept below 3% of GDP. The two achievements strand of positive momentum, that of improving confidence
have now been observed for three consecutive years. In among economic actors in the Indonesian economy.
view of the pressure on economic stability in 2013 and In 2017, recognition from leading international rating
2014, when the current account deficit mounted to over agencies of Indonesia’s achievements raised confidence
3% of GDP and inflation surged beyond 8%, well in among economic actors. In May 2017, Standard & Poor’s
excess of the target, this represents a positive outcome. upgraded Indonesia’s credit rating to investment grade
Macroeconomic stability was also reflected in rupiah (BBB-), following an upgrade to this level by both Fitch and
exchange rate movements in line with fundamentals. Moody’s. Then, in December 2017, Fitch again upgraded
In addition, support for economic stability came from Indonesia’s credit rating, this time from BBB- to BBB with
measures to safeguard the fiscal sustainability outlook a stable outlook. Furthermore, Indonesia’s ranking on the
through a prudently-managed budget deficit and a sound global competitiveness index improved to 36 in 2017
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxvii

from 41 the previous year, and in the Ease of Doing Second, the limited domestic fiscal space posed a
Business index to 72 in 2018, from 91 in 2017. challenge. It limited the Government’s capacity to create
economic stimuli and to leverage positive momentum
These positive developments boosted the confidence for the benefit of the domestic economy. The lack of a
of both foreign and domestic economic actors in the sizeable stimulus is explained in part by below-target
Indonesian economy. Rising confidence led to higher taxation. In 2017, the tax ratio came to 9.9% of GDP,
inflows of foreign capital for direct and portfolio representing a decline compared to the preceding two
investments. In turn, the sizeable capital inflows provided years; the tax-to-GDP ratio in 2015 was 10.7% and
a source of economic financing. At home, improved in 2016 edged down to 10.4%. The capacity of fiscal
confidence was reflected in corporate investment and stimuli to give a strong boost to the economic recovery
a renewed increase in capital expenditure, particularly was therefore limited, as evident in the dynamics of
during the second half of 2017. The steady improvement government financial operations during 2017.
in confidence laid the foundations for a sustained
economic recovery. Third, domestic corporate consolidation had not yet fully
run its course, though it is now winding down. During
this period of consolidation, companies generally did not
Challenges to the Indonesian expand, but instead were focused on putting their house in
Economy in 2017 order. Corporate behavior was also influenced by adverse
global developments in 2016 that damaged corporate
Amid the positive momentum on multiple fronts, challenges confidence and discouraged them from expanding. In
emerged that hampered the pace of domestic economic addition, corporate expansion plans were stifled by the
recovery. These challenges were rooted in cyclical and modest fiscal stimulus and the still-sluggish household
structural problems, both global and domestic. To add consumption. At the same time, bank intermediation
to the complexity of the challenges, the Indonesian underperformed, hitting corporate business financing and
economy was simultaneously undergoing an adjustment in turn impacting on corporate expansion. These factors
phase in response to changes in the global and domestic led to inadequate levels of domestic non-construction
environment. Taken together, these conditions held the investment, particularly in the first half of 2017. This
domestic economy back from mounting a quick, robust was cause for concern because incorrect handling could
recovery. have hampered the recovery process. For these reasons,
short-term measures were taken to boost the confidence
Four main cyclical challenges impeded economic recovery of domestic economic actors at a time when Indonesia
in 2017. First, the normalization of monetary policy by was receiving positive recognition from abroad for the
some advanced nations presented a challenge. Global improvement in its economic fundamentals.
financial markets were influenced by the direction of this
monetary policy normalization, most importantly that Fourth, as noted above, banking intermediation had
undertaken by the United States. Even though markets not fully recovered, limiting the driving force of the
were generally prepared for it, pressure on global economy. Slackness in credit growth was the result of both
financial markets did intensify at the end of the third demand- and supply-side factors. On the demand side,
quarter of 2017 as the US dollar strengthened over the incomplete corporate consolidation slowed business
nearly every other currency. This pressure exacerbated expansion and therefore also demand for credit. At the
uncertainty on global financial markets and in capital same time, banks remained cautious and selective in
flows and threatened to rein in a more rapid global extending new loans and continued to apply high lending
recovery, including in Indonesia. This became a challenge standards.
in itself, given the risk that normalization in advanced
nations could cause instability by triggering a capital The lack of strength in the recovery did not result only
reversal from emerging markets, including Indonesia. from cyclical challenges, but also from structural problems
in the Indonesian economy. First, the limited capacity
and capability of domestic industry is an obstacle, and is
xxviii | General Review • 2017 ECONOMIC REPORT ON INDONESIA

reflected in the commodity-based nature of exports and Policy Responses in 2017
domestic-oriented nature of imports. In addition, a lack of
competitiveness and the ongoing constraints in financing Macroeconomic policy responses in 2017 aimed to
are also factors. These issues prevented the domestic optimize the momentum for recovery, while reinforcing
economy from mounting an optimal response to the global the economy at a structural level. To this end, the
recovery. Challenges also emerged from advancements policy synergy forged in 2017 by Bank Indonesia, the
in the digital economy that have potential to transform Government and the Financial Services Authority (OJK)
the medium-term landscape of both the real and financial targeted three key areas. First, policies sought to mitigate
sectors. cyclical risks from the global and domestic environment in
order to safeguard macroeconomic and financial system
The challenges took on added complexity because, at stability as a basis for building economic growth. Second,
the same time, various adjustments to the economy were policies were aimed at accelerating the completion of
being made by domestic authorities. The Government the domestic economic consolidation process in order to
was making fiscal adjustments in keeping with its promote economic recovery. Third, policies were designed
strategy of stimulating the economy while safeguarding to correct a range of structural problems in the domestic
the fiscal sustainability outlook. These fiscal adjustments economy. At the national level, the macroeconomic policy
prioritized capital expenditure by strengthening the role management responses were pursued through synergy that
of infrastructure spending. This strategy, however, targets brought together fiscal, monetary, macro-microprudential
medium- and long-term strengthening of the economy and and structural reform policies, including in the payment
results in a reduction in the short-term fiscal stimulus. The system and currency management.
fiscal adjustments were also related to a shift in subsidy
strategy towards more precisely-targeted subsidies for The Government pursued a fiscal policy focused on
individuals, such as the reforms in the fuel subsidy and stimulating the economy while safeguarding the fiscal
increases in electricity billing rates. The changes in the sustainability outlook. In this regard, the thrust of the
electricity subsidies in 2017 contributed to price increases strategy for the state budget was threefold: (i) optimizing
that in turn affected the consumption behavior of some revenues; (ii) improving the quality of expenditure; and
households. (iii) managing financing efficiently and sustainably.
To this end, government spending was allocated to
In addition, a shift in public behavior impacted the pace productive sectors, efficiencies were made in non-priority
of economic recovery. This shift has been brought about spending and a better fiscal balance between the central
by the millennial generation, new consumers who have government and the regions was encouraged. This
been driving a move from goods-based consumption to strategy was marked by increased infrastructure spending,
consumption based on experience and leisure. As a result, which reached 19.4% of the state budget in 2017. This
there has been a short-term drop in consumption of goods. represents a twofold increase compared with 2013 –
In the long run, shifts in behavior will need to be closely before state subsidies were reformed – when infrastructure
monitored because of their effect on the supply side of the accounted for only 9.4% of the state budget.
economy.
The strategy of increasing infrastructure expenditure was
In the midst of this adjustment process, the corporate sector balanced with short-term stimuli that would immediately
sought alternative sources of financing outside the banking support the domestic economic recovery. The Government
system and this helped mitigate the risks to economic increased the budget for national priority and social safety
recovery. Non-bank financing assumed an increasingly net programs; social assistance was increased to IDR55.3
large role, as the role of financing from banks, which trillion, 11.5% higher than realized spending in 2016.
remained selective in their lending, declined. At a practical level, more of the social assistance was
disbursed during the second half of 2017, a factor that
helped spur consumption during that period.
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxix

Efforts to create greater space for fiscal stimulus were, and lay the foundations for a period of economic
however, impeded by underperforming tax revenues. recovery.
In 2017, tax revenues came in below the targets set in
the 2017 Revised State Budget. Consequently, overall Bank Indonesia also continued to move ahead with
government spending was reined in to safeguard fiscal changes to the monetary policy operational framework.
sustainability. This strategy ensured the 2017 fiscal deficit This began in 2016 and is intended to improve monetary
remained at a prudent and safe level of 2.5% of GDP, policy transmission. After the policy rate was changed
below the revised target of 2.9% of GDP. The deficit to the BI7DRR in August 2016, reserve requirement (RR)
was financed by issuing government securities and by averaging was put in place with effect from July 2017.
foreign debt. To improve the efficiency of financing, The aim of this is to: (i) provide flexibility in managing
the Government carefully managed the denomination, liquidity and thus improve banking efficiency; (ii) serve
timing and tenor of issuances of government securities. as an interest rate buffer and thus reduce interest rate
Accordingly, official debt was maintained at a low, volatility on the money market; and (iii) provide space
prudent level of 29.2% of GDP. for liquidity placements in a way that promotes financial
market deepening.
Bank Indonesia’s policy mix comprises monetary,
macroprudential, payment system and currency Bank Indonesia’s exchange rate policy sought to keep
management policies. The most important of these were movement in the rupiah in line with fundamentals by
aimed at safeguarding macroeconomic and financial promoting the operation of market mechanisms. Exchange
system stability and supporting recovery in the domestic rate policy was reinforced by improvements in the foreign
economy. Bank Indonesia also strengthened coordination exchange supply and demand structure, mandatory use
with the Government and other stakeholders in order to of the rupiah in Indonesian national territory and the
build synergy and enhance the effectiveness of policies. Implementing Activities for Prudential Principles (KPPK)
Further, Bank Indonesia worked hard to strengthen for external debt management. These principles include
communications with stakeholders, with the intention of the obligation for non-bank corporates with external
supporting the effectiveness of policies. debt exposure to comply with the hedging ratio, the
minimum liquidity ratio and the minimum credit rating.
In 2017, monetary policy consistently sought to safeguard This regulation is intended to mitigate exchange rate risk,
macroeconomic stability by taking advantage of liquidity risk and overleverage risk relating to external debt
available space for optimizing the recovery momentum. obligations. Bank Indonesia also expanded the range of
Bank Indonesia’s monetary policy stance was aligned instruments available on the foreign exchange market by
with measures to keep inflation on target and hold the issuing financial instruments in non-US dollar currencies.
current account deficit at a prudent level. The maintained In addition, Bank Indonesia also promoted the use of local
macroeconomic stability created space for Bank Indonesia currency settlement (LCS) in trading transactions in order to
to support the economic recovery process through prudent reduce dependence on one particular currency. Exchange
and measured relaxation of monetary policy. In the rate policy was also bolstered by strengthening of external
first half of 2017, Bank Indonesia’s policy rate, the BI sector resilience through adequate levels of international
7-Day (Reverse) Repo Rate (BI7DRR), was held at 4.75% reserves, the first line of defense. Further, the role of the
after taking account of rising inflation expectations and international financial safety net as the second line of
the fairly high and ongoing risks surrounding global defense was expanded.
uncertainty. Space opened up for monetary relaxation
in the second half of 2017 as risks reduced, against a Bank Indonesia also moved forward with its policy for
backdrop of prudently managed macroeconomic stability. financial market deepening. Measures for deepening
Consequently, Bank Indonesia lowered the BI7DRR by the money market are divided into three pillars of
50 basis points in two rate cuts of 25 basis points each, development: (i) sources of economic financing and
one in August and the second in September 2017. It was mitigation of risks; (ii) market infrastructure; and (iii) policy
envisaged that the interest rate reduction cycle underway coordination, regulatory harmonization and education.
since 2016 would accelerate the corporate consolidations Under the first point, Bank Indonesia promoted the
xxx | General Review • 2017 ECONOMIC REPORT ON INDONESIA

issuance of money market instruments by bank and non- The focus of payment system policy is to support efficiency
bank corporates and encouraged domestic corporations in the economy and assure the security, efficiency and
to make use of hedging by supporting the provision of smooth operation of economic transactions. To achieve
call-spread option (CSO) structured products. Second, these objectives, Bank Indonesia pursued a number
Bank Indonesia raised the credibility of the Jakarta of policies in the non-cash payments system. These
Interbank Offered Rate (JIBOR) as the reference rate for policies targeted three main strategies: (i) promoting the
short-term funding. It also strengthened financial market interconnection and interoperability of domestic retail
infrastructure, including a new task force for establishment payment instruments, channels and infrastructure under
of the Indonesia Derivatives Central Counterparty, and the umbrella of the National Payment Gateway (NPG);
improved the code of ethics for market actors. In pursuit of (ii) expanding the electronification program for transport
the third goal, Bank Indonesia built the capacity of market on toll roads and disbursement of social assistance; and
actors by improving the operational understanding of repo (iii) a balanced response to advancements in the digital
transactions and the Indonesia Global Master Repurchase economy. These policy strategies were supported by
Agreement (GMRA). These measures brought about measures to strengthen payment system monitoring. They
positive outcomes as evident in the growth in transactions include measures to eradicate crimes such as money
on the money market and foreign exchange market, the laundering and terrorism financing, by monitoring business
availability of a wider variety of instruments, an expansion conducted by non-bank money changers and enforcing
of the investor base and improved credibility of financial compliance.
market actors. These financial market developments led
to improved monetary policy transmission, as the money In further actions relating to the NPG, Bank Indonesia
market interest rate structure became more responsive launched a pricing scheme policy aimed at creating
to the Bank Indonesia monetary policy stance. Financial an equitable pricing structure that takes account of
market deepening was also pursued with the aim of investment costs, but with transaction charges at levels not
strengthening the resilience of the financial market to burdensome to the public. In June 2017, Bank Indonesia
external shocks. issued a regulation on the proper organization and
structuring of the infrastructure, institutional framework,
In 2017, macroprudential policies were directed at instruments and mechanisms of the NPG. Overall, the
stimulating bank intermediation, again within a context NPG will bring improvements to the management of the
of well-managed financial system stability. These policies payments industry, with all domestic payments processed
were implemented by continuing the accommodative in-country using the rupiah at affordable prices. In
macroprudential policies that were already in place addition, transaction data will be properly protected, a
to correct the direction of the financial cycle, thus vital step in maintaining national security within the context
supporting the ongoing process of economic recovery. of payment transactions and consumer protection.
Relating to this, Bank Indonesia retained its policies
concerning loan-to-value (LTV) and financing-to-value (FTV) Rupiah currency management policy also continued to
for home mortgages and the accommodative loans-to- focus on optimizing the role of cash payment instruments
funding reserve requirement adopted previously. Under in support of the economy. This policy was to be
the policy for the countercyclical capital buffer (CCB), developed via three pillars: (i) availability of quality,
Bank Indonesia decided to hold the additional capital trusted currency; (ii) safe and optimum distribution and
aggregate at 0%. This stance was intended to safeguard management of currency; and (iii) excellence in cash
bank capacity for lending. Bank Indonesia implemented services. To improve currency distribution and cash
its policy for working towards more balanced bank services, Bank Indonesia made further improvements to
intermediation by promoting financing and financial cash management points, mobile cash services and the BI
access for micro, small and medium enterprises (MSMEs). Jangkau outreach service for remote, outlying and border
To this end, Bank Indonesia set out a phased increase regions. To do this, it operated both through the Bank
in mandatory compliance with the MSME lending ratio. Indonesia office network and in collaboration with other
In 2016, a minimum MSME lending ratio of 10% was banks or institutions.
required, in 2017 this rose to 15% and in 2018 to 20%.
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxxi

Bank Indonesia’s policies were also strengthened by the police to prevent and eradicate the circulation of
synergizing with the Government and other stakeholders. counterfeits.
Bank Indonesia and the Government coordinated on
actions to safeguard macroeconomic stability, particularly
in curbing inflationary pressure and promoting the real Performance of the Indonesian Economy in 2017
sector as part of the structural reforms. Coordination
took place in various forums, including the inflation The policy mix responses helped improve the fortunes
control and monitoring teams at both the central and of the domestic economy in 2017 (Diagram 2). Since
regional government levels, and the Bank Indonesia– the instability of 2013 and 2014 – marked by surging
Central/Regional Government Coordination Meeting. inflation and a deteriorating current account deficit – the
Coordination with the Government on structural reforms Indonesian economy has charted gradual improvement
took place within the task force for implementation of the on the strength of consistent and prudent policies. This
economic policy packages (PKE). Within this, Working has resulted in more robust economic stability with
Group III – tasked with evaluation and analysis of the inflation within the target range for the past three years, a
impact of economic policy – is the most important venue consistently prudent current account deficit, a reasonably
for coordination. stable exchange rate and financial system stability under
steady control. This economic stability became a robust
In financial system stability, Bank Indonesia continue foundation for progress in economic recovery, with a
its coordination with the Ministry of Finance, OJK and steady rise in economic growth and an improvement in the
the Indonesian Deposit Insurance Corporation (LPS) in structure of growth from the second half of 2017.
the Financial System Stability Committee (KSSK). This
coordination covered the monitoring and maintenance Indonesia’s economic growth improved gradually in
of financial system stability, management of crises in 2017, but with recovery at a slow pace. In 2017, GDP
the financial system and managing problems within growth was recorded at 5.07%, up slightly from the 2016
systemically important banks. Bank Indonesia’s policy growth of 5.03% (Table 1). GDP expansion was mainly
for safeguarding financial system stability was also evident in the second half of 2017, buoyed by exports
supported by OJK policies, which require all activities in and investment. Exports increased by a substantial margin,
the financial services sector to be performed in an orderly, driven by the positive momentum in the world economy.
fair, transparent and accountable manner. The OJK This strengthening in external demand contributed to an
policies also aim to ensure sustainable and stable growth
in the financial system. In 2017, the OJK issued several
regulations designed to strengthen the financial services
Diagram 2. Indonesia Macroeconomic Development
sector. Actions by the OJK included the revocation of the
rules for relaxation of debt restructuring, set out in OJK
GDP (%)
Regulation No. 11/POJK/03/2015 concerning Prudential
Regulations for Commercial Banks within the Framework 5.6
of Stimulus for the National Economy. This measure was 5.03 5.07
taken in view of the improved condition of the banking

system after internal consolidation. A number of strategic
Current
activities were also undertaken by OJK to development 6.4
Account -1.8 -1.7 3.0 3.6 Inflation
the supervisory function in the financial services sector, Balance -3,2 (%)
including development of the information system (% GDP)
3.2
infrastructure for monitoring the financial services sector.
8.4
Bank Indonesia also strengthened coordination with
9.71
the Government in the field of payment systems, mainly
connected with actions to promote electronification. In Exchange Rate Volatility (%)
2013 2016 2017
managing rupiah cash, Bank Indonesia coordinated with
Source : BPS-Statistics Indonesia and Bank Indonesia, calculated
xxxii | General Review • 2017 ECONOMIC REPORT ON INDONESIA

easing of the corporate consolidation process and created that middle and upper-class households were deferring
space for corporates to expand. Brisk investment also consumption, placing greater emphasis on accumulating
received impetus from the fiscal stimulus, particularly in savings. Several factors weigh in on this condition,
the second half of 2017 when work moved forward on including income expectations and more rational, selective
various infrastructure projects. The increase in exports spending behavior. Furthermore, the millennial generation
and investment, however, did not have an optimal effect has also affected consumption patterns, having shifted
in accelerating value creation in the domestic economy spending away from conventional goods in favor of
because, as in the past, some of this increase was offset leisure. This shift in preferences contributed to less buoyant
by imports. growth in goods consumption compared with 2016.
Indications point to improvement in the economic growth In 2017, improved GDP performance was not evenly
structure in 2017, although this was unevenly distributed. distributed across business sectors. Sectors that did
Structural improvements in the economy were manifested improve reflected the significant influence of resource-
in higher exports and investment. As before, exports were based exports, infrastructure development, and the shift in
dominated by commodities, although export growth was household consumption preferences. The primary sector
seen in some manufactured products, including basic powered the increased growth, driven by export demand,
chemicals, motor vehicles and iron and steel. Similarly, but only limited improvement took place in manufacturing.
the renewed growth in non-construction investment was In other developments, the economy also received a
also bolstered by business activity tied to commodities, boost from the construction sector, as work progressed on
particularly agriculture and mining, as well as some forms infrastructure projects. Further impetus for the economy
of manufacturing. came from the accommodation, food and beverages
sector, transport and warehousing, and information and
Household consumption continued to play a limited role communications, in line with the shift in consumption
in driving economic growth. Although higher commodity preferences. In analysis by geography, a key element of
prices and exports boosted incomes, household economic gains was the upbeat growth in commodity-
consumption lacked momentum and grew at 4.95%, based regions, led by Kalimantan.
or slightly below the level reached in 2016 of 5.01%.
This is partly explained by changes in consumption in The recovery in the domestic economy had a positive
response to the increases in electricity costs in 2017. impact on the quality of growth, which was accompanied
Early indications suggest the energy subsidy reforms by declining unemployment and a fall in poverty,
have impacted household consumption in the short term, albeit with a relatively flat Gini ratio. With the onset
particularly within low-income groups, with consumption of improvement in the economy, unemployment eased
cut to cover the increase in bills. However, the distribution slightly to 5.5% in August 2017 versus 5.6% in August
of social assistance did help to sustain household 2016. The decline in unemployment is explained in part
consumption within these groups. The enlarged fiscal by advancements in digital technology. Its widespread
space following the subsidy reforms has provided a boost use in economic activities created more job opportunities
to the economy through increased spending allocations for and provided a buffer against the downturn in formal
more productive activities. employment in leading sectors, such as agriculture, mining
and construction. This shift in employment also led to
The sluggish role of household consumption also improvement in poverty figures. In 2017, the proportion
represented the influence of income factors and changes of citizens living in poverty was recorded at 10.1%,
of behavior in society. In overall terms, positive growth representing an improvement over 10.7% in 2016. There
in personal bank deposits indicated that household was only limited amelioration of disparities, however, as
incomes had been adequately maintained. However, no evident from the Gini ratio that reached 0.391 or only
significant improvement was evident in income indicators slightly below the 2016 level of 0.394.
for some groups in society, particularly low-income
earners. Notably, real wage growth in the informal sector In 2017, the balance of payments (BOP) again recorded
was limited. At the same time, there were indications a surplus as positive global and domestic momentum
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxxiii

Table 1. Domestic Economic Indicators
2017
Components 2015 2016
I II III IV Total
Economic Growth (%, yoy) 4.88 5.03 5.01 5.01 5.06 5.19 5.07
Household Consumption (%, yoy) 4.96 5.01 4.94 4.95 4.93 4.97 4.95
Government Expenditure (%, yoy) 5.31 -0.14 2.69 -1.92 3.48 3.81 2.14
Investment (%, yoy) 5.01 4.47 4.77 5.34 7.08 7.27 6.15
Building Investment (%, yoy) 6.11 5.18 5.87 6.07 6.28 6.68 6.24
Non-Building Investment (%, yoy) 1.93 2.43 1.46 3.23 9.47 9.03 5.90
Export (%, yoy) -2.12 -1.57 8.41 2.80 17.01 8.50 9.09
Import (%, yoy) -6.25 -2.45 4.81 0.20 15.46 11.81 8.06
CPI Inflation (%, yoy) 3.35 3.02 3.61 4.37 3.72 3.61 3.61
Core Inflation (%, yoy) 3.95 3.07 3.30 3.13 3.00 2.95 2.95
Volatile Food Inflation (%, yoy) 4.84 5.92 2.89 2.17 0.47 0.71 0.71
Administered Prices Inflation (%, yoy) 0.39 0.21 5.50 10.64 9.32 8.70 8.70
Indonesia Balance of Payment
Current Account Deficit (% GDP) 2.0 1.8 0.9 1.9 1.7 2.2 1.7
Overall Balance (Billion USD) -1.1 12.1 4.5 0.7 5.4 1.0 11.6
Reserve Assets (Billion USD) 105.9 116.4 121.8 123.1 129.4 130.2 130.2
Exchange Rate (Average, Rp/USD) 13,392 13,305 13,348 13,309 13,333 13,537 13,385
Jakarta Composite Index (JCI) 4,593 5,297 5,568 5,830 5,901 6,356 6,356
Government Bonds Yield 10 years (%) 8.76 7.97 7.04 6.83 6.50 6.32 6.32
Banking
Total Credit (%, yoy) 10.4 7.9 9.2 7.8 7.9 8.2 8.2
CAR (end of period, %) 21.2 22.7 22.7 22.5 23.0 23.0 23.0
NPL ( end of period, %) 2.5 2.9 3.0 3.0 2.9 2.6 2.6
State Budget
Tax (% GDP) 10.7 10.4 1.8 2.5 2.3 3.4 9.9
State Budget Deficit (% GDP) 2.6 2.5 0.8 0.5 0.7 0.5 2.5
Source : BPS-Statistics Indonesia, Bank Indonesia, Ministry of Finance, OJK-Financial Services Authority and BEI-Indonesia Stock Exchange
bolstered external resilience. The balance of payments bolstered by foreign investor confidence in the improving
surplus was achieved with the aid of a prudently managed economic outlook for Indonesia and global financial
current account deficit, which was covered by the surplus market risks that were moderate and factored into market
in the capital and financial account. In 2017, the current decisions. The BOP surplus in 2017 boosted international
account deficit came to 1.7% of GDP, down slightly from reserves to USD130.2 billion, the highest level ever
1.8% of GDP in 2016. This reduction was supported achieved by Indonesia. This was equivalent to 8.3 times
by higher exports, led by non-oil and gas products, in the level of imports and official debt servicing, far above
keeping with the global economic recovery that has fueled the minimum threshold of three times. Prudently managed
increases in demand and commodity prices. Imports, external resilience was also reflected in the capacity for
however, were still constrained by the gradual pace of the funding the current account deficit from long-term capital
domestic economic recovery. The exchange rate, which inflows, visible in the increased basic balance and the
moved in line with fundamentals, also contributed to the safe level of external debt at 34.7% of GDP.
subdued rate of import growth. Amid the decline in the
current account deficit, the capital and financial account The BOP surplus supported rupiah stability in the face
recorded a hefty surplus buoyed by continuing inflows of of mounting external pressure on the currency at the
foreign capital, comprising mostly foreign direct investment end of the third quarter of 2017. The rupiah gained
(FDI) and portfolio investment. The high inflows were until the end of the third quarter of 2107 before coming
xxxiv | General Review • 2017 ECONOMIC REPORT ON INDONESIA

under pressure from global factors. At this point, foreign global and domestic factors. Global economic growth is
investors engaged in portfolio rebalancing, a move projected to strengthen further in coming years, driven in
triggered by external sentiment relating to US policy and the short term by both advanced countries and emerging
one that put pressure on global currencies. This global market economies. However, in the medium and long
sentiment triggered a wave of capital reversal that fueled term, emerging markets will play a greater role in driving
depreciation in world currencies against the US dollar, global economic growth. This is explained by the structural
with the rupiah also affected. Averaged over 2017, the problems of ageing populations and declining productivity
rupiah weakened by a thin 0.60% to IDR13,385 to the US that hamper growth in advanced economies, such as
dollar from IDR13,305 to the US dollar in 2016. the United States, European nations and Japan. Overall,
further global economic improvement has the potential to
Inflation in 2017 stayed within the target range, helping gradually strengthen commodity prices and this in turn will
to safeguard macroeconomic stability, and came in have a positive impact on the Indonesian economy.
at 3.61%, within the target range of 4.0%±1%. The
subdued level of inflation was achieved with support With the steady improvement in the global economy,
from anchored inflation expectations, a largely stable economic growth is predicted to climb in 2018 to a
rupiah exchange rate and management of demand- range of 5.1% to 5.5%. Progress in Indonesia’s economic
side pressures. Low inflation also benefited from adept recovery will not only be driven by global factors, but
management of pressure in domestic food prices, notably also by more vigorous domestic demand as confidence
for volatile foods. Global food prices were low in 2017 improves. The government fiscal stimulus, activity around
and measures to secure domestic supply were successful. the upcoming regional elections, the 2018 Asian Games
At the same time, administered prices (AP) inflation rose, and rising private incomes are all short-term sources of
primarily due to increases in electricity billing rates for domestic demand from consumption. The fiscal stimulus
some consumers following the subsidy reforms. Even so, for spurring short-term consumption will be delivered
the second-round effects of AP inflation on increases in in part through significant increases in social safety net
other commodity prices was limited. Overall, inflation expenditures. In addition, the government commitment
achievements in 2017 were positive, and the inflation to infrastructure projects will stimulate investment going
target was reached for the third consecutive year. forward. Also contributing to the outlook for improved
economic growth will be the corporate consolidation
Financial system stability was kept well in hand, despite a process, which is expected to start winding down
lack of full recovery in banking intermediation. Resilience in response to strengthening demand and growing
was supported by strong levels of capital and adequate confidence. This will improve the outlook for investment,
liquidity, but banking intermediation operated below including non-construction investment. At the same time,
par. Credit growth was slack and reached 8.2%, only positive growth is forecast in exports – although at a
slightly higher than the 2016 level of 7.9%, due to both slower rate than in 2017 – with reliance primarily on
demand and supply factors. Amid the lingering weakness commodity exports in the short term.
in intermediation, positive developments were evident in
non-bank financing, which recorded buoyant net growth The consumer price index (CPI) is predicted to remain
of 32.2%. In the sharia financial sector, conditions were within the target range, set lower for 2018 at 3.5%±1%.
similar; the underperforming intermediation function in The subdued level of core inflation will be supported by
sharia banking was offset in the non-bank financing sector greater anchoring of inflation expectations, a prudently
with growth in issuances of sukuk, Islamic bonds. managed exchange rate and supply-side capacity for
responding to demand pressure. In the food staples
category, various government policies aimed at improving
ECONOMIC Outlook and supply and distribution are expected to keep volatile food
Challenges (VF) inflation in check. In addition, the Government is
likely to keep increases in strategic commodity prices to a
Looking ahead, further improvement is predicted for minimum, so that they do not stoke inflationary pressures.
the Indonesian economy with support from favorable The projections for subdued CPI inflation going forward
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxxv

are also supported by improved behavior in inflation, such of monetary policy in advanced countries, renewed
as the declining impact of exchange rate depreciation geopolitical turmoil and signs of rising protectionism.
on inflation and the diminishing second-round effects of At home, short-term challenges remain similar to those
increases in administered prices and volatile foods on in 2017 – the risk of contraction in capital inflows, the
other commodities. ongoing consolidation in the domestic economy and
renewed constraints on fiscal space. Another short-term
The financial and external sectors are also expected to challenge will be to safeguard macroeconomic stability
improve. In the financial sector, bank lending is projected amid a growing risk of inflation linked to increases in
to rise by a range of 10% to 12% in 2018, consistent with prices of oil and food commodities. Meanwhile, medium-
the outlook for more robust economic growth. Similarly, term challenges from the global environment will arise
depositor funds are also predicted to expand in the range from a decline in total factor productivity and the ageing
of 9% to 11%. In the external sector, the 2018 current demographic of advanced nations. At home, various
account deficit is projected to widen slightly to between structural problems in the economy have led to challenges
2.0% and 2.5% of GDP, still comfortably safe below 3%, in improving economic competitiveness, building industry
in keeping with strengthening domestic demand. capacity and capability, bringing about an inclusive
economy and providing sustainable financing. The
The 2018 outlook for improvement in the economy will lay interaction and complexity of these challenges means that
the ground for continued economic gains in the medium the management of Indonesia’s economic stability will not
term. In the medium-term forecast for 2019 to 2022, the become any easier than in past years.
economy will maintain an upbeat course and growth
will accelerate. In 2022, economic growth is forecast Serious attention will also need to be paid in the medium
in a range of 5.8% to 6.2%. The sources of economic term to advancements in the digital economy, including
growth are also predicted to be broader-based and will financial technology (fintech), given that it can transform
not rely solely on commodity-based sectors. Improvement the economic landscape. Fintech has the potential to
in the economy will be driven not only by the government make the economy more inclusive and boost economic
stimulus, but also the growing role of the private sector. productivity, and harnessing digital technology in the
The more buoyant outlook for the economy is supported economy can help business processes to streamline and
by the positive impact of the recent structural reforms, become more efficient. In the financial sector, digital
to which the Government has been firmly committed. technology has the potential to expand financial access
The government drive to accelerate infrastructure build and increase the speed of transaction processes. On the
will also be supported by government policies for fiscal, other hand, however, if appropriate responses are not
institutional and regulatory reforms. made, there are risks that digital technology could disrupt
the economy. Risks may stem from increasingly fierce
The improved prospects for the medium-term are market competition, reduced ability to provide employment
influenced, among others, by productivity improvements and risks to financial system stability. Furthermore, the risk
in the economy driven by the Government’s structural of limited capacity to provide employment, particularly for
reforms, which will support sustainable economic growth. unskilled labor, could lead to worsened disparities.
From a geographical standpoint, support for the outlook
for improved economic growth is expected from leading
sectors of each region. The expectation of improved Future Policy Direction
economic productivity is a factor influencing the lower
inflation forecast of 3.0%±1% in 2022. The dynamics of the Indonesian economy in 2017 contain
key lessons on optimizing momentum in the economic
Amid the improving economic outlook, a careful watch recovery and reinforcing the economy structurally. First,
must be kept on global and domestic short- and medium- Indonesia is on the right track for economic recovery.
term challenges, as there is a risk they could disrupt Growth is on a gradual upwards trend, supported by the
the acceleration of economic recovery. The short-term stable economy. In Bank Indonesia’s view, this gradual
global challenges stem from the ongoing normalization improvement in Indonesia’s economic growth is part
xxxvi | General Review • 2017 ECONOMIC REPORT ON INDONESIA

of a process of adjustment of behavior by economic reason, the confidence of economic actors needs to be
participants at the early stages of the business expansion progressively strengthened through consistency in a policy
cycle. Looking ahead, the space for creating more vibrant mix that contains fiscal, monetary and macroprudential
economic growth will widen in keeping with strengthening policies, payment system and rupiah cash management
confidence in the economic outlook. This is reflected policy and structural reforms.
in the fact that structural improvement in the sources of
economic growth during 2017 did not rely only on the Fourth, coordination with other stakeholders on key
government stimulus, but also began to emerge from policies is crucial. Coordination is necessary to
improvement in the private sector role. In this regard, the optimize the momentum for economic recovery, amid an
strengthening of confidence among economic participants increasingly complex set of challenges. Efforts to promote
is key in transforming the recovery momentum into higher, economic growth while safeguarding stability require
sustainable economic growth. a coordinated response on national macroeconomic
policy from Bank Indonesia, the Government and other
Second, the policies put in place will need to balance authorities. Fiscal policy must continue to provide an
short-term and long-term stimuli and time their economic stimulus balanced between long-term and short-
implementation appropriately. In the Indonesian economy, term objectives, while safeguarding the fiscal sustainability
which is now embarking on a cycle of economic outlook. In monetary affairs, policy must be pursued with
expansion, there is a pressing need for support from the caution, with instruments optimized to safeguard economic
fiscal stimulus. The stimulus delivered through infrastructure stability, while creating space for economic growth.
will have a longer-term impact on the economy, and Meanwhile, an accommodative macroprudential policy
needs to be balanced by a short-term stimulus. A short- will be maintained to optimize momentum for economic
term stimulus will protect public purchasing power and recovery, while safeguarding financial system stability.
prevent momentum being lost in the drive for economic This cyclical policy response must also be reinforced with
recovery. Attention must be paid to the timing of policy structural policies that not only accelerate the construction
implementation, as this can affect economic adjustments of physical infrastructure, but also address non-physical
in the short term and the subsequent process of economic areas such as strengthening regulation and institutions. In
recovery. An important lesson about timing of policy this context, Bank Indonesia will introduce policies related
implementation can be seen in the provision of social to the payment system and financial market deepening.
assistance, which was delayed until the second quarter
of 2017 and impacted economic recovery during that Looking ahead, the risk of mounting uncertainty on global
period. financial markets is one of the consequences of policy
normalization in advanced economies. This means that
Third, the credibility of macroeconomic policy efforts to safeguard economic stability and economic
management plays a vital role in strengthening economic recovery will not be any easier than in past years. In
recovery, enabling it to maintain momentum and remain looking at lessons learned in 2017, Bank Indonesia’s
on the right track. Consistency in macroeconomic policy policy focus going forward will be to stay consistently
management will convince economic actors of the focused on responding to challenges that may impair the
credibility of authorities and the policy direction, which outlook for the economy. Essentially, Bank Indonesia’s
in turn will strengthen the effectiveness of implemented policy mix must achieve the right combination of policies
policies. Experience shows that policy consistency in to safeguard macroeconomic and financial system
safeguarding economic stability can bolster the confidence stability, the foundation for more robust, balanced and
of economic actors in the outlook for the Indonesian sustainable economic growth.
economy. This is reflected in the steady level of economic
stability, even though Bank Indonesia has embarked on Bank Indonesia will persist with a policy mix aimed
measured relaxation of monetary and macroprudential at maintaining the macroeconomic and financial
policies. Besides this, the transformation of economic system stability achieved thus far. The policy mix will
recovery into higher, sustainable economic growth will be comprised of monetary policies, macroprudential
only be possible if the private sector participates. For this policies and payment system and currency management
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxxvii

policies. Regarding monetary policy, Bank Indonesia will In the non-cash payment system, Bank Indonesia policy
pursue a monetary policy stance aligned to the effort will focus on shaping an interconnected, affordable,
to keep inflation within the target range and the current innovative and competitive payment ecosystem that
account deficit at a safe level. To strengthen monetary protects its users. This will be achieved by: (i) promoting
policy effectiveness, Bank Indonesia will improve the interconnection and interoperability of instruments,
implementation of RR averaging, further reinforcing channels and infrastructure for domestic retail payments
the monetary policy operational framework. It will also under the umbrella of the NPG; (ii) strengthening
strengthen monetary operations, including measures electronification; and (iii) ensuring the smooth operation
involving sharia-compliant monetary operations, pursue of the registration process for fintech providers, including
an exchange rate policy for maintaining exchange rate e-commerce, as outlined by the Bank Indonesia Regulation
stability in line with fundamentals and continue measures concerning Provision of Financial Technology. Regarding
for financial market deepening. Bank Indonesia will fintech, Bank Indonesia will strengthen coordination with
also build policy synergy with the relevant authorities other authorities to protect the domestic economy from
in developing and promoting new sources of economic any potential harm. These policies will be reinforced by
financing. the implementation of a risk-based supervision function to
ensure compliance with Bank Indonesia policies. In the
Bank Indonesia will strengthen macroprudential policies area of rupiah currency management, Bank Indonesia
in order to stimulate bank intermediation within a policy will focus on ensuring the provision of currency
context of well-managed financial system stability. The fit for circulation (ULE) in adequate quantities distributed
accommodative macroprudential policies will continue to all outlying areas of Indonesian territory. This will be
as a countercyclical measure to correct the direction of achieved through three key strategies: (i) building stronger
the financial cycle and support the continuation of the synergy with various parties in cash services; (ii) ensuring
economic recovery. The strengthening of macroprudential that supply of quality rupiah currency is safeguarded and
policies will take place in three main areas: strengthening further enhancing security features; and (iii) improving the
of liquidity, reinforcing the bank intermediation function quality of rupiah currency and protecting the public from
and improvements in instrument effectiveness. Regarding the risk of counterfeit rupiah currency.
the strengthening of liquidity, Bank Indonesia will
implement a macroprudential liquidity buffer (PLM). To In its effort to promote new sources of inclusive, quality
reinforce the quality of intermediation, Bank Indonesia and sustainable economic growth, Bank Indonesia will
will implement a macroprudential intermediation ratio lend its full support to the development of the sharia
(RIM) that comprises a strengthening of the loan-to-funding economy and finance through the forum of the National
ratio (LFR). Concerning improvements in instrument Committee for Sharia Finance (KNKS). There is a
effectiveness, Bank Indonesia will strengthen measures large domestic and global market for sharia-compliant
for the loan-to-value (LTV) policy, including the use of industries, including for halal products – products
targeted LTV options. Macroprudential policies will also compliant with Islamic law. If these opportunities can be
be supported by policies for development of MSMEs, seized, this could potentially help in reinforcing economic
as a supply-side measure that will counter inflationary structures – through domestic production – and the
pressures. balance of payments. The national sharia economic and
financial strategy will become increasingly important in
Regarding payment system policy, Bank Indonesia will realizing the significant potential of this market. Bank
support the efficient operation of the economy under Indonesia will collaborate and coordinate with the relevant
the guidelines of the payment system and currency authorities to contribute to the development of the sharia
management (SP–PUR) blueprint for 2017 to 2024. Policy economy and finance through three main strategies:
will be directed at ensuring that all economic transactions, (i) empowering the sharia economy; (ii) deepening the
both cash and non-cash, operate seamlessly, in a secure sharia financial market; and (iii) strengthening research,
and efficient manner. This supports the maintenance of assessment and education about sharia economics and
macroeconomic and financial system stability and also finance.
supports the Government in implementing its priorities.
xxxviii | General Review • 2017 ECONOMIC REPORT ON INDONESIA

Turning to government measures, fiscal policy will
consistently seek to deliver an economic stimulus that
safeguards the fiscal sustainability outlook. In 2018, this
policy will be pursued through optimization of revenues,
quality expenditure and sustainable financing. On the
revenues side, the Government will take several measures,
including broadening the tax base through intensification
and widening of coverage, increased taxpayer
compliance and improvements to information systems
and human resources in support of taxation. Regarding
expenditure, the Government will make efficiency
improvements in procuring non-priority goods, improve
the effectiveness of social safety net programs, refocus
government spending on infrastructure, health, education
and targeted subsidies, and strengthen the quality of fiscal
decentralization. In financing, the Government will work
for efficiency and sustainability. Overall, the direction of
fiscal policy is reflected in the 2018 budget deficit, which
is targeted at 2.2% of GDP.
In the medium-term, the Government will work consistently

to improve the quality of spending in productive sectors,
supported by higher tax revenues. At the same time, the
fiscal deficit will be maintained at a prudent level. The
Government will also take measures to promote efficient
and sustainable funding of the budget deficit, and will
achieve this with prudent management of the debt ratio
and the development of innovative sources of financing.
The Government, supported by relevant authorities,

is firmly committed to moving forward with structural
reform. Structural reform policies can be dived into three
categories. The first covers the provision of adequate
infrastructure of suitable quality, the building of innovation
and the quality of human capital, and improvements in
organization and structure that encompass the business
climate, governance and government services. The
second area is related to efforts to boost competitiveness
in industry and services and efforts to ensure that the
domestic economy is able to grow with inclusiveness,
supported by sustainable financing. The third is
related to preparation for the very rapid progress in
digital technology, in order that it delivers the greatest
possible benefits for the economy with minimal risk. The
overarching objective of these policies is to support the
achievement of robust, balanced, sustainable and inclusive
economic growth.
2017 ECONOMIC REPORT ON INDONESIA • General Review | xxxix

CHAPTER 1
Global Economy
The broad-based global economic recovery gained
momentum in 2017, accompanied by increasing world trade
volumes and rising commodity prices. The stronger global
economy and the monetary policy normalization taking place
within advanced economies was well anticipated by the
markets, and therefore the risks to the global financial markets
were lessened.
2017 ECONOMIC REPORT ON INDONESIA | 1

The strengthening pace of global economic recovery Table 1.1. Global Economic Growth
in 2017 saw global GDP growth rise to 3.7% in 2017
from 3.2% in 2016. A faster pace of recovery in the Percent, yoy
advanced economies and ongoing recovery in developing Country/ Group of Countries 2015 2016 2017
economies supported this global growth, with the sources World 3.4 3.2 3.7
of growth expanding from consumption to investment.
Advanced Economies 2.2 1.7 2.3
This stronger investment stimulated growth in world trade
US 2.9 1.5 2.3
volumes, which increased to 4.5% in 2017 from just 1.5%
Japan 1.1 0.9 1.6*
in 2016. This in turn prompted international commodity
EU 2.0 1.8 2.5*
prices to rise, particularly energy and metals. These
positive global developments improved the dynamics of UK 2.2 1.9 1.8*
global financial markets, as did the reduction in risks in Emerging Economies 4.3 4.4 4.7
comparison with 2016. Non-Commodity Exporter
5.0 4.7 4.9
Countries
China 6.9 6.7 6.9
In general, the policy responses of most countries were
India 8.0 7.1 6.7
oriented towards accelerating the economic recovery
and maintaining momentum, while taking into account Commodity Exporter Countries 1.3 1.9 2.2
local dynamics. In terms of monetary policy, several Source: IMF and World Bank, calculated
Note: *) based on country’s releases per February 2018
advanced economies gradually sought to normalize in
response to the solid economic recovery and the rising
inflation outlook. Meanwhile, most emerging market Advanced Economies
economies (EMEs) adopted monetary policy easing to
support the economic recovery. On the fiscal side, many Accelerating economic growth, coupled with controlled
advanced and EME governments played a dominant inflation, was indicative of stronger economic recovery
role in stimulating the economy, although some countries momentum in advanced economies. In 2017, the
were unable to do this as they lacked the fiscal space. advanced economies grew by 2.3%, up from 1.7% in
The global recovery also prompted structural reforms 2016. Economic gains in the United States, European
aimed at enhancing productivity, overcoming labor market Union (EU), and Japan were the main contributors
constraints and increasing future economic growth. In to global growth as consumption in these economies
addition, international cooperation played a key role remained solid and exports rebounded. Furthermore,
in achieving robust, sustained, balanced, inclusive and improving investment performance also catalyzed
resilient economic growth. economic growth (Chart 1.1). In general, faster economic
1.1. Global Economic Dynamics

Chart 1.1.
Grafik 1.1. Investment
Tingkat Pengangguran Growth
Negara Maju of Advanced
The global economic recovery gained momentum in 2017
Countries
as both developing and advanced economies made gains.
Percent, yoy
Nearly all major advanced economies realized stronger 12
and broader-based growth, while emerging market 10
economies, both commodity exporters and non-commodity 8
6
exporters, also improved their economic growth (Table
4
1.1). Consequently, global economic momentum fed into 2
increasing world trade activity and rising international 0
commodity prices. -2
-4
-6
I II III IV I II III IV I II III IV I II III IV I II III IV
2013 2014 2015 2016 2017
EU (3 Largest Countries) Japan UK US
Source: CEIC, calculated
2 | CHAPTER 1 • 2017 ECONOMIC REPORT ON INDONESIA

Chart 1.2.
Grafik 1.3. Inflation
Tingkat Inflasi Rates of Advanced Countries
Negara Maju Chart 1.4.
Grafik 1.4. US Manufacturing
PMI Manufaktur Negara Maju PMI and Industrial
Output
Percent, yoy Diffusion Index Percent, yoy
3.5 60 8
3.0
6
2.5
2.0 55 4
1.5
2
1.0
0.5 0
50
0
-2
-0.5
-1.0 45
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 -4
7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2016 2017 2015 2016 2017
UK US Japan Canada EU PMI Industrial Output (rhs)
Source: Bloomberg
Source: Bloomberg Note : Value above 50 depicts the expansion phase
growth in the advanced economies has not triggered (Chart 1.4).1 Greater investment in manufacturing was
excessive inflationary pressures (Chart 1.2). also evidenced by stable capacity utilization at around
75%, despite growth in industrial output. In addition, the
Solid consumption and increasing investment pushed depreciation in the US dollar through to the end of the
up US economic growth from 1.5% to 2.3% in 2017. second quarter was a boon to the US economy, reducing
Improving labor market dynamics supported consumption, the net export deficit.
particularly of goods, while investment growth
increased to 4% in 2017 from 2.5% in 2016, driven Unemployment in the United States dropped to
by non-residential investment in the mining sector and 4.1% in 2017, below both pre-crisis levels and the
in manufacturing. Investment in the mining sector has Federal Reserve’s Non-Accelerating Inflation Rate of
benefitted from the rising oil price since the end of 2016 Unemployment of 4.7%. Lower unemployment has not,
(Chart 1.3), while improving conditions for manufacturers however, been accompanied by any significant increase
drew more investment to that sector. From the beginning in wages (Chart 1.5), meaning little inflationary impact.
of 2017, the Purchasing Managers Index (PMI) showed Wages have stagnated due to structural issues, such as the
expansion, while industrial output also remained high country’s ageing population and the ongoing tendency of
US firms to favor part-time work contracts. The number of
part-time contracts remains higher than levels seen prior to
the financial crisis (Chart 1.6).
Chart 1.3.
Grafik 1.10. Investasi US
SektorMining Sector Investment
Tambang AS
In Europe, the economic recovery gained momentum in
Percent, yoy 2017 and was broader based, with the risks contained.
100 Economic growth in the EU stood at 2.5%, up from 1.8%
80 in 2016 (Table 1.1). Growth in Europe was no longer
60 driven merely by Germany and France, but also by
40 Italy and Greece. Stronger economic growth was also
20 achieved in countries on the periphery, including Slovenia,
0
Cyprus, Latvia and Estonia. In addition, the recovery in
-20
Europe was supported by a decline in political risk and
-40
ongoing financial system stability. Political risk subsided
-60
I II III IV I II III IV I II III IV I II III IV I II III IV
2013 2014 2015 2016 2017
WTI Price (West Texas Intermediate) Mining Sector Investment 1 The Purchasing Managers Index (PMI) is based on a survey of purchasing managers
at corporations in the manufacturing industry to obtain leading indicators of economic
growth. A PMI above 50 indicates improvement compared with the previous month,
Source: Bloomberg and BEA, calculated while a PMI below 50 is indicative of worsening conditions.
2017 ECONOMIC REPORT ON INDONESIA • CHAPTER 1 | 3

Chart 1.5.
Grafik 1.11. US Unemployment
Tingkat Pengangguran dan Rate and Wage Chart
Grafik1.7. European
1.7. Indikator Labour
Pasar Market
Tenaga KerjaIndicators
Eropa
Pertumbuhan Upah AS
Growth
Percent, yoy Percent, yoy Percent, yoy Percent
10 4,5 4.0 11.5
9 4,0 3.5
10.5
8 3.0
3,5
7 9.5
3,0 2.5
6
2.0 8.5
2,5
5
1.5
2,0 7.5
4
1.0
3 1,5
6.5
0.5
2 1,0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
0 5.5
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017
Unemployment Rate Wage (rhs) Compensation per Worker Unemployment Rate (rhs)
Source: Bloomberg and FRED Atlanta Source: Eurostat and CEIC
after the French presidential election was won in May by investment was stimulated by optimism in the economic
the pro-EU candidate Emmanuel Macron. Banking sector outlook; the Economic Confidence Index rose from an
risks in Europe also eased as several bank-related issues in average of 104.3 in 2016 to 110.7 in 2017.
Spain and Italy were resolved.
In Japan, economic growth accelerated to 1.6% from
Stronger consumption, exports and investment were 0.9% on the back of growth in consumption, exports and
the main drivers of recovery in Europe. A higher level investment (Chart 1.9). Growing consumer optimism lifted
of compensation per employee in 2017 bolstered consumption, while exports rose in response to stronger
consumption (Chart 1.7) in line with improving labor global demand, including from Japan’s trade partners
market dynamics, as unemployment has declined over the in Asia. Growing global and domestic demand also
past few years (Chart 1.8).2 Export performance in Europe stimulated both private and government investment growth
also recovered, supported by increasing world trade and in the second half of 2017, with the state Investments
euro depreciation in the first half of the year. Meanwhile, for the Future program a notable contributor. Growing
domestic and foreign demand also boosted industrial
sector performance (Chart 1.10).
Chart
Grafik1.6. Use of Pasar
1.6. Indikator Part Time Workers
Tenaga KerjainEropa
the US
Percent
20.5
20.0
Chart
Grafik1.8. Unemployment
1.2. Tingkat RatesNegara
Pengangguran of Advanced
Maju
19.5
19.0 Countries
18.5 Percent
18.0 12
17.5
17.0 10
16.5
16.0 8
15.5
6
15.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
4
Source: Bureau of Labor Statistics, US 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Japan EU Germany
2 Compensation per employee is the total remuneration paid by a company to an
employee – including wages, bonuses, overtime pay and social security contributions –
Source: CEIC
divided by total hours worked.

Chart
Grafik1.9.
1.7. PDBJapanese
Jepang –GDP Based on
Kontribusi perContributions
Komponen Chart
Grafik1.11. Japanese
1.11. Inflasi, Inflation,
ekspektasi Coredan
inflasi, Inflation
Targetand
Inflasi Jepang
Inflation Targets
Percent, yoy Percent, yoy
5
3.0
4
2.5
3 2.0
2 1.5
1 1.0
0 0.5
-1 0
-2 -0.5
-3 -1.0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2012 2013 2014 2015 2016 2017 2015 2016 2017
Consumption Investment Net Export GDP Growth Inflation Core Inflation Inflation Target
Source: Cabinet Office, Government of Japan Source: Bloomberg and Bank of Japan
Japan’s stronger economic growth pushed up food and leave the European Union. The trade uncertainty between
energy prices and lifted inflation to 1%; this remains the United Kingdom and the EU has stoked concerns over
below Bank of Japan’s (BoJ) 2% target (Chart 1.11). Non- investment growth, while consumption was dampened
food and non-energy prices increased more slowly than as rising inflation eroded real incomes. Inflation stood at
the food and energy components of inflation due to flat 2.6% in 2017, up from 1% in 2016, although it remains
wage growth. This is a result of the ageing population and within the target of 2±1%. Inflationary pressures stemmed
prevalent use of part-time workers (Chart 1.12). Inflation from post-referendum currency depreciation, higher oil
in Japan was also curbed by the low inflation expectations prices and accommodative monetary policy.
that have followed prolonged periods of deflation.
In contrast with other advanced economies, the United Emerging Market Economies
Kingdom was one of just a handful of countries that
experienced economic moderation and rising inflation. In general, economic performance improved in EMEs
Economic growth dropped to 1.8% in 2017 from 1.9% in 2017. Economic growth among EMEs increased
in 2016 (Table 1.1), with the downswing primarily to 4.7% in 2017 from 4.4% in 2016, driven by the
attributable to a lack of clarity surrounding the plan to global economic recovery and rising international
Chart
Grafik1.10. Japanese
1.9. Industrial Industrialdan
Production Production and
Ekspor Jepang Chart 1.12.
Grafik 1.12. Unemployment
Tingkat Pengangguran Rate
dan Pekerja Paruh and
Waktu Part-Time
di Jepang
Export Index Workers in Japan

Index Percent, yoy Percent Percent
110 20 6 34
33
105 15 5
32
10 31
100 4
30
5
95 3 29
0
28
90 2
-5 27
85 26
-10 1
25
80 -15
I II III IV I II III IV I II III IV I II III IV I II III IV 0 24
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2013 2014 2015 2016 2017
Industrial Production Index Export (rhs) Unemployment Rate Part-time Worker (rhs)
Source: CEIC
Source: Japan's Ministry of Finance and Ministry of Economy

Chart 1.13.
Grafik 1.12. Growth
Pertumbuhan Negara of Developing Countries
Berkembang consumption as a key contributor to economic growth in
2017.
Percent, yoy
8 Notwithstanding the positive achievements, slower
6 investment growth undermined deeper economic gains
in China. The economic rebalancing process currently
4
underway in China to achieve sustainable economic
2 growth eroded public investment, while private investment
0 also remained subdued (Chart 1.15).3
-2
The Chinese Government has issued policies aimed at
-4 supporting quality and sustainable growth, but these also
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
undermined investment in some sectors. The decision to
Non-commodity exporter (except China)
Commodity Exporter reduce excess capacity in the mining sector, particularly
in coal and aluminium, triggered a contraction of
Source: IMF, WEO, Updated on January 2018, calculated
investment and raised international coal and aluminium
prices. Further, environmental protection has been
commodity prices. Economic growth in net exporters, strengthened via more rigorous inspections and these have
especially exporters of non-energy commodities, rose to also contributed to the increase in prices, and have hit
2.2% in 2017 from 1.9% in 2016 (Chart 1.13). As the manufacturing industry activity.
dominant emerging market, China maintained robust
economic growth on increasing external demand and Tighter regulations in the property sector were introduced,
resilient consumption. This higher growth achieved by culminating in more muted private investment growth in
net exporters and China spilled over to other countries, 2017. Policies were also introduced to deleverage the
although economic growth in India was less upbeat. financing of government projects and this has undermined
infrastructure investment.
China’s economic growth accelerated to 6.9% in 2017
from 6.7% in 2016 on increasing external demand, Against a backdrop of higher economic growth, inflation
primarily from advanced economies. This demand in China fell to 1.8% in 2017 from 2.1% in 2016. This
buoyed exports and stimulated manufacturing activity. was due to a fall in food prices, although core inflation
Manufacturing PMI trended upwards and profits in accelerated. Food deflation since the beginning of 2017
the manufacturing sector improved (Chart 1.14). In
addition, thriving export activity bolstered solid domestic
Chart 1.15.
Grafik 1.15. Chinese
Perkembangan Investment
Investasi Tiongkok Developments
Percent, yoy
Chart 1.14.
Grafik 1.14. Chinese
PMI Manufaktur Manufacturing
dan Keuntungan PMI and 25
Industri Tiongkok
Industrial Profit
20
Index Percent, yoy
54 30 15
53
10
20
52
5
51 10
0
50 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
0 2015 2016 2017
49
Private Investment Public Investment

48 -10
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017 Source: Bloomberg
Manufacturing PMI Industrial Profit (rhs)
3 Public investment in China consists of government investment and investment by state-

Source: Bloomberg owned enterprises.

has stemmed from supply-side improvements in the major and Europe and to rupee depreciation. Meanwhile,
foodstuffs and the base effect of high food inflation in inflation was controlled at 3.3% in 2017, which is in the
2016. Rising core inflation was due to persistently strong lower half of the central bank’s target corridor of 4±2%.
demand, while inflation at the producer level increased
due to price pressures on raw materials after international
commodity prices soared in the middle of 2016. Commodity Price Developments
In contrast with most other emerging market economies, The global economic recovery stimulated world trade;
India’s economic growth slowed to 6.7% in 2017 from volumes grew by 4.5% in 2017 compared with growth of
7.1% in 2016, the temporary result of structural reforms just 1.5% in 2016. Increased exports and imports were
implemented by the Government. The economy slowed in seen in both advanced economies and emerging markets,
the first half of the year after the Government introduced a and were driven in particular by the robust economic
demonetization policy and brought in reforms to the goods growth in the US, Europe and China.
and service tax (GST) on 1 July 2017. Demonetization,
or the withdrawal of banknotes from circulation, led to The global economic recovery also pushed up
prolonged cash shortages starting in the fourth quarter of international commodity prices in 2017, as did supply-
2016 (Chart 1.16). The GST reforms caused economic side disruptions. Both energy and non-energy prices rose
actors, particularly in urban areas, to rein in their activities (Chart 1.17). Higher energy prices, including oil, and
due to uncertainty surrounding the new tax tariffs. non-energy prices, especially metals, have prevailed since
the middle of 2016. In contrast, food prices have begun to
The economic downturn in India is, however, considered slide on abundant production.
temporary and not structural as economic players
adjust to these new policies. The deleterious effects of The global oil price spiked in the latter half of 2017 on
demonetization and the GST reforms began to fade in net demand after oil-producing countries – excluding the
the second half of 2017, with money supply rebounding US – agreed to cut production. The oil price was relatively
and automotive sales recovering. India’s growth remained stable in the first quarter of 2017 as markets waited for
relatively robust despite the downswing on the back further clarity on the results of the oil production cuts that
of solid domestic consumption and surging exports. In began in January. In the second quarter, however, the oil
contrast to the slowing consumption in urban areas, rural price was depressed by increasing oil production and
consumption continued to soar throughout 2017, as inventory in the US. In June 2017, OPEC and non-OPEC
heavy rainfall in the monsoon season after a drier 2016 countries agreed to extend production cuts until March
monsoon caused crop production to increase. India’s 2018 in response to these weaker prices. Prices bottomed
exports also rose, due both to strong demand from Asia in June 2017, before rebounding in the second half of the
Chart 1.16.
Grafik 1.16. Indian
Jumlah Uang Currency
Beredar India Circulation Chart 1.17.
Grafik 1.18. Global
Indeks Harga Commodity
Komoditas Dunia Price Index
Developments
Rupee billion Percent Index
18,000 120 100
16,000
100 90
14,000
12,000 80 80
10,000
60 70
8,000
6,000 40 60
4,000
20 50
2,000
0 0 40
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2016 2017 2015 2016 2017
Broad Money Percent to broad money prior to demonetization (rhs) Energy Food Metal
Source: Bloomberg Source: World Bank

Chart 1.18. Global Energy Prices
Grafik 1.19. Chart 1.19.
Grafik 1.19. IHKEI Indonesia Exports Commodity Price
Index (IHKEI)
US Dollar Index
120 120
100 110
100
80
90
60
80
40
70
20
60
0 50
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017 2015 2016 2017
Brent Oil Price (per barrel) Coal Price (per Metric Ton) Agriculture Mining Industry Non-oil & gas IHKEI
Source: Bloomberg Source: Bank Indonesia
year (Chart 1.18) as the fall in oil production cut global International commodity price developments ultimately
inventories. Prices for Indonesia’s own oil output mirrored lifted the Indonesia Export Price Index (IHKEI) (Chart
global oil price trends, averaging USD51 per barrel in 1.19).4 The non-oil and gas IHKEI increased by an
2017, up from USD41 per barrel in 2016. average of 21.7% in 2017, up from 5.4% in 2016,
driven by prices of coal and metals, including aluminium,
The rise in coal prices in 2017 is attributed to supply and copper, nickel and lead. Meanwhile, increasing
demand dynamics in China, which is the world’s largest production supported by favorable weather, against a
coal consumer and producer. Coal prices increased due backdrop of growing demand for biofuel, kept crude palm
to production disruptions in other major coal-producing oil (CPO) prices flat. Coffee prices were depressed by
countries, with thermal coal holding at the comparatively increasing production, primarily in Latin America. Rubber
high level of USD81 per metric tonne in the first quarter was the only agricultural commodity that experienced
of 2018. Prices were kept high as a result of tight coal higher prices; this is because global production remained
market dynamics in China, exacerbated by high demand flat.
during the cold winter months in the northern hemisphere.
Coal prices gradually began to fall in the second quarter
as demand from China returned to normal. As summer Global Financial Markets
rolled around in the third quarter of 2017, coal prices
began to rise again as shutdowns at non-coal power Global financial market risk eased in 2017 as the global
plants increased demand for coal-fired power. Coal prices economy improved, advanced economies implemented
were also pushed upwards by China’s reduction in coal well-flagged monetary policies and geopolitical risks
production capacity and by production and distribution dissipated. The global economic recovery accelerated,
issues in Australia and Indonesia following labor strikes boosting market optimism and limiting the risk of near-term
and unfavorable weather. financial market instability. Monetary policy normalization
in advanced economies was well anticipated, preventing
Prices of non-energy commodities also rose, albeit less spillover into financial markets. This normalization was
steeply than energy commodities. Metal prices were implemented more gradually than had been expected
the main driver of non-energy prices due to increasing by markets, and this reduced financial market volatility.
demand from China and growing optimism concerning Geopolitical risks in 2017 eased, as uncertainty
the global economic outlook. The manufacturing industry surrounding US government policy waned and fears
in China required metal for restocking in response to over EU members leaving the grouping eased. Only in
the global economic recovery, while more stringent
environmental inspections constrained domestic production
and pushed up metal prices in the second half of the year. 4 The Indonesia Export Price Index (IHKEI) is a composite index of export prices in
Indonesia, consisting of the 20 largest-value export commodities.

the third quarter of 2017 did geopolitical risk – security bonds and A-Shares were included in the global bond and
concerns on the Korean peninsula and in the Middle East stock indexes.
– temporarily heighten financial market volatility.
Stable global financial markets maintained capital flows to 1.2. Global Policy Responses
EMEs despite the simultaneous normalization of monetary
policy by several advanced economies. The influx of Most policy responses were aimed at building momentum
capital flows to emerging markets began in early 2017 in the economic recovery and ensuring it was sustainable,
and persisted until the third quarter. At this point the while taking into account local dynamics and challenges.
Federal Reserve commenced balance sheet reductions The majority of advanced economies, including Japan,
and geopolitical risk escalated in several developing maintained their accommodative monetary policies,
economies.5 In general, however, capital inflows to underpinned by fiscal stimuli and structural reforms.
developing economies increased in 2017 compared to Nonetheless, some advanced economies, including the
2016, supported by direct investment, portfolio investment United States, began to gradually normalize monetary
and other investment. Furthermore, the deluge of capital policy. The role of fiscal stimuli in advanced economies
flows was accompanied by lower financial market has expanded, because there is little room to maneuver
volatility, as reflected by the low VIX index (Chart 1.20). within the sphere of the accommodative monetary
policy. On the other hand, emerging market economies
Financial liberalization in China has also had a significant maintained their accommodative monetary policies,
impact on capital flows to emerging market economies. bolstered by increasing fiscal stimuli. In addition, both
The Chinese Government is gradually liberalizing advanced and developing economies continued to
domestic financial markets by implementing Stock Connect implement structural reforms to foster sustainable economic
in 2014 and Bond Connect in 2016, which connected growth in the long term.
the financial markets of Hong Kong with mainland
China, including Shanghai and Shenzen. Stock Connect
facilitates non-resident purchases of A-Shares, while Policy Responses in Advanced Economies
Bond Connect has similarly opened up China’s domestic
bond market and allows non-resident investors to hold Several advanced economies, including the United States
yuan-denominated government bonds. The policy has and EU, began to normalize monetary policy in response
influenced the movement of foreign capital, primarily to to emerging pressures from the improving economies
emerging market economies, particularly since China and to mitigate the risks from prolonged accommodative
monetary policy. The US Federal Reserve began to
normalize monetary policy by raising the Federal Funds
Chart 1.20.
Grafik 1.21. Financial
Volatilitas Pasar Market
Keuangan (VIX Volatility
Index) dan Aliran Modal and
NegaraCapital
Berkembang
Rate (FFR) and implementing balance sheet reductions.
Flows of Developing Countries
USD million Index
Meanwhile in Europe, the European Central Bank (ECB)
1,400 tapered the intensity of asset purchases (quantitative
40
1,200 easing or QE).
1,000
30
800
20
US monetary policy normalization began at the end of
600
400
2015 through five incremental FFR increases totaling
10
200 125 basis points. Furthermore, the Federal Reserve
0 0 also introduced a schedule of balance sheet reductions,
-200
-10
commencing in October 2017. The current pace of US
-400
I II III IV I II III IV I II III IV I II III IV monetary policy normalization, however, is not as rapid
2014 2015 2016 2017 as previous phases. In 1994, 1999, and 2004, for
Direct Investment Portfolio Investment Other Investment
example, the Federal Reserve raised the FFR by 250-300
VIX Index (rhs)
basis points within two years (Chart 1.21). This time, it
Source: Bloomberg and IIF
has adopted a more gradual pace of monetary policy
normalization, raising the FFR by just 125 basis points in
5 The geopolitical risks included tensions between Turkey and the West, political
developments in the Middle East and debt restructuring in Venezuela.

Chart 1.21.
Grafik 1.21. Historical
Historis Kecepatan PaceFFR
Normalisasi of FFR Normalization In terms of fiscal policy, advanced economies have tried
to catalyze economic growth by intensifying fiscal stimuli
Percent against a backdrop of more limited monetary space.
4.5
The US administration plans to increase fiscal stimuli
4.0
3.5
through infrastructure spending, expecting this to have a
3.0 multiplier effect on economic growth. In addition, it has
2.5 also implemented tax breaks primarily for providers of
2.0
new jobs. Nevertheless, efforts to increase fiscal stimuli
1.5
1.0 in the United States were stifled in 2017 by the political
0.5 negotiation process.
0.0
-0.5
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 Fiscal policy in Europe was more expansionary.
t-period when FFR normalization started
Consonant with lower interest rates, European
1994 1999 2004 Current Period governments reallocated budget from interest payments
to other spending, including to tackle social issues that
Source: CEIC, calculated
have emerged from the prolonged austerity, such as
high unemployment and poverty. Despite expansionary
the first two years because of inflationary pressures and policies, fiscal space in Europe to provide stimuli remains
wage rigidity. unevenly distributed. Based on the difference between
the realized budget balance and that recommended
In Europe, the ECB has pursued monetary policy by the European Commission through the Medium-Term
normalization by reducing QE. In March 2017, the Budgetary Objectives, only Germany and the Netherlands
volume of QE was reduced to €60 billion per month from have any fiscal space available (Chart 1.22)6. In
€80 billion. Then, in October 2017, the ECB extended contrast, other European countries had to implement fiscal
its asset purchase program through to September 2018, consolidation to reduce budget deficits.
but lowered the monthly pace of asset purchases to €40
billion. Moving forward, the ECB is also likely to continue Japan maintained fiscal stimuli despite accruing more
to gradually normalize monetary policy due to mild debt. The supplementary budget allocated in 2016 in the
inflationary pressures. In general, the monetary policy form of the Investments for the Future program ran until
stance of Europe remains accommodative. the end of 2017. After the election in October 2017,
In contrast to the US and Europe, Japan has maintained

Chart 1.22.
Grafik 1.24. European
Ruang Fiskal Fiscal Space
Negara Eropa
a loose monetary policy stance. The BoJ continues to hold
its policy rate in negative territory and has not reduced
Percent to GDP
the monthly pace of asset purchases – which remains at 1.5
¥80 trillion per annum – because the realization of the
Fiscal space
0.9 0.9
available
1.0
asset purchase program in Japan remains below target. 0.5
0.1
The quantitative and qualitative easing policy adopted 0
in Japan has only realized ¥60 trillion of the ¥80 trillion -0.5 -0.4
earmarked, as limited government bonds are available -1.0
-1.0
to the BoJ in the market. In general, the loose monetary
consolidation
-1.5
need fiscal
-1.7
policy stance adopted by the BoJ has successfully -2.0 -1.9
-2.0 -2.1
stabilized the long-term interest rate at a very low level. -2.5
Germany Netherland Bulgaria Finland Austria Italy Irland Portugal Belgium
That achievement is also inextricably linked to the BoJ’s
quantitative and qualitative easing strategy of yield curve
Source: European Parliament
control. Therefore, the long-term interest rate is also
Note: Fiscal space reflects the gap between structural budget balance in 2017
explicitly used as the operational target, complementing and the target on MTO
the asset purchases target. Nevertheless, inflation remains

weak due to stubbornly low inflation expectations as a
6 The Medium-Term Budgetary Objectives are budget balance targets set by the European
result of protracted periods of deflation. Commission. They are specific to member countries and aim to ensure sound and
sustainable fiscal health.

the Japanese Government directed its fiscal stimuli at In Japan, structural reforms were one of the major
education and childcare in order to enhance productivity, government policies to stimulate economic growth. They
and also planned tax breaks for companies that raised were undertaken to improve employment dynamics in
their employees’ salaries. These fiscal stimuli have relation to the ageing population and to accelerate
consequently delayed Japan’s plans to reduce the fiscal the sluggish rise in wages. The Government sought to
deficit and the target for 2020 is unlikely to be met. overcome the issue of the ageing population by increasing
the female participation rate; men still dramatically
The monetary and fiscal policy direction of advanced dominate the labor market in Japan. To accelerate wage
economies in 2017 was reinforced by structural reforms, growth, policies were introduced to increase labor market
which they recognized would increase income growth flexibility - gradually phasing out lifetime employment -
and bridge the gap in income between rich and poor. and disseminating the importance of equal pay for equal
Consequently, advanced countries prioritized structural work.
reforms to boost productivity and overcome labor market
constraints. Policies to enhance productivity were instituted
through education and training reforms, while employment Policy Responses in Emerging Economies
policies focused on increasing the participation rate,
raising salaries and reducing the income gap. The policy responses in emerging economies included a
mix of monetary, fiscal, and structural policies. In terms of
Structural reforms in the United States were implemented monetary policy, emerging economies generally adopted
primarily to improve productivity, which became relevant an accommodative policy stance, with most reducing
following plans to cut taxes, combined with infrastructure their policy rate in response to controlled inflation and
development. Tax cuts leading to a potentially larger restrained economic recoveries. This was seen in Brazil,
fiscal deficit could be offset by additional tax revenues Russia, Colombia, Peru, and Indonesia (Chart 1.23). In
received from increased productivity. To that end, the US contrast, other emerging economies, including Mexico
administration planned to increase productivity through the and Turkey, opted to raise their policy rates in response
following structural reforms: (i) increasing the participation to inflationary pressures coming from exchange rate
rate, including by pushing back the retirement age; depreciation. On the fiscal front, emerging economies
(ii) pro-female participation policies; and (iii) training generally maintained an expansionary policy, while
programs to improve the supply of labor equipped with structural policies were aimed at boosting productivity in
the skills to meet corporate needs. the medium to long term.
In Europe, structural reforms focused on strengthening China maintained a neutral monetary policy stance,
policies related to the active labor force and reducing focusing on stabilizing the financial system and exchange
barriers to higher salaries. The active labor force requires rate. It extended its macroprudential policy to cover off-
policies that ensure demand for labor can be rapidly met balance sheet activities by including wealth management
by supply, and Europe sought to strengthen it through: products. This served to monitor shadow banking
(i) vocational training; (ii) social assistance for jobless activities. In addition, the People’s Bank of China (PBoC)
participants in these training programs; and (iii) setting also migrated to an interest rate-based monetary policy
up mechanisms to bring together workers and jobs, as framework. The interest rate policy instrument was first
undertaken in Spain and France. Meanwhile, European used in February 2017 by raising the repo rate 10 basis
countries also introduced policies to increase disposable points to replace the benchmark rate. Seeking to provide
income, including: (i) reducing income tax or introducing adequate liquidity, in October 2017 PBoC announced
more progressive income tax systems, as implemented in its plan for targeted easing to start in 2018 through
Spain, France and Italy; and (ii) reforms to protectionist reductions to the reserve requirement, in particular for
worker policy relating to employment termination, as banks extending funding to non-state owned enterprises.
introduced in France. In countries that accepted a large
influx of refugees, such as Germany, improving the quality To stabilize the exchange rate, PBoC introduced an
of education and skills for the refugees became a salient adjustment factor in the calculation of the reference
issue. exchange rate, namely the China Foreign Exchange

Chart 1.23.
Grafik 1.25. Monetary
Perubahan Policy Moneter
Suku Bunga Kebijakan Interest Rate berkembang
di Negara Changes in Emerging Economies
bps Percent
400 10
7.3
8
200 8.0 7.8
4.8 7.0 6
4.3
6.0
0 4
4.4
3.0 3.0 3.3 2
-200
1.5 1.5 1.5 0
0.9
0.1
-400 -2
-4
-600
-6
-800 -8
South
Mexico Phillipines Malaysia China Thailand Israel Poland Hungaria Turkey India Indonesia Peru Colombia Russia Brazil
Korea
Change in 2016 Change in 2017 Current Policy Rate (rhs)
Source: Bloomberg, calculated
Trade System (CFETS) RMB.7 The countercyclical The Government of India increased its fiscal stimuli in
adjustment factor (CCAF) is an additional component in 2017, which delayed fiscal deficit reductions. In October
the calculation of CFETS that aims to ensure the renminbi 2017, the Government announced a fiscal stimulus
rate reflects fundamentals. CCAF is used in the event package worth INR9.1 trillion (USD143.5 billion). This
of excessive currency fluctuations caused by sentiment. included the recapitalization of state-owned banks for
Since CCAF was introduced in May 2017, the renminbi the upcoming two years with INR2.1 trillion (USD35.5
has appreciated against the US dollar, primarily due to billion) and a five-year infrastructure development program
US dollar depreciation, a promising economic outlook in costing INR7 trillion (USD108 billion). The fiscal stimulus
China and more controlled capital outflow. package was well received, although it had no direct
impact on investment growth in 2017. Furthermore,
India’s central bank has maintained a neutral monetary India also reduced GST in November 2017 to stimulate
policy stance despite lowering the policy rate in 2017. consumption.
The Reserve Bank of India reduced the policy rate in
August 2017 due to low inflation and sluggish economic Monetary and fiscal policy in developing countries
growth. In addition, it also eased the statutory liquidity was also backed by structural reforms to spur potential
ratio by 50 basis points to 19.5%.8 and sustainable economic growth. In China, structural
policy in 2017 remained focused on rebalancing the
In China, the Government implemented an accommodative sources of economic growth, increasing the connectivity
fiscal policy in line with the available fiscal space to of domestic financial markets with international markets
support rebalancing of the economy. The fiscal stimuli and containing financial risk through deleveraging
were oriented more towards non-infrastructure sectors, and shadow banking oversight. The various policies
meaning slower government investment growth. China successfully slowed aggregate credit growth in China.
complemented this with tax breaks to catalyze economic On the other hand, efforts to rebalance the sources of
growth. Against a backdrop of expansionary fiscal policy, growth from investment to consumption also continued,
China’s Government tightened restrictions on off-balance as reflected by declining growth of fixed asset investment
sheet lending to deleverage local administrations. combined with strong retail sales.
The most important structural reforms implemented in India

in 2017 were demonetization and simplification of the
7 The China Foreign Exchange Trade System (CFETS) Index is a reference rate released by tax system. Demonetization aimed to combat cases of
the People’s Bank of China (PBoC), containing the weighted average exchange rates of
several global currencies against the yuan.
counterfeit banknotes and reduce corruption. The policy
was implemented in November 2017, when INR500 and
8 The Statutory Liquidity Ratio requires banks in India to maintain current assets in the
form of currency, gold or securities recognised by the Reserve Bank of India at a certain INR1,000 banknotes were withdrawn from circulation and
percentage of liabilities.

simultaneously new INR500 and INR2,000 banknotes goals will be pursued via monetary and fiscal policy
were introduced. The policy significantly reduced money instruments and structural reforms.
supply (M0), as INR500 and INR1,000 banknotes
accounted for 86% of this. This severely disrupted daily The G20 strives to achieve this strong, sustained, balanced
economic transactions and led to economic moderation and inclusive growth by extending its commitment to the
during the first half of 2017. Nevertheless, the policy also structural reforms contained in the Growth Strategy. As
had a propitious impact in the medium term as the use of per this strategy, G20 members agreed to achieve an
e-money increased. additional 2% growth within the five years from 2014
to 2018 (known as ‘2-in-5’). G20 members submit
The tax structure was simplified in India by introducing data and information regarding their achievements
GST on 1 July 2017 to replace several overlapping tax each year, encompassing monetary policy, fiscal policy
components with a new system, similar to value-added and commitment to structural reforms. Based on this
tax (VAT). The GST scheme was unclear, however, and information, international organizations, namely the
consumers postponed buying goods. This undermined Organisation for Economic Co-operation and Development
economic growth in the first half of the year. Sales (OECD), World Bank and IMF, assess annually each
began to recover in the third quarter of 2017 after the G20 member’s progress towards 2-in-5. In 2017, the
Government clarified the new tax system. collective growth of the G20 economies was 1.4%, down
from 1.5% in 2016. The assessments showed the dip in
performance was due to slower implementation of the
1.3. International Cooperation structural commitments among G20 countries.
International cooperation strengthened in 2017 to Furthermore, the G20 supports efforts to achieve more
optimize the global economic recovery and reinforce inclusive economic growth at the national and individual
economic resilience. International cooperation was level. The current global economic recovery remains
realized through the G20 Forum, International Monetary unbalanced because growth has failed to reach vulnerable
Fund (IMF), Bank for International Settlements and groups. Inequality has primarily surfaced in low-income
Chiang Mai Initiative Multilateralization (CMIM). At countries due to the sluggish investment in infrastructure.
the G20, cooperation to build on the momentum in the Efforts to achieve inclusive growth can be realized
global economic recovery manifested in a commitment by: (i) increasing financial literacy; (ii) supporting the
to stimulate strong, sustained, balanced and inclusive development of micro, small and medium enterprises
growth. The IMF emphasized the importance of monetary (MSME); (iii) reforming the labor market; and (iv)
policy, fiscal policy and structural reforms to maintain embracing digital innovation. The G20 also put forward
economic growth momentum. Meanwhile, efforts to an initiative to stimulate investment in Africa, namely the
strengthen economic resilience were realized through: (i) Compact with Africa.9 In addition, it continued to expand
agreement concerning the Note on Resilience Principles infrastructure investment through multilateral development
for G20 Economies; (ii) strengthening the Global Financial banks and private financing.
Safety Net (GFSN), including through the CMIM; and
(iii) increasing oversight of financial technology (fintech) The IMF emphasized the importance of monetary policy,
development at various international forums. fiscal policy and structural reforms in maintaining
economic growth momentum. It recommended member
countries to apply: (i) accommodative monetary policy for
Cooperation to Stimulate Economic Growth those member countries with below-target inflation and a
negative output gap; (ii) fiscal policy to stimulate growth
Cooperation to stimulate global economic growth was with due regard to sustainable government debt levels
achieved under the multilateral G20 framework. Under and avoiding procyclicality; and (iii) structural reforms
Germany’s presidency in 2017, G20 members agreed to increase productivity, stimulate growth and create
the Hamburg Action Plan. In this plan, the G20 set out jobs. Furthermore, the IMF encouraged its members to
a strategy to achieve strong, sustained, balanced and
inclusive growth against a backdrop of weaker-than-
expected global growth and several risk factors. These 9 The Compact with Africa is a framework to promote private investment in Africa,
including in infrastructure.

introduce labor sector policies that allow the labor force to bilateral swap arrangements (BSA) and regional financing
adapt to and benefit from rapid changes in the economic arrangements.
landscape.
The G20 is encouraging its members to implement
consistently, completely, and in a timely manner all
Cooperation to Strengthen Resilience financial sector reforms, including rules covering financial
institutions under the Basel III Principles10 and Total Loss
The G20 is also committed to strengthening economic Absorbing Capacity Standards.11 This will increase
resilience, as contained in the Note on Resilience financial sector resilience. In addition, financial sector
Principles for G20 Economies, agreed in 2017. These reforms also include efforts to improve global financial
non-binding principles contain a menu of policies to market infrastructure through the establishment of a central
reinforce economic resilience in tandem with strong, counterparty,12 among others. The G20 also backs efforts
sustained, balanced and inclusive growth. Countries to overcome the myriad problems of money laundering
select from this policy menu according to their own and international terrorism financing, and as such supports
particular needs. The Resilience Principles focus on five the work of the Financial Action Task Force (FATF).13
areas, namely: (i) the real sector; (ii) public finance; (iii)
private finance; (iv) monetary policy; and (v) the external Regional resilience has been improved by strengthening
sector. The key principles include: (i) ensuring central the regional financial arrangements and surveillance.
bank independence and price stability; (ii) enhancing The ASEAN+3 forum has continued efforts to strengthen
the analysis and monitoring of capital flows, as well as regional resilience to confront the risk of global uncertainty
risk management; (iii) promoting international trade and by refining the CMIM and strengthening the role of
investment; and (iv) promoting international cooperation the ASEAN+3 Macroeconomic Research Office. To
on economic policy. operationalize the CMIM, operating guidelines are
constantly refined and a framework to evaluate the
The G20 also agreed to strengthen the global financial feasibility of the CMIM Prevention Line is prepared.14 In
system architecture, another initiative designed to increase the context of volume, most ASEAN+3 members have
financial system resilience. The initiative contains various agreed to increase the CMIM-IMF de-linked portion to
policies, including: (i) capital flow policies to mitigate the 40% from 30% in order to bolster CMIM as a regional
risk of flows disrupting domestic financial system stability; self-help mechanism.
and (ii) policies to strengthen the GFSN.
Economic and financial sector resilience has also been
The G20 initiative to increase resilience was followed up strengthened in ASEAN by the regional grouping’s
by the IMF in deeper discussions on policies to overcome ongoing financial sector integration. ASEAN aims for
excessive capital flows and ways to strengthen the economic integration in 2025 – the ASEAN Economic
GFSN. The IMF explored the role of macroprudential Community – particularly in the financial channel, and
measures to strengthen the financial systems of member has set a strategic action plan for financial integration
economies that have experienced an influx of foreign in 2025. In 2017, ASEAN compiled key performance
capital flows. These will complement the capital flow indicators to evaluate the progress towards financial
management measures previously adopted. The outcome integration. These indicators are divided into three sections
of the discussions concerning the interaction between
these two types of measures may be used as guidelines
10 The Basel III Principles is a banking sector regulatory framework issued by the Basel
for members on containing the risks associated with Committee on Banking Supervision (BCBS).
capital flows, while maintaining financial system stability.
11 Total Loss Absorbing Capacity Standards are issued by the Financial Stability Board
In terms of strengthening the GFSN, the IMF is exploring (FSB). They are minimum standards for potential loss-absorbing capacity in the banking
the development of new liquidity facilities available to industry.
member countries with solid economic fundamentals and a 12 A central counterparty is a clearing house institution tasked with clearing and
guaranteeing transactions in the financial market.
sound macroeconomic policy framework. The availability
of new liquidity facilities is expected to bolster the 13 The Financial Action Task Force (FATF) is an intergovernmental body established in
1989 with the aim of setting standards and promoting effective implementation of
GFSN as another line of defense in addition to reserves, legal, regulatory and operational measures for combating money laundering, terrorist
financing, and other related threats to the integrity of the international financial system.
14 The CMIM Prevention Line is an Economic Review and Policy Dialogue Matrix.

– financial integration, financial inclusion, and financial
stability.
Various international cooperation forums, such as the

IMF, G20, Executives’ Meeting of East Asia Pacific
Central Banks and ASEAN, are also monitoring the rapid
proliferation of fintech. Rapid development has thrust
fintech into the financial system, and this could change the
global and regional financial landscape. Fintech refers to
technological innovations that expand the opportunities for
financial services. Nevertheless, fintech is being monitored
as it is seen as a potential threat to cyber security, which
could undermine financial system stability if not well
managed. To that end, the majority of central banks and
financial authorities have agreed to scrutinize fintech more
deeply and remain vigilant of fintech development in order
to mitigate emerging risks.

CHAPTER 2
Economic Growth
Indonesia’s economic recovery persisted through 2017 due
to positive global and domestic momentum. This economic
growth was underpinned by macroeconomic stability at
home, a fall in unemployment, poverty and inequality, and
supportive global dynamics.
2017 ECONOMIC REPORT ON INDONESIA

LAPORAN PEREKONOMIAN INDONESIA 2017 | 17
Indonesia’s economy continued to recover in 2017, with Since then, the national economy has steadily improved,
momentum garnered from supportive global dynamics with GDP growth recorded at 5.07% in 2017, up from
and maintained macroeconomic stability at home. Solid 5.03% in 2016 (Table 2.1). This recovery is based on
global economic growth in advanced economies and stronger export and investment growth in 2017, in line
developing economies, including major trade partners with a favorable global economic climate and steady
of Indonesia, combined with rising commodity prices, economic fundamentals. Both exports and investment
boosted Indonesia’s export performance, particularly made a greater contribution to economic growth in 2017
exports of commodities. These export gains and versus 2016.
government spending on infrastructure have restored
corporate confidence in investing. Consequently, Indonesia experienced domestic economic improvement
corporate sector consolidation began to tail off, replaced in the second half of 2017. This was driven by an
by stronger corporate investment in the second half of the increasingly solid global economic recovery and resulted
year. Investment gains and an increase in exports helped in a significant 9.09% increase in exports for 2017, the
to drive Indonesia’s economic growth to 5.07% in 2017 highest level posted in five years and a sharp contrast
from 5.03% in 2016, but these improvements have not yet to the 1.57% contraction in 2016. Consolidation in
significantly lifted household consumption. the corporate sector lessened and the Government
ramped up several infrastructure projects, which boosted
Economic sectors related to the export market and on investment primarily in the second half of the year. Gross
government investment, as well as sectors benefiting fixed capital formation growth stood at 6.15%, easily
from a shift in consumption patterns, were the key drivers surpassing the 4.47% posted in 2016. However, this
of Indonesia’s domestic economic recovery. Stronger improving export and investment performance has thus
exports were most evident in the plantation subsector, and far failed to significantly stimulate private consumption,
some mining and manufacturing subsectors. Ongoing particularly household consumption.
government investment in infrastructure projects buoyed
the construction sector, while a recent shift in consumption Indonesia’s export performance in 2017 improved
towards lifestyle and leisure activities lifted the significantly. This was due to the global economic
performance of the hospitality sectors –accommodation, recovery and solid growth in Indonesia’s trade partners –
food and beverages – as well as the information and including the United States, China, and India, and other
communications sector. In contrast, domestic-oriented countries in the Asian region – and higher international
manufacturing and services experienced slower growth. commodity prices. The prices of coal, rubber, and
Regionally, most economic gains were reported in areas crude palm oil (CPO), three key export commodities
reliant on natural resources, particularly in Kalimantan. for Indonesia, rose sharply due to rising demand and
decreasing supply. In addition, the Government relaxed
The ongoing economic recovery has benefitted public export quotas on metal minerals, which also boosted
welfare and prosperity. Unemployment, poverty and exports.
inequality all declined in 2017, although the number
of informal workers remained high. Low inflation and In general, commodity-based exports dominated the
stable prices for staple foods, as well as a slight increase export gains. Real exports of natural resources grew
in incomes, helped to alleviate poverty. Furthermore, 8.4%, reversing the 3.7% contraction seen in 2016.
indicators in 2017 demonstrated a moderate decrease Meanwhile, plantation commodities achieved the strongest
in inequality, as spending by the top 20% of the real export growth (Chart 2.1) of all types of exports, with
population fell. crude and processed plantation commodities growing
17%, primarily driven by CPO and rubber. Real CPO
exports grew sharply to 8.2% in 2017 from just 0.4%
2.1. GDP by Expenditure in 2016 on rising demand, particularly from China and
India, coupled with a 5.2% increase in prices.
Export and investment gains drove the gradual domestic
economic recovery in 2017. Economic growth dynamics Shipments of non-oil and gas mined commodities also
show Indonesia has recovered from its lowest growth elevated the export performance. The real value of exports
level – 4.74% –recorded in the second quarter of 2015. of coal, accounting for 67% of total non-oil and gas

Table 2.1. GDP by Expenditure
Percent, yoy
2017
Component of GDP 2014 2015 2016
I II III IV Total
Domestic Demand 4.62 4.94 4.39 4.77 4.54 5.54 5.62 5.13
Private Consumption 5.28 4.84 5.04 5.00 5.02 4.95 4.98 4.98
Household Consumption 5.15 4.96 5.01 4.94 4.95 4.93 4.97 4.95
Non - Profit Institution Serving
12.19 -0.62 6.64 8.07 8.52 6.02 5.24 6.91
Household (NPISH) Consumption
Government Expenditure 1.16 5.31 -0.14 2.69 -1.92 3.48 3.81 2.14
Gross Fixed Capital Formation 4.45 5.01 4.47 4.77 5.34 7.08 7.27 6.15
Building 5.52 6.11 5.18 5.87 6.07 6.28 6.68 6.24
Non-building 1.58 1.93 2.43 1.46 3.23 9.47 9.03 5.90
Change of Inventory 0.48 -0.59 0.23 0.33 0.02 -1.29 0.24 -0.19
Net Export 0.94 0.94 0.16 0.85 0.55 0.58 -0.57 0.35
Export 1.07 -2.12 -1.57 8.41 2.80 17.01 8.50 9.09
Import 2.12 -6.25 -2.45 4.81 0.20 15.46 11.81 8.06
Gross Domestic Product 5.01 4.88 5.03 5.01 5.01 5.06 5.19 5.07
Source: BPS-Statistics Indonesia
mining commodities, grew 2.4% in 2017, reversing the to Minister of Energy and Mineral Resources Regulations
0.7% contraction recorded in 2016. This was triggered No. 5 and 6 of 2017.1 In contrast, exports of ferrous
by a 48.2% spike in coal prices to a level topping USD90 metals contracted significantly by 26.2%, as material was
per metric tonne in the second half of 2017, the highest redirected into the domestic market to meet demand from
level seen in three years. The real value of exports of infrastructure projects. The generally positive trend for
non-ferrous metal ore, including copper, nickel, bauxite, exports of mining commodities was curbed by declining
and lead, grew 14.0% in 2017, relatively stable versus oil and gas exports and low liftings.
14.5% in 2016. Exports of non-ferrous metal ore in
2017 were also underpinned by Indonesia’s relaxation of In contrast, manufacturing exports were unable to
restrictions on exports of metal ore concentrate, pursuant capitalize on the global economic momentum. Real
manufacturing exports contracted by 4.2% in 2017,
dragged down by a weaker performance in consignments
Chart 2.1.
Grafik 2.1. Real Exports of Non-oil and Gas of textiles, machinery and equipment and wood products.
Clothing exports remained in negative territory despite
Percent, yoy improving considerably compared to 2016 on resurgent
40
demand from advanced economies, including the United
30 States and Europe. While manufacturing exports fell in
20 2017, exports of organic chemicals grew 16.8%, motor
10 vehicles 9.4%, and electrical equipment 4.5% (Chart 2.2).
0 Chemical exports increased as industrial activity rose
-10
in China, while automotive exports were dominated by
-20
-30
I II III IV I II III IV I II III IV I II III IV 1 Restrictions on concentrate exports were relaxed in accordance with Government
2014 2015 2016 2017
Regulation No. 1 of 2017 and Minister of Energy and Mineral Resources Regulation
Total Agriculture/ Plantation No. 5 and No. 6 of 2017. Restrictions on unprocessed and unrefined concentrate
Non-oil/gas Mining Manufacture exports were relaxed for holders of a Special Mining License (IUPK) for five years
from January 2017, requiring a change in mining operations to IUPK, as well as a
Source: Bank Indonesia
commitment to build a smelter.

Chart 2.2.
Grafik 2.2. Developments in Real Manufacturing Chart
Grafik 2.32.3. Types of Investment and Utilization
Exports Capacity
Percent, yoy Percent, yoy Percent
50 80 34
40 70
60
30 33
50
20
40
10 32
30
0
20
-10 31
10
-20 0
-30 -10 30
2012 2013 2014 2015 2016 2017
2011 2012 2013 2014 2015 2016 2017
Electricity Equipment and Components Vehicle New Investment Current Business Expansion Capacity Utilization (%)
Chemical Clothes Investment-to-GDP (rhs)
Source: Bank Indonesia Source: BKPM, calculated
shipments to Southeast Asia, particularly of Indonesia’s several manufacturers did make limited investments in
low cost green car. Electrical equipment exports grew on maintenance and replacement of equipment.
stronger demand from Southeast Asia, Japan, and the
United States. Building investment accounted for more than 70% of total
investment and grew 6.2% in 2017, up from 5.2% a year
In addition to exports, investment was also a key factor earlier, due to infrastructure development. The Government
in the economic recovery in 2017. Gross fixed capital accelerated infrastructure projects in 2017, including
formation rose to 6.15% in 2017 from 4.47% in 2016 power station projects in Sumatra, Kalimantan, and West
(Table 2.1), due to investment in both the construction Nusa Tenggara, and numerous sections of toll road. The
and non-building sectors. The investment-to-GDP ratio private sector also increased its funding of infrastructure
began to rise again in 2017, reversing the decline projects, but state-owned enterprises dominated. Private
seen since approximately 2013 after the commodity property developments, particularly residential property,
boom ended. Investment was buoyed by infrastructure also bolstered building investment data. Robust building
project development that, in turn, stimulated building investment fed through to strong cement consumption, up
investment. On the other hand, export growth, primarily 6.2% in 2017 from 2.3% in 2016.
in commodity-based sectors, and improving corporate
confidence contributed to stronger investment, including Non-building investment accelerated on rising exports,
non-building investment. primarily commodity-based, and faster energy
infrastructure development. Non-building investment
New investment growth outpaced existing business grew 5.9% in 2017, increasing markedly from 2.4% in
expansion, surging by 20.1% due to new connectivity the previous year. Firms operating in the plantation and
and electrification infrastructure projects, and to mining sectors began investing again at the beginning
investment in services, particularly technology-based of 2017, with most investment made on maintenance of
businesses (Chart 2.3). The rapid growth of technology transport equipment to support plantation and mining
and the digital economy was a boon to online businesses operations. This also stimulated investment in vehicles as
and to the providers of supporting infrastructure services. a component of non-building investment (Chart 2.4). Non-
Increased investment in technology-based businesses building investment accelerated in the second half of the
was also reflected in mergers and acquisitions data for year, primarily in machinery and equipment, as ongoing
2017. Acquisitions rose 5.4% in the first three quarters electrification projects under Indonesia’s 35,000MW
of 2017, with most attributed to foreign investors. program entered the completion phase. Investment in
However, investment in expansion of existing businesses supporting infrastructure for the digital economy also
shrank in 2017, influenced by a rate of capacity boosted non-building investment performance in 2017.
utilization consistently below the threshold 80%, although

Chart
Grafik 2.42.4. Contribution of Non-Building Investment Chart
Grafik 2.52.5. Free Cash Flow of Multi-Sectoral Issuers
Growth to GDP
Percent Rp billion Percent, yoy
1.0 25 120
100
0.8 20
80
0.6 15
60
0.4 10 40
5 20
0.2
0
0 0
-20
-0.2 -5 -40
Sample: 212 issuers
-0.4 -10 -60
I II III IV I II III IV I II III IV I II III IV I II III IV I II III
2015 2016 2017 2015 2016 2017
Primary FCF Secondary FCF Tertiary FCF Primary Capex (rhs)
Machine and Equipment Vehicle Cultivation Based on Biology
Intellectual Property Products Non-building Investment Source: Bloomberg, calculated
Note: Primary: Agricultre, Mining; Secondary: Basic Industry,
Source: BPS-Statistics Indonesia, calculated Consumer Goods Industry, Other Industry; Tertiary: Property, Infrastructure, Trade
Conversely, non-building investment in the manufacturing on the safeguarding of macroeconomic stability prompted
industry lagged behind that in the primary sector a credit rating upgrade by Standard & Poor’s; it lifted
due to moderate capacity utilization. In addition, Indonesia to investment grade in May 2017. Moody’s
corporations also took 2017 as an opportunity for and Fitch already rated Indonesia at investment grade.
internal consolidation, intending to improve their financial The more favorable climate in Indonesia is reflected in its
situation and increase their financing capacity. Investment higher ranking in both the Global Competitiveness Index
in the manufacturing sector was generally directed at published by the World Economic Forum (WEF) and the
maintenance and the purchase of spare parts, although World Bank’s Ease of Doing Business Survey.3 These
several industries did invest in new machinery as part of achievements were inextricably linked to government
an efficiency-boosting automation process. structural reforms, including deregulation in the form of the
I-XVI Economic Policy Package. The positive developments
The corporate sector showed stronger financial conditions also helped to sustain investment financing through an
after internal consolidation stimulated investment, mainly influx of non-resident capital flows.
in the latter half of the year. In addition to increasing
revenues, the various corporate sector measures taken to Government stimuli underpinned the economic recovery in
enhance efficiency began to pay off, as reflected by an 2017, with increased government spending in the second
increase in free cash flow (FCF) that could be diverted to half of the year following the release of the 2017 Revised
investment financing.2 In 2017, the most significant FCF State Budget for 2017. In addition to investing in various
gains were made in the primary sector, which achieved a infrastructure projects, the Government also stimulated
twofold increase on the previous year despite, nominally, the economy with procurement spending. Government
remaining below the FCF of the secondary and tertiary consumption rose by 2.14% in 2017, versus a fall of
sectors (Chart 2.5). Strong FCF performance in the 0.14% in 2016. In addition to its procurement of goods
primary sector subsequently supported a notable spike in and services, personnel spending in the form of 14th-
capital spending. In the secondary and tertiary sectors, month salaries – an initiative that began in 2016 – also
capital spending also increased and returned to positive stimulated the economy. Fiscal stimuli were also provided
territory after contracting in 2016. in the form of increased social assistance disbursements
and expanding the Family Hope Program – conditional
Corporate investment also increased as ongoing cash handouts for the poorest households – primarily in
macroeconomic stability boosted confidence and a the second half of 2017.
favorable business climate prevailed. Policy consistency
2 Free cash flow (FCF) is a measure of corporate operating cash flow minus capital 3 Indonesia’s ranking in the World Bank’s Ease of Doing Business Survey rose to 72 from
expenditure. FCF can be used for business expansion, dividend payments and to reduce 91. In the Global Competitive Index published by the World Economic Forum (WEF),
debt, among others. Indonesia’s ranking rose to 36 from 41.

Chart
Grafik 2.82.6. Real Wages of Agriculture and Chart
Grafik 2.92.7. Consumer Confidence Index
Construction Workers
Percent, yoy Index Index
2 103.5 130
103.0
1 125
102.5
102.0
0 120
101.5
-1 101.0 115
100.5
-2 110
100.0
99.5
-3 105
99.0
-4 98.5 100
I II III IV I II III IV I II III IV I II III IV 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2014 2015 2016 2017 2016 2017
Consumer Confidence Index (IKK)
Real Wage of Agricultural Worker Real Wage of Construction Worker Consumer Confidence Index of Household Expenditure Rp1-2 Million (CMA)
Farmer’s Terms of Trade (rhs) Consumer Confidence Index of Household Expenditure > Rp 2-5 Million (CMA)
Consumer Confidence Index of Household Expenditure > Rp 5 Million (CMA)
Source: BPS-Statistics Indonesia, calculated Source: Bank Indonesia

Note: 100 is threshold of consumer optimistic level
The speed of the domestic economic recovery was increased (Chart 2.6). Wages in various other informal
slowed in 2017 by subdued household consumption, sectors stagnated, while employment with fluctuating
which accounts for 54% of GDP. Growth in household wages grew, exposing the fragilities on which household
consumption fell to 4.95% in 2017 from 5.01% in 2016. consumption is based. Ultimately, these factors eroded
Nevertheless, household consumption has improved purchasing power among low-income earners and
compared to 2015, when it hit its lowest point following hampered household consumption gains.
the end of the commodity boom in 2013. Other nations
that are net exporters of natural resources have also Among the middle and upper classes, however,
experienced sluggish household consumption following deteriorating confidence was the cause of a cut in
the end of the commodity boom. The trickle-down effect consumption in these households. In general, consumers
of commodity export proceeds to the economy has been had been more upbeat on the economic outlook at the
curtailed, however, by an economic structure that lacks beginning of 2017 than they were later in the year
diversification.4 (Chart 2.7). Households spending more than IDR5 million
per month began to lose confidence in the second half of
Several factors undermined household consumption the year and postponed consumption in favor of saving.
in 2017. One factor was the government decision to Household savings data shows increased savings,
raise electricity rates in 2017, which eroded household particularly among households with deposits exceeding
consumption in other areas. The policy was part of IDR2 billion.5
government reforms to improve the quality of its own
spending by retargeting the subsidy and ensuring it This suboptimal household consumption was also due to a
went only to poorer households, while maintaining the shift in consumer behavior and preferences, signaled by
fiscal outlook. In the near term, however, the policy more rational and selective or value-for-money consumption
hit household consumption, especially among low- choices, combined with a move towards leisure and
income households. lifestyle activities. The shift in consumption patterns began
at the beginning of 2015, triggered by greater access to
Tepid household consumption was also the result of lower, technology and increased purchasing power (Chart 2.8).6
stagnant and unpredictable income (Box 2.1). Real farm
wages contracted during the first half of 2017 before
rebounding in the second half, while the real wages of 5 In the first half of 2017, total household savings increased 10.8%, while the savings
construction workers also contracted as mechanization of households with deposits exceeding IDR2 billion expanded by 14.1% on the same
period of 2016.
6 Leisure consumption slumped in the wake of the commodity boom and only began to
4 The lagged impact of rising exports on the domestic economy is typically longer during recover after the economy successfully navigated a trough in 2015. Leisure consumption
a recovery phase than an expansionary phase, due to corporate consolidation initiated has increased significantly since then due to greater connectivity coupled with tourism
at the beginning of a recovery. sector development.

Grafik 2.8.
Chart 2.8. xxxLeisure vs Non-Leisure Consumption 7 Chart
Grafik 2.62.10. Real Imports by Type
Survey Index Percent, yoy Percent, yoy

130 5.6 30
125 5.4 20
120
5.2
10
115
5.0
110 0
4.8
105 -10
4.6
100
-20
95 4.4
-30
90 4.2 I II III IV I II III IV I II III IV I II III IV
HI HII HI HII HI HII
2015 2016 2017 2014 2015 2016 2017
Upper-Class Consumer Survey Middle Class Consumption Survey
Sub Leisure Consumption of GDP (rhs) Total Consumption Goods Raw Material Capital Goods
Sub Non-Leisure Consumption of GDP (rhs)
Source: BPS and Indonesia Nielsen Consumption Survey, calculated Source: Bank Indonesia
In addition, Indonesia’s demographics shifted towards a spending on restaurants and hotels rose 5.6% and on
dominant productive-age generation, who typically spend transport and communications by 5.2%.
more on leisure and lifestyle, combined with the emergence
of a middle class in the digital economy era.7 Against a backdrop of muted household consumption,
consumption by non-profit institutions serving households
The shift in consumption patterns among the middle and (NPISH) accelerated. Consumption by NPISH accounts for
upper classes was reflected in the types of goods and 2% of total private consumption and grew 6.91% in 2017,
services consumed. Since early 2015, the purchasing bolstered in the first half of the year by local elections
of clothing and non-restaurant food and beverages has across 101 regions.
slowed, but in real terms continued to grow at 2.9%
and 5.2% respectively in 2017 (Chart 2.9). In contrast, Export growth and an increase in domestic demand
spending on lifestyle and leisure rose in 2017, while for investment purposes and domestic consumption
ultimately prompted a rise in imports. Imports rose 8.06%
in 2017 compared with a 2.45% contraction in 2016.
Chart 2.9.
Grafik 2.11 Types of Household Consumption Congruent with higher exports, imports of raw materials
to supply the production process climbed significantly,
7 8
6
7 Chart
Grafik 2.72.11. Imports of Transport Equipment and
5 Parts
6
4 Percent, yoy
120
3
5
100
2
80
4
1 60
40
0 3
2011 2012 2013 2014 2015 2016 2017 20
0
Food & Beverages Non-Restaurant Clothing
-20
Transportation & Communication (rhs) Hotel & Restaurant (rhs)
-40
Source: BPS-Statistics Indonesia, calculated
-60
I II III IV I II III IV I II III IV I II III IV
2014 2015 2016 2017
Spare Part of Capital Goods Spare Part of Conveyance

7 Leisure consumption includes transportation and communication, as well as hotels and Non-Conveyance Capital Goods Conveyances
restaurants. Non-leisure consumption includes non-restaurant food and beverages,
education and health, housing, household equipment, and other consumption.

with corresponding real imports growing 5.5% in 2017, sectors. In contrast, financial services, corporate
reversing the 5.1% contraction seen in 2016 (Chart 2.10). services, and other services experienced slower growth
Imports of capital goods also increased – growing 4.0% (Table 2.2).
in 2017 versus a decline of 10.8% in the previous year
– to meet rising investment, primarily in machinery and Strong production from plantations and fisheries lifted the
equipment and vehicles, as seen in import data for spare agriculture, forestry, and fisheries sector and accounted
parts and transport equipment (Chart 2.11). Imports of for half the sector’s growth. The plantation subsector
consumer goods also picked up, mainly in the second half grew 4.46% in 2017, up from 3.47% in the previous
of the year. year, while the fisheries sector expanded by 5.95% from
5.15%. This increase in both plantation and fisheries
production is attributed to favorable weather conditions
2.2. GDP by Economic Sector in 2017, after severe disruptions in 2016 caused by La
Niña, and a larger fishing fleet. Furthermore, incidences
Indonesia’s main economic drivers in 2017 were the of land clearance fires were minimized in 2017 by more
agricultural, forestry, and fisheries sector, plus certain stringent supervision. Land expansion for plantations
mining and quarrying subsectors. Coal was a key driver, was also restricted by an extension to the moratorium on
and exports rose. The government decision to speed new licenses for palm oil on virgin forest and peatland.
up infrastructure projects strengthened the construction Rising exports and prices for plantation commodities,
sector, while a shift in household spending boosted the particularly CPO, buoyed producers of fresh fruit bunches
accommodation, food and beverages, transportation and of oil palm.
warehousing, as well as information and communications
Table 2.2. GDP by Industrial Origin
Percent, yoy
2017
Component of GDP 2013 2014 2015 2016
I II III IV Total
Agriculture, Forestry, and Fishery 4.20 4.24 3.75 3.36 7.15 3.23 2.77 2.24 3.81
Mining and Quarrying 2.53 0.43 -3.42 0.95 -1.22 2.12 1.84 0.08 0.69
Manufacturing 4.37 4.64 4.33 4.26 4.28 3.50 4.85 4.46 4.27
Electricity 5.23 5.90 0.90 5.39 1.60 -2.53 4.88 2.27 1.54
Water Supply, Garbage, Waste
3.32 5.24 7.07 3.60 4.39 3.67 4.82 5.53 4.61
Management and Remediation Activities
Construction 6.11 6.97 6.36 5.22 5.96 6.94 6.98 7.23 6.79
Wholesale and Retail Trade, Repair of
4.81 5.18 2.54 4.03 4.61 3.47 5.20 4.47 4.44
Car and Motorcycle
Accomodation, Food, and Beverage
6.97 7.36 6.71 7.45 8.06 8.80 8.88 8.21 8.49
Supply
Transportation and Storage 6.80 5.77 4.31 5.17 5.27 5.73 5.69 5.49 5.55
Information and Communication 10.39 10.12 9.70 8.88 10.48 11.06 8.82 8.99 9.81
Financial Services 8.76 4.68 8.58 8.90 5.99 5.94 6.16 3.85 5.48
Real Estate 6.54 5.00 4.11 4.69 3.66 3.73 3.60 3.73 3.68
Business Services 7.91 9.81 7.69 7.36 6.83 8.24 9.37 9.25 8.44
Government Administration, Defence,
2.56 2.38 4.63 3.19 0.23 -0.03 0.69 6.95 2.06
and Compulsory Social Security
Education Services 7.44 5.47 7.33 3.80 4.05 0.88 3.62 5.89 3.66
Health Services and Other Activites 7.96 7.96 6.69 5.15 7.06 6.32 7.51 6.31 6.79
Other Services 6.40 8.93 8.08 8.02 7.90 8.51 9.31 8.87 8.66
Taxes Less Subsidies on Products 21.80 5.08 32.55 19.20 9.42 24.42 7.06 14.03 13.38
Gross Domestic Product 5.56 5.01 4.88 5.03 5.01 5.01 5.06 5.19 5.07

Chart 2.12. Contribution to GDP Growth from the
Grafik 2.12 Chart 2.13. Coal Exports by Country of Destination
Grafik 2.13
Mining Sector
Percent, yoy Percent
0.6 100
15% 15% 16% 13% 11%
90 18% 17%
0.4
80 13% 13% 17% 19%
13% 13% 16%
0.2 70 8% 9% 9%
10% 10% 9% 10%
0 60
13% 12%
14% 14% 13% 14% 12%
50
-0.2
40 23%
17% 19% 27% 23% 23%
-0.4 30 29%
20
-0.6 28% 28% 28%
23% 25% 25%
10 17%
-0.8 0
2011 2012 2013 2014 2015 2016 2017
2014 2015 2016 2017
Metal Ore Sub Sector Coal Sub Sector

China India Japan Korea ASEAN Others
Oil/Gas Sub Sector Mining and Quarrying Sector
Source: BPS-Statistics Indonesia, calculated Source: Bank Indonesia
The mining and quarrying sector performed well due from advanced economies, as well as more favorable
to rising commodity prices and stronger demand from domestic labor policies. Elsewhere, the base metals sector
Indonesia’s trade partners. The coal and metal ore was supported by robust exports and the acceleration of
subsectors were the backbone of this sector (Chart 2.12). domestic infrastructure projects.
Coal improved on higher commodity prices and stronger
power station demand from China, the major destination The food and beverages industry contributed most
for coal exports from Indonesia, and ASEAN countries to manufacturing industry performance, followed by
(Chart 2.13). Meanwhile, nickel and copper ore exports chemicals industry, transportation equipment, metal
to Japan and China drove metal ore exports from products, and electrical appliances, including electronics
Indonesia, with the export quota also being relaxed. and computers. In contrast, the contributions of several
Further sector gains were stifled, however, by the ongoing subsectors declined (Chart 2.15).
contraction in the oil and gas subsector. Oil liftings fell
3.1%, despite the commencement of refined product Construction sector performance increased significantly as
output at the Cepu block in early 2016. domestic infrastructure development projects were ramped
up, with growth at 6.79% in 2017, up from 5.22% in
Overall Indonesia’s manufacturing industry performance 2016. Most infrastructure projects were privately run,
improved in 2017, but the gains were sluggish and
uneven. Stable growth of 4.27% was achieved, due to
export-oriented industries, but domestic-oriented gains
Chart 2.14. Industrial Production and Non-oil and
Grafik 2.14
were uneven due to weak domestic demand. Of the 11 Gas Export Index
domestic-oriented manufacturing subsectors, only food and Index Percent, yoy
beverages have posted two years of positive growth.8 52 6
51 5
The subsectors that contributed most to manufacturing 50

4
3
growth were the export-oriented subsectors, particularly 49
2
rubber, textiles and clothing, base metals, electrical 48
1
machinery and equipment, as evidenced by data on 47
0
growth of non-oil and gas exports and the manufacturing 46

-1
industry production index (Chart 2.14). The textile industry 45 -2
recorded the most significant gains due to rising demand 44

-3
2014 2015 2016 2017
Industrial Production Index (IPI), SKDU Growth of Non-Oil/Gas Export (rhs)

GDP Growth of Manufacturing Industry Sector (rhs)
8 The classification of export- or domestic-oriented is based on the Input-Output Table for Source: BPS and Bank Indonesia, calculated
Note: Industrial Productian Index above 50 reflects the expansion
2010.

Chart 2.15. Contribution to GDP Growth from the
Grafik 2.15 in particular boosted the intermediation activities of
Manufacturing Industry Sector wholesalers. Growth in wholesale and retail trade sector
Percent rose to 4.44% in 2017 compared with 4.03% in 2016,
1.2 with a stronger second half. On the retail side, however,
1.0 trade was limited by subdued domestic consumption.
0.8 The retail sales index decelerated significantly to 3.1% in
0.6 2017 from 11.0% in 2016 (Chart 2.17). Hypermarkets
0.4
and department stores experienced strong pressure on
0.2
sales, but the decline in sales at minimarkets was less
pronounced. The shift in trade from offline to online
0
remains an ongoing challenge for retailers.
-0.2
2014 2015 2016 2017

Accommodation, food and beverages, information
Food and Beverage Sub-sector Conveyance Sub-sector
Metal Goods and Electrical Equipment Sub-sector Chemical Pharmacy Sub-sector and communications, as well as transport and trade all
Other Manufacturing Sub-sector
benefited from a shift in consumer preferences towards
leisure and lifestyle activities. Indonesia’s expanding
tourism industry lifted the accommodation, food, and
including by state-owned enterprises, in the transport beverages sector, while the rapid growth of the digital
and electricity subsectors (Chart 2.16). By the end of the economy buoyed the information and communications
third quarter of 2017, eight power station projects with sector to its highest growth rate in five years, and fed into
a capacity of around 500MW had been completed in transportation, logistics and warehousing. The escalation
Bangka Belitung, Lampung, Riau, West Sumatra, North of online businesses has also increased demand for
Sumatra, West Kalimantan and West Nusa Tenggara. Toll internet data, advertising services, freight transportation
road construction was also accelerated across Indonesia, and ride‑hailing.
with 380km completed in 2017, double the length
built in 2016. Conversely, private commercial projects In contrast, growth in the financial, real estate, and
were generally more muted, with residential property corporate services sector declined significantly in 2017,
development the only private construction sector to post primarily affecting financial intermediaries, specifically
growth in 2017. banking services, in line with lower-than-expected growth
in bank credit. The decreasing growth contribution of
Stronger exports also lifted the performance of the financial intermediary services represented the largest
wholesale and retail trade sector, the second largest decline of all services sectors in 2017. Meanwhile,
economic sector after the manufacturing industry, and the real estate and corporate services subsectors
Grafik 2.16. Proyek

Chart 2.16. Pembangunan
Construction Fisik Projects
Development Chart 2.17. Retail Sales and Motor Vehicle Sales
Grafik 2.17
Rp trillion Percent, yoy Percent, yoy

80 25 30
70 20 20
60
15 10
50
10 0
40
5 -10
30
0 -20
20
-5 -30
10
0 -10 -40
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2014 2015 2016 2017
Private including State-Owned Enterprises Government (APBN/APBD) Retail Sales 4-Wheels Vehicle Sales
Cement Sales (rhs) 2-Wheels Vehicle Sales
Source: BCI, calculated Source: Bank Indonesia and CEIC, calculated

continued to moderate slightly in line with the limited Chart 2.19. Online Job Vacancy Indicator
Grafik 2.19
economic recovery.
Percent, yoy Thousand
100 80
2.3. Employment and Welfare 80 70
60 60
The ongoing economic recovery fostered some 40 50
improvements on the employment side, as evidenced 20 40
by several indicators. Open unemployment stood at 0 30
5.5% in August 2017, down slightly from 5.6% in -20 20
August 2016 (Chart 2.18). At the same time, the labor -40 10
force participation rate also increased, rising to 66.7% -60

2011 2012 2013 2014 2015 2016 2017
0
in 2017 from 66.3% in 2016. Stronger employment

Job Vacancy Growth
dynamics were also reflected in the Job Vacancy Online Average Job Vacancy per month (rhs)
indicator, which posted moderate gains in growth of
both job vacancies and job offers posted each month
(Chart 2.19).9
Against a backdrop of improving employment indicators,
By sector, labor absorption improved most notably in the several trends garnered attention in 2017. The creation of
non-tradeable sector (Chart 2.20), particularly in the trade new jobs was unable to keep pace with the fast-growing
subsector, and in accommodation, food, and beverages, workforce and the layoffs made at some companies,
in line with tourism industry development and the surge in leading to only limited declines in unemployment. Urban
export activity. Medium- and low-skilled workers enjoyed workers were increasingly absorbed into technology-based
the most significant gains in terms of labor absorption, employment, in line with the rapid expansion of the digital
with unemployment falling among those with primary economy, but this also requires lower staffing levels than
or secondary education. Unusually, new jobs in the traditional manufacturing or agriculture. There was also
traditional absorbers of labor – agriculture, forestry, and a general mismatch between the expertise required and
fisheries, as well as mining and quarrying – fell. that available, which contributed to an increase in urban
unemployment in 2017.
The economic recovery also lifted welfare. The poverty

rate edged down to 10.1% in 2017, from 10.7% in
Chart 2.18. Open Unemployment Rate
Grafik 2.18 2016 (Chart 2.21). This can be attributed to low and
Percent
8.0
7.5 Chart 2.20. Employment Sectors and Types

Grafik 2.20
7.0
6.5
Percent, CMA Percent, CMA
6.0
7 14
5.5
6 12
5.0
5 10
4.5
4 8
4.0
3.5 3 6
3.0 2 4
2014 2015 2016 2017 1 2
Open Unemployment Rate 0 0

Open Unemployment Rate - Urban Open Unemployment Rate - Rural -1 -2
Source: BPS-Statistics Indonesia, calculated -2 -4
Note: Data as of August on each period
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Tradable Employment Nontradable Employment

Informal Employment (rhs) Formal Employment (rhs)
9 The Job Vacancy Online Indicator was developed by Bank Indonesia using big
data analysis.

Chart 2.21. Developments in Poverty Rates
Grafik 2.21 ratio stemmed from urban areas, contrasting the moderate
increase recorded in rural areas.
Million of people Percent
35 14
30
12
2.4. Regional Economic Dynamics
25
10 Regional economics in Indonesia were affected by
20 international commodity prices and the Government’s role
8
15
in infrastructure development. Robust economic growth
6
was recorded in regions with economies reliant on natural
10
resources (Figure 2.1). Economic growth in Kalimantan, for
5 4 example, accelerated significantly on the previous year,
2011 2012 2013 2014 2015 2016 2017
driven by the plantation sector, particularly CPO exports,
Rural Urban
Poverty Rate (rhs) Poverty Line Inflation (rhs, CMA) and rising coal exports. Economic growth in Sumatra
also speeded up due to infrastructure development and
Source: BPS and World Bank, calculated
stronger CPO exports. Java’s economic growth was stable,
again due to infrastructure investment. Java’s infrastructure
stable inflation, especially food inflation, which has development has been relatively intensive, with funding
reduced poverty line inflation sharply over the past few from the central Government, regional administrations
years. The number of urban poor remains well below and private sector, which in turn boosted construction
that of rural poor, but several challenges specific to the sector performance. Bucking the trend, however, economic
urban poor persist. Notably, census data from 2015 growth in Bali and Nusa Tenggara (Balinusra), Sulawesi,
points to accelerating urbanization – driven by limited job as well as Maluku and Papua (Mapua) moderated.
availability and stagnant income growth in rural areas – Economic moderation in those regions was affected by
but urban job creation is growing at a slow pace. lower production in the oil and gas mining subsector, other
mining and quarrying subsectors, as well as agriculture.10
Reduced economic inequality is indicative of improving
welfare conditions. The Gini ratio stood at 0.391 in The impact of rising plantation and mining commodity
September 2017, down slightly from 0.394 in September prices on regional economies was reflected in economic
2016 (Chart 2.22). Nevertheless, the apparent performance outside of Java. A surge in plantation
improvement was due to reduced spending by the exports, especially CPO, underpinned the economies of
uppermost 20% percentile. By location, the lower Gini Sumatra, Kalimantan and Sulawesi (Chart 2.23).11 CPO
production in all net producing areas increased in line with
favorable weather, which pushed up aggregate production
by 18% in 2017. Such developments were reflected in
particular in the economies of Sumatra and Kalimantan in
Chart 2.22. Gini Ratio and Income Distribution
Grafik 2.22
the second half of 2017. Furthermore, economic dynamics
Inequality
in Sumatra and Kalimantan were also influenced by
Percent
100 0,50 rising coal exports, which accounted for a large share of
90 0,48 total exports. The economic impact of rising coal prices
80 0,46
was, however, quite different in each region due to the
70 0,44
different calorific values of coal produced by each. With
60 0,42
50 0,40 similar levels of coal reserves, demand was stronger for

40 0,38 coal with a high calorific value, which is produced in
30 0,36
20 0,34
10 0,32
0 0,30 10 The other mining and quarrying subsector consists of non-oil and gas mining, excluding
coal and metal ore.
2011 2012 2013 2014 2015 2016 2017
40% Lowest 40% Middle 20% Highest 11 The largest producing provinces of crude palm oil (CPO) in Sumatra are North Sumatra,
Urban Gini Ratio (rhs) Rural Gini Ratio (rhs) Riau, Jambi, and South Sumatra. Nearly all provinces in Kalimantan, excluding South
Kalimantan, have significant areas dedicated to CPO production. The area designated
for CPO production in Sulawesi is smaller.

Gambar
Figure 2.1. / Regional
2.1. Grafik 2.4.1 Pertumbuhan
Economic Growth inEkonomi
2017 Wilayah Tahun 2017
Sumatra Kalimantan Sulawesi

NORTH 8.19 7.43 6.99
3.53 4.29 4.30 4.33 KALIMANTAN
ACEH 1.38 2.02 6.59
4.19 Mapua
2015 2016 2017 2015 2016 2017 2015 2016 2017 NORTH
NORTH 6.28 7.40
SUMATRA CENTRAL GORONTALO SULAWESI 4.89
5.12 SULAWESI 6.32
6.74
RIAU RIAU 7.14
EAST 2015 2016 2017
2.71 ISLANDS KALIMANTAN
2.01 WEST
KALIMANTAN 3.13 NORTH
BABEL 5.17 MALUKU
ISLANDS CENTRAL 7.67 WEST PAPUA
WEST JAMBI WEST
SUMATRA 4.64 4.51 KALIMANTAN 4.01
SULAWESI
5.29 6.74 6.67
SOUTH SOUTH EAST
SUMATRA SULAWESI
BENGKULU 5.51 MALUKU PAPUA
SOUTH 6.81 4.64
4.99 SOUTH SULAWESI 5.81
LAMPUNG JAKARTA KALIMANTAN
5.17 7.23
6.22 5.29
CENTRAL JAVA EAST
BANTEN WEST JAVA 5.27 NUSA TENGGARA Bali-Nusra
Java 5.71 5.29 BALI 5.16
5.59 10.42
5.48 5.60 5.61
DIY EAST JAVA 5.92
5.26 3.73
5.45 WEST
NUSA TENGGARA
2015 2016 2017 0.11 2015 2016 2017
RGDP ≥ 7.0% 6.0 ≤ RGDP < 7.0% 5.0% ≤ RGDP < 6.0% 4.0 ≤ RGDP < 5.0% 0% ≤ RGDP < 4.0%
Central Kalimantan and East Kalimantan.12 Consequently, beginning of 2017 (Chart 2.24). Those restrictions have
demand-side dynamics provided a windfall for these two been relaxed for the next five years for license holders in
regions, with Central Kalimantan posting the fastest growth the mining industry that have begun to develop smelters.
in Kalimantan at 6.74%. Rising commodity prices also This has prompted investment in nickel smelters in Central
contributed to economic growth in East Kalimantan, where Sulawesi and North Maluku. Conversely, mining exports
positive growth returned following a two-year contraction. from Papua and Balinusra began to moderate in the
latter half of the year after disruptions slowed copper
Rising commodity prices also benefitted other areas ore production in Papua and West Nusa Tenggara.
reliant on mining, including Sulawesi, Balinusra and Labor issues and adjustments to licensing regulations
Mapua. Increasing mineral exports were observed from stifled further production and export gains. In West
all three regions in the second half of the 2017, after a Nusa Tenggara, however, improvements to copper ore
policy to relax export restrictions was implemented at the production were limited by an ongoing consolidation
process following several corporate mergers within
the sector.
Chart 2.23. Export Growth by Region

Grafik 2.23
Percent, yoy
50
40
Chart 2.24. Growth in Value of Major Commodity
Grafik 2.24
Exports by Region
30
20 100 300
250
10 80
200
0 60 150
-10 100
40
50
-20 20
0
Sumatra Java Kalimantan Balinusra Sulawesi Mapua
0 -50
Q I 2017 Q II 2017 Q III 2017 Q IV 2017 -100

-20
-150
Source: BPS-Statistics Indonesia, calculated -40 -200

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2016 2017
CPO-Sumatra Coal-Kalimantan
Copper Ore-Mapua (rhs) Iron/Steel-Balinusra (rhs)
12 Coal with a lower calorific value is produced in South Sumatra, Jambi, East Kalimantan
and South Kalimantan.

Economic growth in Riau and East Kalimantan was tepid, translated into 5.51% regional GDP growth in South
despite increasing coal and CPO exports. Riau’s 2.71% Sumatra, the highest of all provinces on Sumatra island.
growth was the lowest in Sumatra, and growth of 3.13% In Java, the strategic projects included Kertajati Airport in
in East Kalimantan was the lowest in all of Kalimantan, West Java, the mass rapid transport in Jakarta, the light
as a decline in oil liftings from aging wells countered the rail train in Jabodetabek, as well as power stations and
rising global oil price. toll roads in West Java, Banten, and Central Java. These
lifted Java’s investment growth to 6.53%, the highest level
Economic growth on the island of Java remained solid. recorded in five years (Chart 2.26). In Eastern Indonesia,
All provinces of Java achieved growth above the national the large-scale development projects focused on the
average, with Jakarta at 6.22%, well above the 5.88% Trans-Sulawesi and Trans-Papua toll roads, as well as
recorded in 2016. In addition, three of the six provinces supporting infrastructure for sea channels.
on Java island recorded stronger growth in 2017
compared with 2016, with Banten and Jakarta registering Rising commodity prices and the acceleration of
the most significant gains. Java’s solid economic government infrastructure projects triggered non-building
performance accounted for 58.6% of Indonesia’s investment in several regions. The impact of rising
total economy. commodity prices on non-building investment was most
notable in Sulawesi and Mapua. Sulawesi reported
One important determinant of regional economic non-building investment growth of 6.70% and Mapua
performance in 2017 was local infrastructure at 6.18%. The gains were driven by the replacements
development. In addition to the benefits felt on Java, within the transport fleet, as well as investment in mining
infrastructure projects were also the engine of economic equipment. Furthermore, non-building investment in
growth in several other regions. The acceleration of industries based on natural resources was also lifted by
several infrastructure projects, including national strategic the development of smelters in Eastern Indonesia and
projects (PSN) to expand connectivity, energy availability the CPO industry on Sumatra island. Most non-building
and basic infrastructure, such as clean water and investment in the manufacturing industry on Java was
waste management, stimulated building investment on maintenance spending and the replacement of spare
Sumatra and Java and in Eastern Indonesia (Chart 2.25). parts. Investment also originated from Japan and China
Furthermore, work on a number of large-scale projects for new facilities in the transport equipment industry,
began in 2017, including the Trans-Sumatra toll road, and infrastructure projects also stimulated non-building
supporting infrastructure for the 2018 Asian Games in investment on Java and all other regions. This included
South Sumatra and power stations in North and West purchases of construction equipment, machinery and
Sumatra. The ongoing development of the light rail train electrical equipment. Indeed, reflecting these purchases,
and sports facilities to support the Asian Games in 2018 the 500MW electrification project was completed in
Chart 2.25. Building Investment by Region

Grafik 2.26 Chart 2.26. Investment by Region
Grafik 2.25

10 10
8
8
6
6
4
2
4
0
2
-2
0 -4
Sumatra Java Kalimantan Balinusra Sulawesi Mapua Sumatra Java Kalimantan Balinusra Sulawesi Mapua
Q I 2017 Q II 2017 Q III 2017 Q IV 2017 2015 2016 2017
Source: BPS-Statistics Indonesia, calculated Source: BPS-Statistics Indonesia, calculated

Chart 2.27. Contribution of Government
Grafik 2.29 Chart 2.28. Household Consumption by Region
Grafik 2.28
Consumption by Region
1.4 7
1.2
6
1.0
0.8 5
0.6
4
0.4
0.2 3
0 2
-0.2
1
-0.4
-0.6 0
2015 2016 2017 2015 2016 2017
2017, with plants located in Bangka Belitung, Lampung, (Chart 2.28). Growth in household consumption was
Riau, West Sumatra, North Sumatra, West Kalimantan, not, however, balanced across all regions rich in natural
and West Nusa Tenggara. resources, because job creation was limited. For example,
corporations continued to utilize rising export proceeds to
Policies introduced in 2015 and 2016 to enhance maintain equipment. Furthermore, total workers employed
expenditure quality and accelerate regional transfers in the primary sector declined as the expansion of
– transfers of money from central to local or provincial agricultural land slowed, which impeded job creation.
governments – and disbursements under the Village Household consumption growth was also somewhat muted
Fund – central government money for welfare and village on Java, Indonesia’s dominant region, due to a smaller
development – were intended to foster regional economic increase in the minimum provincial wage (UMP) than had
growth. In addition to capital spending for investment been seen in previous years, following changes to the
purposes, government consumption was another form way it is calculated. The impact of the annual increase
of regional fiscal stimuli. In 2017, the Government in the UMP was also limited on Sumatra, a region
managed to increase its own consumption in all regions, dominated by industry. The UMP was raised by 8.25% in
except Kalimantan (Chart 2.27). Central Government 2017, down from more than 10% in 2016.14 In addition,
measures to improve the disbursement system for regional a decline in remittances from Eastern Indonesia also
transfers and village funds through State Treasury Services impacted incomes and consumption in several regions,
Offices (KPPN) helped to accelerate regional government particularly Java.
spending. The significantly larger allocation of village
funds in 2017, increasing from IDR47 trillion in 2016 to Stronger domestic demand combined with a growing
IDR60 trillion, also nurtured regional economic activities. need to boost exports fed into import dynamics in
Regional transfers and village fund realization reached various regions. Robust import growth was observed
IDR742 trillion in 2017, up 4.5% on 2016. Furthermore, in the regions of Sumatra, Java, Sulawesi, and Mapua
the absorption of government spending increased to 91% (Chart 2.29). A need for transportation equipment to
in 2017 from 85.5% in 2016.13
Household consumption across Indonesia’s regions was

14 The Minimum Provincial Wage (UMP) was raised by a national average of more than
also inextricably linked to the production of commodities. 9.3% in 2017. The Ministry of Manpower stipulated that the minimum increase to UMP
Solid increases in household consumption were recorded in 2017 was 8.25% (inflation in September at 3.07% + GDP in Q2/2016 at 5.18%).
Nevertheless, six provinces, namely Riau, Bengkulu, Jakarta, Central Java, Yogyakarta,
in the producing areas of Kalimantan and Sulawesi as and East Java, raised the minimum wage by less than 8.25%. In 2016, however, all
CPO, coal, and other mining commodity prices soared six of those provinces maintained a percentage of UMP to the basic cost of living of
more than 100%. Meanwhile, eight provinces, namely West Nusa Tenggara, East Nusa
Tenggara, Central Kalimantan, Maluku, North Maluku, Gorontalo, West Sulawesi,
and West Papua, raised the minimum wage by more than 8.25%, but maintained a
13 Ministry of Finance data, as of 15 January 2018. percentage of UMP to the basic cost of living of less than 100% in 2016.

Chart 2.29. Import Growth by Region
Grafik 2.27 Chart 2.30. Growth of Agriculture, Forestry, and
Grafik 2.30
Fishing Sectors
50 9
8
40
7
30
6
20 5
10 4
3
0
2
-10
1
-20 0
2011 2012 2013 2014 2015 2016 2017
Q I 2017 Q II 2017 Q III 2017 Q IV 2017 Sumatra Java Kalimantan Balinusra

Sulawesi Mapua
support plantation and mining operations outside Java of 5% to 8% range. In terms of food crop production,
prompted imports of capital goods. Furthermore, several gains were distributed evenly across all regions. Rice
natural resources companies in Sumatra and Sulawesi production in Sulawesi, Mapua, and Balinusra grew 6%,
enhanced their CPO processing capacity and increased surpassing growth in the rest of Indonesia, with growth of
their fishing catch. Also in Sulawesi, some manufacturing rice production on Java remaining at 3%, due to limited
imports rose, particularly wheat for processing into flour. expansion of the rice-farming area.
Imports also increased into Mapua; this primarily affected
iron and steel for infrastructure projects. Meanwhile, Manufacturing, as the dominant industry on Java,
the construction of electricity projects in Sumatra, increased significantly, with growth accelerating from
Kalimantan, and West Nusa Tenggara triggered imports 4.28% in 2016 to 5.36% in 2017 (Chart 2.31) lifted
of machinery and equipment. On Java, imports of by growth in demand – primarily export demand –
capital goods picked up, particularly in the second half, for textiles, clothing, basic chemicals and medicines.
relating to investments in transport and textiles, as well as Meanwhile, the transportation equipment industry also
downstream industries. underpinned manufacturing on Java, although posted
only moderate growth. The manufacturing industry of
The effect of rising international commodity prices and Mapua also posted gains, with nickel processing in North
government infrastructure projects was also reflected
in the performance and dynamics of economic sectors
across the different regions. Dynamics in 2017 revealed
Chart 2.31. Growth of Manufacturing Industry
Grafik 2.31
the tradeable sector to be the backbone of economies Sector
outside Java, particularly Sumatra and Kalimantan. Percent, yoy
Accordingly, the share of the tradeable sector in Sumatra 16
and Kalimantan accounted for more than half of total 14
12
regional GDP, reaching 61% of the total in Kalimantan.
10
Consequently, the impact of improvements in the primary 8
sector – in agriculture, forestry and fisheries sector, as 6
well as in mining and quarrying – were a considerable 4
2
boon for the economies of both regions. 0
-2
The agricultural, forestry, and fisheries sectors in Sumatra -4

2011 2012 2013 2014 2015 2016 2017
and Kalimantan grew respectively by 3.93% and 5.30%
(Chart 2.30). CPO production was the key driver in Sumatra Java Kalimantan Balinusra
Sulawesi Mapua
both regions, however, with output increasing in a range

Maluku the main driver of growth after the relaxation of volcanic eruption of Mount Agung impeded progress on
restrictions on low-grade concentrate exports. In contrast, several private construction projects.
nickel processing in Southeast Sulawesi and Central
Sulawesi fell compared with 2016, and this was the main The impact of an improving tradeable sector performance
drag on manufacturing industry performance in Sulawesi. on the non-tradeable sector varied from region to region.
The mining processing industry in West Nusa Tenggara Trade activity on Sumatra, Java and Kalimantan picked
slowed in line with ongoing corporate consolidation. up as exports surged, but in contrast restrained domestic
Meanwhile, manufacturing, the dominant sector in trade activity in Sulawesi and Eastern Indonesia was
Sumatra and Kalimantan, also moderated due to subdued a drag on the corresponding trade sector. However,
oil and gas production. tourism sparked trade activity in some areas, and solid
growth was maintained in the accommodation, food
Infrastructure project development sustained the and beverages sector. Consequently, regions with strong
construction sector in various regions, especially Java, tourism hubs, such as Java, Sulawesi, Mapua, and
Kalimantan, and Sulawesi (Chart 2.32). With a greater Balinusra, achieved faster economic growth in 2017
concentration of infrastructure projects, construction compared to 2016. In fact, the tourism sector in Balinusra
sector growth on Java accelerated to 6.51% in 2017 performed impressively, notwithstanding the adverse
from 4.12% in 2016. The infrastructure projects on Java economic impact of Mount Agung’s 2017 eruption.
were not only related to interregional connectivity on
land (Trans-Java Toll Road), but airports were also built Robust exports and tourism development in several areas
(Kertajati in West Java and Kulonprogo in Yogyakarta), had a welcome impact on employment. Fast export
as well as seaports (New Tanjung Priok in Jakarta). Java’s growth supported labor absorption, particularly in areas
construction sector also benefited from the development of reliant on natural resources. More labor was absorbed
urban public transport networks. Similarly, the construction in Sumatra and Kalimantan, with open unemployment
sectors in Kalimantan and Sulawesi benefitted from dropping significantly, particularly in the provinces of
large-scale toll road and sea channel projects and the Riau, Riau Islands, and East Kalimantan (Chart 2.33).
expansion of several industrial zones. Open unemployment in Sumatra fell to 5.04% in 2017
from 5.43% in 2016, and in Kalimantan to 4.86%
Conversely, however, growth in the construction sector from 5.51%. Tourism development and the current shift
in Sumatra, Balinusra, and Mapua slowed to 6%, in consumption towards leisure activities created new
following the completion of several large infrastructure jobs in the trade and accommodation, as well as food
projects. Furthermore, natural resources prices corrected, and beverages sectors. Balinusra is the main destination
dampening interest in investment in Mapua. In Bali, the for international tourists, and here open unemployment
Chart 2.32. Growth of Construction Sector

Grafik 2.33 Chart 2.33. Open Unemployment Rate by Region
Grafik 2.34

16 7
14 6
12
5
10
4
8
3
6
4 2
2 1
0 0
2011 2012 2013 2014 2015 2016 2017
Sumatra Java Kalimantan Balinusra 2015 2016 2017

Sulawesi Mapua
Source: BPS-Statistics Indonesia, calculated Note: Data as of August on each period

Chart 2.34. Poverty Rate
Grafik 2.39
Percent, yoy
30
25
20
15
10
0
Aceh
North
Sumatra
West
Sumatra
Riau
Jambi
South
Sumatra
Bengkulu
Lampung
Babel
Islands
Riau
Islands
Jakarta
West Java
Central Java
DI
Yogyakarta
East Java
Banten
Bali
West
Nusa Tenggara
East
Nusa Tenggara
West
Kalimantan
Central
Kalimantan
South
Kalimantan
East
Kalimantan
North
Kalimantan
North
Sulawesi
Central
Sulawesi
South
Sulawesi
South east
Sulawesi
Gorontalo
West
Sulawesi
Maluku
North
Maluku
West Papua
Papua
2015 2016 2017

Note: Data as of September on each period
also fell, coming in at 2.59% in 2017, the lowest of all only complemented with physical infrastructure networks,
regions. but also with vocational education centers to support the
absorption of newly-skilled local labor.
The manufacturing industry also contributed to a sound
employment market, particularly on Java. Labor-intensive Infrastructure development also created local job
industries, such as electronics and food and beverages, opportunities in areas with large-scale projects, such as
added new jobs, and more labor was absorbed by Java. Nevertheless, increasing mechanization, particularly
manufacturing in West Java and Banten. Outside of Java, on urban public transportation projects, limited the number
more labor was absorbed in 2017 by the development of job openings for construction workers. Innovative
of industrial zones, including the Morowali Industrial Park government policies to stimulate regional economies
in Central Sulawesi, Bantaeng Industrial Park in South through greater connectivity also played an important
Sulawesi, Konawe Industrial Park in Southeast Sulawesi, role in nurturing employment. Approval for a new direct
and Mandalika Special Industrial Zone in West Nusa international flight to North Sulawesi catalyzed tourism
Tenggara. As part of the Government’s strategic program, development in the province and beyond, which created
these industrial zones developed outside Java were not new jobs and offset rising local unemployment.
Chart 2.35. Poverty Gap Index

Grafik 2.40
Index
8
0
Aceh
North
Sumatra
West
Sumatra
Riau
Jambi
South
Sumatra
Bengkulu
Lampung
Babel
Islands
Riau
Islands
Jakarta
West Java
Central Java
DI
Yogyakarta
East Java
Banten
Bali
West
Nusa Tenggara
East
Nusa Tenggara
West
Kalimantan
Central
Kalimantan
South
Kalimantan
East
Kalimantan
North
Kalimantan
North
Sulawesi
Central
Sulawesi
South
Sulawesi
South east
Sulawesi
Gorontalo
West
Sulawesi
Maluku
North
Maluku
West Papua
Papua
Indonesia
2016 2017


Chart 2.36. Gini Ratio
Grafik 2.41
Gini Ratio
0.50
0.45
0.40
0.35
0.30
0.25
0.20
Aceh
North
Sumatra
West
Sumatra
Riau
Jambi
South
Sumata
Bengkulu
Lampung
Babel
Islands
Riau
Islands
Jakarta
West Java
Central
Java
DI
Yogyakarta
East Java
Banten
Bali
West
Nusa Tenggara
East
Nusa Tenggara
West
Kalimantan
Central
Kalimantan
South
Kalimantan
East
Kalimantan
North
Kalimantan
North
Sulawesi
Central
Sulawesi
South
Sulawesi
South east
Sulawesi
Gorontalo
West
Sulawesi
Maluku
North
Maluku
West Papua
Papua
Indonesia
2015 2016 2017

Conversely, labor absorption in the mineral and oil and decline was observed in the poverty gap index in areas
gas mining subsectors declined in 2017, and layoffs made of Sumatra and Mapua (Chart 2.35).15 In contrast,
by mining corporations in Papua had a deleterious effect the poverty gap index increased in regions of Java,
on rising open unemployment in the region. Corporate specifically urban areas such as Jakarta, reflecting the
rationalization was necessary to adjust to new mining plight of the urban poor, who spend far less than the
license policies, which stoked uncertainty regarding basic cost of living. Urbanization has kept poverty high
investment and production. in towns and cities, stimulating demand that pushes up
prices and reduces the number of jobs available offering
Poverty declined in the majority of regions in line with adequate wages.
controlled inflation and more balanced development
(Chart 2.34). Decreasing poverty was linked to a Improving public welfare was also evidenced by
moderate increase in the poverty line, combined with moderate declines in economic inequality in some regions
relatively mild inflationary pressures on volatile foods. (Chart 2.36). The government commitment to develop a
Government policy to stimulate balanced regional balanced economy, particularly in Eastern Indonesia, has
economic development through infrastructure, connectivity effectively lowered the Gini ratio in Mapua. Furthermore,
and social assistance disbursements effectively improved the Gini ratios in several regions of Eastern Indonesia,
public welfare. The percentage of poor in Mapua has which exceeded 0.40 in 2015, have since been reduced
declined over the past two years, although the region still to levels below the national average. In 2017, the Gini
has the highest poverty levels in Indonesia. Its percentage ratio in Maluku fell to 0.321 and in West Papua to
of poor residents declined to 21.2% in 2017 from 22.0% 0.38. Nonetheless, declining inequality was not seen
in 2016, with distribution of food in Mapua supported in all regions. In regions with large urban areas, such
by greater connectivity, particularly through maritime as Jakarta, Yogyakarta, and East Java, the Gini ratio
channels. Furthermore, poverty was also alleviated in remains above 0.40 and has increased over the past
Sumatra and Kalimantan through consistent improvements three years. Inequality on Java is worse than in the rest
to connectivity. On Java, however, poverty has been of Indonesia due to significantly disparate incomes and
alleviated through the expansion of more targeted social diverse types of employment. Most areas of Sulawesi
assistance disbursements. also experienced increasing inequality, even surpassing
conditions in Mapua, which has historically had structural
The poverty gap index has improved in several regions inequality issues.
as a result of controlled prices of staple foods. A deep
15 The poverty gap index (P1) measures the average extent to which poor individuals fall
below the poverty line. A higher index indicates more severe poverty.

Box 2.1. the ongoing economic recovery, underpinned by exports
and investment – because of several domestic factors,
Household including labor market slack, a shift in consumption
Consumption following corporate consolidation, a propensity to
postpone consumption, and adjustments to income
and Income dynamics.
Dynamics Corporate consolidation was detrimental to the labor

market. As the natural resources commodity boom ended,
T
mining sector companies laid off staff and this eroded
he contribution of household consumption to GDP
household income, particularly in mining regions such
has declined over recent years in line with slower
as Kalimantan and Sumatra. Furthermore, corporate
consumption growth since the global financial crisis
consolidation also held back business expansion,
of 2008 and 2009, despite the v-shaped recovery of
prompted downwards wage adjustments and stifled the
GDP per capita. The phenomenon of moderate household
creation of new jobs. Such dynamics affected the growth
consumption gains combined with increased GDP per
of other economic sectors, including manufacturing
capita has been attributed to the fact that exports of
and services.
natural resources were the main driver of GDP per capita,
and these do not contribute significantly to employment.
Congruent with corporate consolidation, households were
Exports of natural resources have accelerated to meet
less inclined to consume and their propensity to save
strong demand, especially from China, which has drawn
increased as an anticipatory measure (Chart 2). That
more investment to sectors dealing with natural resources
response was most prevalent amongst households with
rather than to the manufacturing industry, the traditional
small savings (IDR1-2 million). On the other hand, the
hotbed of job creation.
propensity to save of households with larger savings was
influenced more by sentiment as a socio-political effect,
In 2016, however, GDP per capita rose, and this time it
which compelled them to save rather than consume.
was accompanied by improving household consumption.
This was made possible due to strong government
The shift in household consumption was also a result of
spending, particularly on infrastructure development.
adjustments to income dynamics, particularly among
Nonetheless, household consumption slumped again in
households dependent on informal work with fluctuating
2017, while GDP per capita continued to grow (Chart 1).
wages. In 2017, such households experienced a decline
Household consumption was sluggish in 2017 – despite
in real income (Chart 3).
Grafik1.
Chart 1 Boks 2.1. Dinamika
Dynamic Konsumsi
of Household Rumah Tangga
Consumption Grafik2.
Chart 2 Boks 2.1. Alokasi
Allocation Pendapatan
of Household Rumah
Earning for Tangga
Saving
Percent, yoy Percent Percent

5.0 57 23
4.8
22
4.6
56 21
4.4
20
4.2
4.0 55 19
3.8
18
3.6
54 17
3.4
16
3.2
3.0 53 15
I II III IV I II III IV I II III IV
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2015 2016 2017
HH with Expenditure Rp 1-2 million HH with Expenditure > Rp 2-5 million

Per capita GDP (USD Based) Household Consumption Per Capita
HH with Expenditure above Rp 5 million
Household Consumption to GDP Ratio (rhs)
Source: BPS and World Bank, calculated Sumber: Bank Indonesia

Chart 3. 2.1.Real
Grafik 3 Boks Wage
Tren Upah Riil Grafik 4 Boks
Chart 4. 2.1. Wage
Minimum
Percent, yoyt Rp million Percent, yoy

25 2.5 25
20 2.0 20
15 1.5 15
10 1.0 10
5 0.5 5
0 0 0
2015 2016 2017 2011 2012 2013 2014 2015 2016 2017
Real Wage of Permanent Worker Real Wage of Freelance Worker Average of Provincial Minimum Wage
Provincial Minimum Wage Average Growth
Source: Sakernas, calculated Source: Bank Indonesia (calculated from various sources)
Households with an income equivalent to the minimum A strategy and supporting policies are needed to
wage, the UMP, also adjusted their consumption. In overcome the challenges faced in enhancing the quality
2016, the Government reformed the formula used to of formal secondary and tertiary education. Furthermore,
calculate the minimum wage, namely GDP growth plus apprenticeship programs are necessary to prepare the
inflation in the previous year, which limited the increase labor force, along with entrepreneurial training to create
to around 9%, significantly down on previous years in new job opportunities in alternative sectors, including the
which double digits had become the norm (Chart 4). The creative industries, technology, and tourism.
policy change contributed to the recent shift in household
consumption patterns. Near-term support is required to stimulate household
consumption, particularly among low-income households,
The recent phenomenon of slower household consumption through targeted social assistance disbursements such
growth is also inextricably linked to a large pool of as the Family Hope Program. In addition to giving direct
unabsorbed unskilled workers. There is a mismatch risk support – meaning cash for food and school supplies – the
for unskilled labor, particularly during an economic Family Hope Program has also been shown to improve
recovery, when the economy typically undergoes a children’s health and education, as evidenced by a World
structural transformation. Bank study.1
1 Alatas, V. et al. (2011), Program Keluarga Harapan: Main Findings from the Impact
Evaluation of Indonesia’s Pilot Household Conditional Cash Transfer Program, World
Bank Working Paper No. 72506.

CHAPTER 3
Indonesia’s Balance of Payments
The global economic recovery, coupled with growing
optimism regarding Indonesia’s domestic economic outlook,
underpinned positive balance of payments (BOP) performance
in 2017, which in turn strengthened external sector resilience
in Indonesia.

| 39
The global economic recovery and growing optimism the controlled current account deficit and the increasing
concerning the domestic economic outlook strengthened sources of long-term financing. External debt indicators
Indonesia’s balance of payments (BOP) in 2017. The were also sound, with the external debt-to-GDP ratio
BOP recorded another surplus in 2017, backed by a remaining within a safe threshold at 34.7%, relatively
healthy current account and an influx of foreign capital stable on the 34.3% posted in 2016 and consistent with
flows in the form of a significant capital and financial other peer countries. The composition of external debt was
account surplus (Chart 3.1 and Table 3.1). The current also sound, with long-term external debt dominating at
account deficit fell to 1.7% of GDP in 2017, down from 86.1% of the total.
1.8% of GDP in 2016, as exports increased to meet
global demand and international commodity prices rose.
Nevertheless, the export gains still relied on commodity- 3.1. Current Account
based exports, while manufacturing export growth was
restrained. At the same time, rising imports were subdued In 2017, current account performance improved as the
given the slow nature of the domestic economic recovery. deficit narrowed, supported by commodity prices that
Meanwhile, the capital and financial account recorded a have been rising since the middle of 2016. Consequently,
significant surplus, driven by a sharp increase of non- the current account deficit stood at USD17.3 billion in
resident capital inflows in the form of direct investment 2017, or 1.7% of GDP, the lowest level on record in the
and portfolio investment. Such dynamics confirmed the past six years.
favorable perception of non-resident investors concerning
the domestic economy, leading to an increase of The healthy current account deficit was supported by a
placements in Indonesia. larger goods trade surplus, particularly non-oil and gas.
The non-oil and gas trade surplus soared 30.4% in 2017
BOP performance has effectively reinforced external sector on increasing export value, as international commodity
resilience, with several of the relevant indicators improving prices continued to rise and demand increased from
on their positions in the previous year. Furthermore, the Indonesia’s major trading partners. However, the robust
BOP surplus nudged up the position of international export gains were remain depend on commodity-based
reserves to USD130.2 billion in 2017, representing an exports, although several manufacturing products did
all-time high for Indonesia. This position of international begin to show early signs of improvement.
reserves was equivalent to 8.6 months of imports or 8.3
months of imports and servicing of government external The surge of non-oil and gas exports spurred a narrower
debt, well above the international standard of three current account deficit, countering the growth in non-
months. The basic balance also registered a surplus in oil and gas imports, a persistent oil and gas trade
2017, reversing the deficit recorded in 2016, in line with deficit, and deficits in the services and primary income
accounts. Measured increases of non-oil and gas imports
were reported, however these were predominantly raw
materials and capital goods for investment purposes,
Grafik 3.1.
Chart 3.1. Indonesia’s Balance of Payments
needed to feed rising exports and growing domestic
demand. The oil and gas deficit widened, due to the
USD billion
50 higher global oil price, rising fuel consumption, and
40 declining domestic crude oil production. Meanwhile,
30 the larger deficits recorded in the primary income and
20 services trade accounts stemmed from high revenue
10
payments on non-resident investments and freight services
0
payments on imported goods (Chart 3.2).
-10
-20
-30
-40
Non-Oil and Gas Trade Balance
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017**
Capital and Financial Account Current Account (CA)
Indonesia's Balance of Payment
The non-oil and gas trade balance improved in 2017,
underpinned by the ongoing global economic recovery
Note: **Very preliminary figures

Table 3.1. Indonesia’s Balance of Payments
USD million
2016 2017
Items 2015
I II III IV Total I* II* III* IV** Total**
I. Current Account -17,519 -4,634 -5,570 -4,951 -1,797 -16,952 -2,178 -4,797 -4,557 -5,761 -17,293
A. Goods, net 14,049 2,598 3,733 3,892 5,095 15,318 5,637 4,839 5,256 3,161 18,892
- Export 149,124 33,042 36,287 34,898 40,243 144,470 40,764 39,170 43,393 45,561 168,887
- Import -135,076 -30,444 -32,554 -31,006 -35,147 -129,152 -35,127 -34,331 -38,137 -42,400 -149,995
1. General Merchandise 13,319 2,302 3,501 3,675 5,266 14,744 5,472 4,579 5,039 2,903 17,993
- Export 147,725 32,703 35,983 34,561 39,857 143,105 40,439 38,814 42,825 44,928 167,006
- Import -134,406 -30,401 -32,482 -30,886 -34,592 -128,360 -34,967 -34,235 -37,785 -42,025 -149,013
a. Non-oil and Gas 19,023 3,203 4,938 5,003 6,371 19,516 7,649 6,119 6,320 5,204 25,293
- Export 130,541 29,849 32,753 31,292 36,294 130,188 36,480 35,390 38,959 40,604 151,433
- Import -111,518 -26,646 -27,815 -26,289 -29,923 -110,672 -28,831 -29,271 -32,639 -35,399 -126,140
b. Oil -13,106 -2,030 -2,463 -2,621 -2,566 -9,680 -3,486 -2,902 -2,741 -3,651 -12,780
- Export 7,833 1,221 1,816 1,631 1,600 6,267 1,962 1,548 1,841 2,138 7,489
- Import -20,938 -3,250 -4,279 -4,252 -4,166 -15,947 -5,448 -4,450 -4,582 -5,789 -20,269
c.Gas 7,402 1,129 1,026 1,293 1,460 4,908 1,309 1,361 1,460 1,350 5,480
- Export 9,351 1,633 1,414 1,638 1,963 6,649 1,997 1,875 2,024 2,187 8,084
- Import -1,949 -505 -388 -345 -503 -1,741 -689 -514 -564 -837 -2,604
2. Other Goods 730 295 231 217 -170 574 165 260 216 258 899
- Export 1,400 339 304 337 386 1,365 324 356 568 633 1,881
- Import -670 -44 -72 -120 -556 -792 -159 -96 -352 -375 -982
B. Services, net -8,697 -1,172 -2,450 -1,724 -1,739 -7,084 -1,230 -2,246 -2,091 -2,296 -7,864
C. Primary Income, net -28,379 -7,291 -7,970 -8,124 -6,263 -29,647 -7,723 -8,390 -8,904 -7,821 -32,838
D. Secondary Income, net 5,508 1,231 1,116 1,004 1,109 4,460 1,138 1,001 1,182 1,196 4,517
II. Capital and Financial Account 16,860 4,419 7,107 10,065 7,755 29,346 6,933 5,613 10,789 6,545 29,881
A. Capital Account 17 1 6 6 29 41 0 5 19 22 46
B. Financial Account 16,843 4,419 7,102 10,059 7,726 29,306 6,933 5,608 10,770 6,523 29,834
- Assets -21,489 -659 -4,768 3,086 18,261 15,920 -4,273 -8,063 -3,965 -1,696 -17,998
- Liabilities 38,332 5,077 11,870 6,973 -10,534 13,386 11,206 13,671 14,735 8,219 47,832
1. Direct Investment 10,704 2,827 3,174 6,594 3,541 16,136 2,924 4,553 8,069 4,605 20,151
a. Assets -9,075 -370 -1,372 466 12,870 11,594 -395 -112 -933 -486 -1,927
b. Liabilities 19,779 3,197 4,545 6,129 -9,329 4,542 3,319 4,665 9,003 5,092 22,078
2. Portfolio Investment 16,183 4,438 8,304 6,563 -309 18,996 6,572 8,133 4,069 1,887 20,662
a. Assets -1,268 -167 402 1,938 46 2,218 -983 -216 -693 -1,379 -3,270
b. Liabilities 17,451 4,605 7,902 4,625 -355 16,778 7,555 8,349 4,762 3,266 23,932
3. Financial Derivatives 20 -22 -25 -28 66 -9 -72 25 -12 -69 -128
a. Assets 667 276 171 160 1 609 185 123 89 45 442
b. Liabilities -647 -298 -195 -188 64 -618 -257 -98 -100 -114 -569
4. Other Investment -10,064 -2,825 -4,351 -3,070 4,429 -5,817 -2,491 -7,103 -1,356 99 -10,851
a. Assets -11,812 -398 -3,969 522 5,344 1,499 -3,080 -7,858 -2,428 124 -13,242
b. Liabilities 1,748 -2,426 -382 -3,592 -915 -7,316 589 755 1,071 -25 2,391
III. Total ( I + II ) -659 -215 1,537 5,114 5,958 12,394 4,755 816 6,232 785 12,588
IV. Net Error and Omissions -439 -72 625 594 -1,453 -305 -241 -77 -873 189 -1,002
V. Overall Balance (III+IV) -1,098 -287 2,162 5,708 4,505 12,089 4,514 739 5,359 974 11,586
VI. Reserves and Related Items 1,098 287 -2,162 -5,708 -4,505 -12,089 -4,514 -739 -5,359 -974 -11,586
Memorandum:
- Reserve Assets Position 105,931 107,543 109,789 115,671 116,362 116,362 121,806 123,094 129,402 130,196 130,196
- In Months of Imports & Official
7.4 7.7 8.0 8.5 8.4 8.4 8.6 8.6 8.6 8.3 8.3
Debt Repayment
- Current Account to GDP Ratio
-2.0 -2.1 -2.4 -2.0 -0.7 -1.8 -0.9 -1.9 -1.7 -2.2 -1.7
(%)
Note: *Preliminary figures **Very preliminary figures

Grafik 3.2.
Chart 3.2. Current Account Grafik 3.4.
Chart 3.4. Growth of Natural Resource
Commodity Based Exports
USD billion Percent Percent, yoy
50 3 70
40 60
2
30 50
1 40
20
30
10
0 20
0 10
-1
-10 0
-20 -2 -10
-30 -20
-3 -30
-40
-40
-50 -4 I II III IV I II III IV I* II* III* IV**
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017** 2015 2016 2017
Trade Balance Secondary Income Account Service Account
Vegetable Oil Coal
Primary Income Account Current Account (CA) CA/GDP (rhs)
Source: Bank Indonesia Source: Bank Indonesia

Note: **Very preliminary figures Note: *Preliminary figures **Very preliminary figures
and rising international commodity prices. Higher non-oil and gas export gains and was driven by two
commodity prices strengthened the terms of trade major commodities, vegetable oil and coal (Chart 3.4).
and raised the value of non-oil and gas exports from These two commanded a 27.7% share of total non-oil
Indonesia, as demand grew from the country’s major and gas exports in 2017.
trading partners. Price and volume were both factors in
the improved non-oil and gas exports (Chart 3.3). The Dominated by crude palm oil (CPO), the increase of
non-oil and gas trade surplus stood at USD26.2 billion in vegetable oil exports was triggered by stronger CPO
2017, up from USD20.1 billion in 2016. demand, despite rising prices. Growing demand for CPO
was heightened by lower production of soybean, which
Export growth, mainly in primary commodities, was the is a viable substitute for CPO, due to inclement weather.
foremost driver of the non-oil and gas trade surplus in Demand mainly originated from the usual major export
2017. Exports of primary commodities grew 28.1%, destinations for CPO, including India, China, Pakistan
supported by rising prices and volume (Table 3.2). As and the Netherlands. Vegetable oil exports to India
the dominant component of non-oil and gas exports, went into the manufacturing sector, primarily as cooking
accounting for 52.0% of the total, the surge in primary oil, while in China, the Government sought to maintain
commodity exports was a significant contributor to the domestic inventories of CPO, which it uses in part as a
constituent of biodiesel.
Grafik 3.3.
3.3. In addition to CPO, coal exports also soared in 2017 as
Chart Commodity Prices and Indonesia’s
Non‑oil and Gas Exports limited supply and growing demand in several countries
pushed up prices. Consequently, the world coal price
60 8 rose sharply by 42.2% in 2017 to USD84 per metric
50
6
tonne. The major export destinations for Indonesian coal
40
are China, India, Japan, and South Korea. Demand in
30 4
20
China, the world’s largest coal producer, increased due
2
10 to a policy to reduce domestic production and to import
0 0 more. In addition, demand from other countries, primarily
-10
-2 ASEAN members, also increased.
-20
-30 -4
I II III IV I II III IV I* II* III* IV** Non-oil and gas exports were also supported by
2015 2016 2017
increasing shipments of several manufacturing products.
Non-oil and Gas Export Indonesian Exports Commodity Price Index
World Trade Volume (rhs) Growth in the value of manufacturing exports accelerated
Source: Bank Indonesia and CPB Netherlands to 5.5% in 2017 from 2.5% in 2016, a positive
performance of manufacturing exports that accounted

Table 3.2. Non-oil and Gas Exports Based on Goods Classification (Based on SITC)
Share (%) Annual Growth (% yoy)

Items 2016 2017
2016 2017** 2015
I II III IV TOTAL I* II* III* IV** TOTAL**
A. Primary Product
Nominal 47.3 52.0 -12.6 -17.6 -15.9 -3.4 27.2 -3.1 41.8 27.4 34.6 14.0 28.1
Real 52.2 54.9 3.0 -5.5 -11.2 -5.0 7.3 -3.0 10.7 8.0 16.5 -0.2 7.9
Price Index - - -15.2 -12.8 -5.3 1.7 18.5 -0.1 28.1 18.0 15.5 14.2 18.7
Agriculture Product
Nominal 29.7 31.6 -9.8 -11.4 -13.5 -5.2 23.4 -1.9 45.2 21.2 33.0 4.7 24.1
Real 31.1 35.3 5.6 -3.3 -16.0 -11.9 5.0 -6.1 19.0 17.4 33.0 2.4 16.6
Price Index - - -14.6 -8.4 3.0 7.6 17.5 4.5 22.0 3.2 0.0 2.2 6.4
Food
Nominal 23.6 24.3 -8.9 -11.1 -14.2 -3.2 26.3 -0.6 42.7 17.8 28.6 -1.1 19.7
Real 24.1 27.3 7.4 -4.1 -19.2 -14.6 3.4 -8.1 18.6 20.3 34.3 -0.7 16.3
Price Index - - -15.2 -7.3 6.2 13.3 22.2 8.1 20.3 -2.1 -4.2 -0.4 2.9
Raw Materials
Nominal 6.1 7.4 -12.6 -12.4 -10.6 -12.0 11.5 -6.3 54.4 33.3 49.1 30.8 41.3
Real 7.0 8.0 -0.3 -0.8 -4.0 -3.0 9.5 0.4 21.4 9.6 28.8 15.9 18.5
Price Index - - -12.4 -11.7 -6.9 -9.3 1.9 -6.7 27.1 21.7 15.7 12.9 19.3
Fuel & Mining Product
Nominal 17.6 20.4 -17.0 -26.6 -19.8 -0.3 34.2 -5.1 35.7 38.3 37.3 29.8 34.9
Real 21.0 20.0 -1.1 -9.2 -2.8 6.6 11.7 1.8 -1.8 -4.2 -2.4 -0.6 -2.3
Price Index - - -16.1 -19.2 -17.5 -6.5 20.2 -6.8 38.3 44.4 40.6 30.5 38.0
B. Manufacturing Product
Nominal 51.3 46.4 -6.9 -1.9 4.2 -1.3 9.2 2.5 6.1 -7.3 15.2 9.6 5.5
Real 46.8 43.7 -5.5 -2.1 0.6 -5.7 1.3 -1.5 -3.7 -16.5 5.4 -0.4 -4.2
Price Index - - -1.5 0.2 3.5 4.7 7.8 4.0 10.2 11.1 9.3 10.0 10.1
C. Lainnya
Nominal 1.4 1.6 -17.1 -13.3 -0.2 -6.3 15.7 -1.5 0.8 16.2 50.3 42.9 28.3
Real 1.4 1.7 -10.8 -9.1 -1.8 -19.9 4.3 -6.9 -2.8 15.9 58.0 37.1 27.4
Price Index - - -7.0 -4.6 1.6 17.0 10.9 5.9 3.7 0.2 -4.8 4.3 0.7
Total
Nominal 100.0 100.0 -10.0 -9.7 -5.7 -2.4 18.1 -0.3 21.9 8.1 25.0 12.4 16.5
Real 100.0 100.0 -1.4 -4.2 -5.7 -5.6 4.9 -2.6 3.7 -4.7 11.9 0.4 2.6
Price Index - - -8.7 -5.8 0.0 3.4 12.6 2.4 17.6 13.4 11.7 12.0 13.6
for a 46.4% share of total non-oil and gas exports. The component parts, as well as footwear (Chart 3.5). Based
increase in manufacturing exports is due to rising prices, on export destination, most base metal exports were
while export volumes declined, particularly of textiles destined for Singapore, while consignments of processed
and textile products, electrical equipment, machinery foods and footwear were shipped to the United States.
and mechanical appliances. The prices of manufacturing Exports of vehicles and components were taken mainly
products increased 10.1% in 2017, up from 4.0% in by the Philippines, Thailand, Japan, and Saudi Arabia.
2016. Meanwhile, the value of textile exports, a mainstay of the
Indonesian economy, increased 5.9%, primarily driven
Notwithstanding the general trend, the export volume by price factors, but export volumes continued to contract
of several manufactured goods increased in 2017, in 2017, despite improving to a decline of 5.2% from a
particularly base metals, processed foods, vehicles and decline of 6.9% in 2016.

Chart
Grafik3.5.
3.5. Growth in Export Volume of Various Grafik 3.6.
Chart 3.6. Growth of Manufacturing Product
Manufacturing Products Exports and Raw Materials Imports
80 30
25
60
20
15
40
10
20 5
0
0
-5
-10
-20
-15
-40 -20
I II III IV I II III IV I* II* III* IV** I II III IV I II III IV I* II* III* IV**
2015 2016 2017 2015 2016 2017
Goods of Base Metal Processed Food Processed Rubber

Export of Manufacture Product Raw Import
Vehicle & Its Part Footwear

Note: *Preliminary figures **Very preliminary figures Note: *Preliminary figures **Very preliminary figures
Most of the increase in non-oil and gas exports was largest destination for Indonesian exports – remained
shipped to Indonesia’s 10 major trading partners. Based stable, however, at more than 10%. Of note is the
on destination countries, exports to Indonesia’s 10 largest Philippines’ inclusion in the 10 major export destinations
trading partners accounted for 68.7% of the total value of for the third year running, due to growth in exports of
non-oil and gas exports from Indonesia in 2017, up from vehicles and components.
65.9% in 2016. Exports to China posted the strongest
growth at 41.1%, followed by India, the Philippines, the Stronger exports of manufacturing products and increasing
Netherlands, South Korea, Malaysia and Thailand (Table domestic demand, particularly for investment purposes,
3.3). The composition of export destinations changed pushed up non-oil and gas imports. In contrast with the
little, with China, the US and Japan commanding a 34.7% 0.9% contraction recorded in 2016, non-oil and gas
share of total exports versus 33.4% in 2016. China’s imports grew 13.9% in 2017; this was based on both
role as a major destination for Indonesian exports has rising prices and increasing volumes (Table 3.4). Non-oil
expanded rapidly over the past decade, and it is now the and gas imports were driven by raw materials, which
largest single market for Indonesian exports with a 14.0% accounted for 70.0% of total non-oil and gas imports
share. The export share of the United States – the second in 2017. Raw material imports grew 14.3% in 2017,
Table 3.3. Non-oil and Gas Exports Based on Primary Country of Destination
Share (%) Annual Growth (%, yoy)

Items 2015 2016 2017
2016 2017**
Total I II III IV Total I* II* III* IV** Total **
1. China 11.5 14.0 -19.5 -9.4 -6.9 11.7 61.9 14.4 66.6 35.0 48.5 26.6 41.1
2. The United States 11.9 11.2 -3.5 -4.0 4.4 -1.8 10.7 2.3 18.1 -4.0 19.9 5.7 9.3
3. Japan 10.0 9.6 -5.0 -6.0 -2.2 -2.0 15.7 1.2 4.3 3.6 26.8 11.3 11.4
4. India 7.6 9.1 -11.2 -28.5 -32.4 3.4 7.8 -14.3 60.7 47.7 33.9 25.3 40.3
5. Singapore 6.6 5.8 -3.3 -3.3 5.4 -4.6 1.6 -0.3 -5.0 -8.1 20.5 8.3 3.4
6. Malaysia 4.5 4.6 -11.4 -12.9 -15.4 -4.5 17.2 -4.5 24.0 11.9 32.6 10.0 19.0
7. The Philippines 4.0 4.3 0.8 7.6 34.6 30.8 63.8 33.9 46.5 11.8 21.2 29.0 25.7
8. South Korea 4.0 4.1 -5.5 -12.5 -7.5 -4.5 15.0 -3.0 28.6 14.8 19.7 18.3 20.2
9. Thailand 3.5 3.5 -8.0 -12.3 0.1 -0.7 16.5 0.4 18.3 11.1 29.0 13.1 17.7
10. The Netherlands 2.4 2.6 -12.8 -25.6 -18.6 7.5 20.3 -5.6 52.0 23.1 26.7 3.2 23.9
Total 10 Countries 65.9 68.7 -9.1 -10.5 -5.9 2.5 22.2 1.7 28.7 13.3 29.2 16.2 21.4

Table 3.4. Non-oil and Gas Imports (Based on SITC)
Share (%) Annual Growth (%, yoy)

Items 2015 2016 2017
2016 2017**
Total I II III IV Total I* II* III* IV* Total **
Consumption Goods
Nominal 10.1 10.2 -9.9 27.3 6.5 13.0 16.7 15.6 1.0 19.7 17.4 19.9 14.4
Real 9.3 9.2 -8.3 25.9 6.9 12.7 11.4 14.0 -6.7 8.4 2.8 9.9 3.6
Price Index - - -1.7 1.1 -0.4 0.3 4.7 1.4 8.3 10.4 14.2 9.0 10.5
Raw Materials
Nominal 69.7 70.0 -12.3 -9.5 -2.6 1.8 9.3 -0.5 9.0 5.6 25.3 17.7 14.3
Real 72.2 72.5 -6.1 0.0 6.5 6.3 8.1 5.2 2.1 -2.8 16.2 7.2 5.6
Price Index - - -6.6 -9.5 -8.5 -4.2 1.1 -5.4 6.7 8.7 7.8 9.8 8.3
Capital Goods
Nominal 19.1 18.8 -15.6 -18.2 -12.0 -7.3 -1.3 -9.8 6.0 -4.4 24.1 19.6 11.6
Real 17.7 17.5 -14.3 -17.8 -11.9 -8.0 -3.2 -10.2 -3.6 -10.7 14.6 14.1 3.8
Price Index - - -1.6 -0.6 -0.2 0.7 1.9 0.5 9.9 7.1 8.3 4.9 7.5
Total
Nominal 100.0 100.0 -12.4 -8.4 -3.3 0.5 8.3 -0.9 8.1 5.2 25.0 17.4 13.9
Real 100.0 100.0 -7.7 -1.9 2.9 3.4 6.6 2.8 0.5 -3.1 15.1 8.0 5.1
Price Index - - -5.1 -6.6 -6.0 -2.8 1.6 -3.5 7.5 8.6 8.5 8.6 8.3
Note: *Preliminary figures **Very Preliminary figures
reversing the 0.5% contraction of 2016. Raw materials the value of oil imports increased due to stronger domestic
were imported for the processed food industry, as well as demand and rising global oil prices. Oil imports were
for vehicle components and spare parts. The surge of raw recorded at USD20.3 billion in 2017, up from USD15.9
material imports was also in line with the corresponding billion in 2016. Furthermore, fuel consumption increased
improvement in manufacturing exports (Chart 3.6). 4.1% on the previous year, primarily for transport and
Furthermore, imports of consumer goods and capital industry. In contrast, oil exports were subdued as liftings
goods also moved into positive territory in 2017, with the of crude oil fell to just 803,000 barrels per day from
value of capital goods imports increasing a significant 829,000 barrels per day in 2016, and as a growing
11.6% in 2017, compared with a decline of 9.8% in portion of domestic crude oil was used domestically by
2016, to meet domestic demand, including for use in Indonesia’s refineries.
infrastructure development.
Grafik 3.7.
Chart 3.7 JudulOil and Gas Trade Balance and
Oil and Gas Trade Balance Oil Prices
USD billion USD per barel
The oil and gas trade balance declined on the rising 50 120
40
global oil price due to Indonesia’s status as a net importer. 100
30
The oil and gas trade deficit stood at USD7.3 billion 20
80
in 2017, up from USD4.8 billion in 2016 (Chart 3.7), 10
with the oil trade deficit the primary contributor. The 0 60
higher global oil price pushed up the value of oil imports -10
40
-20
to Indonesia, and the growing gas trade surplus was
-30
20
insufficient to offset this. -40
-50 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017**
A wider oil trade deficit was a key driver of the growing
Oil and Gas Export Oil and Gas Import
oil and gas trade deficit. The oil trade deficit swelled to Oil and Gas Trade Balance Crude Oil Prices (rhs)
USD12.8 billion in 2017 from USD9.7 billion in 2016, as Source: Bank Indonesia

However, the larger gas trade surplus curbed the growing structure improved through an increase in reinvested
oil and gas trade deficit. The gas trade surplus stood at earnings. Dividend payments continued to dominate
USD5.5 billion in 2017, up from USD4.9 billion in 2016; the total primary income account deficit, albeit with a
it was boosted by higher export values of liquefied natural declining value on the previous period. Furthermore,
gas and natural gas, as gas prices mirrored the rise in the increasing interest payments on government debt
oil price. securities, primarily government debt securities (SUN) and
global bonds, also influenced primary income account
performance.
Services Account, Primary Income Account, and
Secondary Income Account The services account deficit increased 11.0% to USD7.9
billion in 2017 from USD7.1 billion in 2016. The larger
The positions of the services account and primary income deficit was attributed to a wider transport services trade
account deteriorated in 2017, exacerbating pressures on deficit, primarily freight services payments that correlate
the current account. The larger primary income account positively with world trade activity. Nevertheless, a higher
deficit had a larger impact on the current account deficit services trade deficit was countered by an increase in
than other components, due to the high level of revenue travel services receipts as the number of international
payments on international direct investment. Pressures on travelers visiting the Indonesian archipelago continued to
the current account deficit also originated from a larger soar (Chart 3.9).
services account deficit compared with 2016, caused by
freight services payments. On the other hand, the position The persistent transport services trade deficit in Indonesia
of the secondary income account remained relatively is linked to longstanding structural issues, in particular
stable in line with steady remittances. in freight services, which must rely on foreign modes
of transport, especially sea transport, to facilitate
The primary income account deficit increased in 2017, international trade. Domestic freight services are unable
but the revenue payment structure improved. The primary to compete with their foreign counterparts, due to a
income account deficit stood at USD32.8 billion in 2017, lack of supporting infrastructure, in terms of the number
up from USD29.6 billion in 2016 (Chart 3.8). An increase and quality of ships and an underdeveloped domestic
in the position of foreign financial liabilities to meet shipbuilding industry. Consequently, any increase in
growing demand for financing contributed to the larger international trade – particularly of imports, which use
primary income account deficit. Foreign financial liabilities mostly foreign freight services – exacerbates the freight
increased despite competitive domestic financial returns, services deficit. In 2017, goods imports grew 16.1% and
culminating in an uptick of revenue payments on foreign freight services payments rose 13.2%. Consequently, the
investments. Notwithstanding the increase, the payment ratio of freight imports to imports remains high at around
Grafik 3.8.
Chart 3.8. Transaksi
PrimaryNeraca
IncomePendapatan
Balance Primer Grafik 3.9.
Chart 3.9. Neraca Jasaof Service Account
Balance
USD billion USD billion

0 5
-5
0
-10
-15 -5
-20
-10
-25
-15
-30
-20
-35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017** 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017**
Other Investment Income Portfolio Investment Income
Travel Services Transportation Other Services Service Account
Direct Investment Income Primary Income Account

Note: **Very preliminary figures Note: **Very preliminary figures

Grafik 3.10.
Chart 3.10.2 Lorem Ipsum
Ratio of Freight to International Trade Grafik 3.11.
Chart 3.11. Lorem
NumberIpsum
of Indonesian Migrant Workers
(TKI) and Remittances
Percent Thousand people USD million
6 5,000 2,500
Number of Indonesian Migrant Workers

4,500
5 2,400
4,000
3,500 2,300
4
3,000 2,200
3 2,500
2,100
2,000
2
1,500 2,000
1 1,000
1,900
500
0 0 1,800
2015 2016 2017 2015 2016 2017
Freight Import/Import Freight Export/Export Hong Kong Saudi Arabia Taiwan Other Countries Malaysia
Indonesian Worker's Remittance (rhs)
Source: Bank Indonesia Source: Bank Indonesia and BNP2TKI, calculated

5%, while the ratio of freight exports to exports is very service infrastructure, the readiness of information and
small at around 1% or less (Chart 3.10). communications technology, safety and security, as well
as ground and port infrastructure. In the future, national
In contrast, the travel services trade surplus increased tourism sector development will support current account
in 2017 as the number of international travelers visiting improvements as the number of international travelers
Indonesia increased sharply. Travel services receipts stood visiting Indonesia continues to increase.
at USD4.2 million in 2017, up from USD3.6 million in
2016, backed by a steep 12.3% rise in the number of The secondary income account surplus was relatively
international travelers visiting Indonesia to 12.2 million.1 unchanged from 2016 to 2017 due to a stable surplus
Most international travelers in 2017 originated from of remittances. While the number of Indonesian migrant
China, Singapore, Australia, and Malaysia. workers (TKI) in the informal sector fell slightly, the number
of TKI in the formal and professional sectors rose. The
The impressive performance recorded in the travel total number of TKI fell slightly to 3.50 million in 2017
services trade account was a direct result of government from 3.51 million in 2016 as a result of a moratorium
efforts to promote tourism through the Wonderful put in place in 2014 (Chart 3.11). The decline affected
Indonesia branding and media campaign. One tangible Indonesian migrant workers (TKI) in the informal sector
achievement by the tourism sector was Indonesia’s but, in contrast, increases were recorded in the formal and
improved position in the World Economic Forum’s Travel professional sectors. In addition, the average salary of
and Tourism Competitiveness Index. Indonesia moved up professional TKI increased, particularly for those working
the rankings by eight positions in 2017 and now stands in the Asia-Pacific region. Consequently, total remittances
at number 42.2 Of the 14 components assessed, the rose moderately to USD8.8 billion in 2017 from USD8.7
international openness indicator increased sharply to 17 billion in 2016. However, remittances sent abroad from
from 55, as a result of Indonesia’s policy to offer free entry foreign workers placed in Indonesia also increased. Such
visas for tourists over the past two years. Several other dynamics sustained the secondary income account surplus
indicators do still need to be improved, however, including at around USD4.5 billion in 2017, relatively unchanged
environmental sustainability, health and hygiene, tourist on the previous period.
1 Excluding border crossers and transit passengers.

3.2. Capital and Financial Account
2 The report is published every two years by the World Economic Forum (WEF) and
measures 14 components: the business environment, safety and security, health and
hygiene, human resources and the labor market, the readiness of information and The capital and financial account surplus increased in
communications technology, prioritization of travel and tourism, international openness, 2017, bolstered by the favorable investor perception of
price competitiveness, environmental sustainability, air transport infrastructure, ground
and port infrastructure, tourist service infrastructure, natural resources, and cultural
Indonesia’s promising domestic economic outlook, coupled
resources and business travel. with milder global risks. The capital and financial account

Chart 3.12. Capital and Financial Account
Grafik 3.12. Lorem Ipsum 24.9% to USD20.2 billion, backed by a surge of non-
resident capital inflows to Indonesia coupled with a low
USD billion level of direct international investments by Indonesian
50
residents.
40
30 The foreign direct investment (FDI) into Indonesia was

20
drawn to acquisitions and global bond issuances through
affiliate companies abroad. In 2017, FDI placements in
10
Indonesia increased to USD22.1 billion, exceeding the
0
average for the period from 2010 to 2015.4 The influx
-10
of direct investment was primarily drawn to the non-oil
-20 and gas sector, driven by acquisitions of several domestic
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017**
Direct Investment Other Investment
e-commerce firms by non-resident investors. In total, four
Portfolio Investment Capital and Financial Account e-commerce firms were purchased by investors from
Source: Bank Indonesia China, the United States, and Singapore. In addition
to acquisitions, global bond issuances through offshore
special purpose vehicles also spurred an upswing of FDI to
surplus stood at USD29.9 billion in 2017, up from Indonesia. In contrast, direct investment in the oil and gas
USD29.3 billion in 2016, underpinned by growing direct sector recorded a net outflow, with interest in investments
investment and portfolio investment surpluses. Conversely, in this sector muted.
other investments recorded a larger deficit, which stifled
further capital and financial account gains (Chart 3.12). By origin, Singapore, Europe, Japan, and China were
the dominant FDI investors, with the total value in 2017
The improvement in the capital and financial account reaching USD22.8 billion. Conversely, direct investment
surplus was associated with the vibrant domestic from the United States recorded a net outflow totaling
economy, which in turn elevated investors’ perception
of the national economic outlook. Domestic economic
indicators boosted the upbeat mood of global investors,
as reflected by the Standard & Poor’s affirmation of Chart
Grafik3.13. Foreign Direct Investment by Major
3.13. xxx
investment grade status for Indonesia in May 2017. Investor Countries
Furthermore, a climate increasingly conducive to USD billion
investment was also evidenced by the latest World Bank 14
survey on the ease of doing business, in which Indonesia 12
10
climbed to 72 in 2018 from 91 in 2017.3 Moreover,
8
the successful tax amnesty, the impact of which was still
6
being felt in the latter half of 2017, also boosted capital 4
and financial account performance. The influx of non- 2
resident capital was maintained as a result of conducive 0
external dynamics, while the impact of gradual monetary -2
policy normalization, in line with market expectations, is -4

Singapore Japan Europe Other United China Others
Asia States
expected to have only a limited impact on financial market
2012 2013 2014 2015 2016 2017**
volatility.
Direct Investment 4 Direct investment in 2016 were dominated by crossing transactions on banking sector
stocks in the domestic stock exchange. Foreign direct investment (FDI) previously
recorded in the banking sector originated from domestic funds (round-tripping FDI), thus
Non-resident capital flows in the form of direct investment
when foreign divestment occurred (outflow on the liability side), domestic investors with
hit an all-time high in 2017. Net direct investment grew bank stocks also followed suit, divesting offshore entities (inflow on the asset side) of the
same value. Consequently, although direct investment liabilities experienced outflow,
net direct investment was relatively stable because of a simultaneous and commensurate
net inflow on the asset side, in line with a decline in direct investment through offshore
3 World Bank, Doing Business 2018: Reforming to Create Jobs, 31 October 2017. special purpose vehicles.

Chart
Grafik3.14. Foreign Direct Investment by
3.14. xxx Chart 3.15.
Grafik 3.15. Xxx Non-Resident Portfolio Investment
Economic Sector in Indonesia
12 10
10 8
8 6
6 4
4 2
2 0
0 -2
-2 -4
Agriculture, Finance I II III IV I II III IV I* II* III* IV**
Fishery, Mining Manufacture Construction Trade (including Others
2015 2016 2017
& Forestry Insurance)
Public Investment Private Investment Portfolio Investment
2012 2013 2014 2015 2016 2017**

Note: **Very preliminary figures Note: *Preliminary figures **Very preliminary figures
USD2.5 billion in 2017, a wider outflow than in 2016 Long-term rupiah government debt securities and global
(Chart 3.13). bonds were the dominant instruments favored as non-
resident portfolio investment. In 2017, all government
By economic sector, the manufacturing, trade, fisheries, portfolio instruments recorded a significant net inflow.
and financial sectors absorbed most FDI realization in Non-resident investors booked a net buy of SUN totaling
2017 (Chart 3.14), accounting for 82.4% of total FDI USD10.4 billion, up from USD8.4 billion in 2016.
entering Indonesia. Specifically, manufacturing absorbed Furthermore, non-resident holdings of government-issued
USD9.6 billion, trade USD4.9 billion, fisheries USD3.5 global bonds reached USD10.2 billion, consisting of:
billion, and financial sectors USD1.0 billion. (i) global sukuk issuances in March; (ii) samurai bonds
in June; (iii) euro bonds in July; and (iv) global bonds to
On the asset side, the net direct investment outflow by prefund the 2018 fiscal budget in December. In addition,
Indonesian residents abroad was not significant. The conventional treasury bills and Islamic treasury bills, as
latest developments pointed to a net outflow of just well as sharia-compliant government securities (SBSN)
USD1.9 billion in 2017, reversing the net inflow recorded recorded a net inflow totaling USD2.4 billion. Conversely,
in 2016 and below the average outflow from 2010 to Bank Indonesia Certificates (SBI) booked a net sell of
2015 of USD8.5 billion. The 2017 flows were dominated USD0.1 billion in 2017.
by placements in the non-oil and gas sector.
In contrast to the surge in purchasing of government debt
securities, private sector portfolio investment booked
Portfolio Investment a net outflow, due to fewer non-resident placements in
the stock market. Foreign holdings of Indonesian stock
Both domestic and external factors in 2017 led to a declined in 2017, evidenced by the USD2.5 billion
larger portfolio investment surplus than seen in 2016. outflow in non-resident investments. Non-resident investors
The net portfolio investment surplus stood at USD20.7 began to release stocks in the third quarter of 2017,
billion in 2017, up from USD19 billion in 2016, pushed spurred by monetary policy normalization in the United
up by non-resident capital inflows to the public sector States, coupled with the increases in the Federal Funds
(Chart 3.15). The surplus was also prompted by an Rate. Nevertheless, outflow pressures were eased as the
upbeat mood among economic participants concerning corporate sector issued USD5.4 billion in global bonds in
the promising domestic economic outlook, together with 2017, the highest level in recent years. Overall, private
attractive returns and milder pressures in the global portfolio investment recorded a net outflow of USD1.2
financial markets. billion in 2017, reversing the net inflow of 2016.

Other Investment bank financial institutions, while banks and state-owned
enterprises booked a net payment. Meanwhile, the other
The deficit in other investment increased in 2017 to investment deficit of the public sector on the liability side
USD10.9 billion, nearly doubling the USD5.8 billion declined to USD1.4 billion, primarily stemming from a
deficit recorded in 2016 (Chart 3.16). The main net payment of government foreign loans in line with
contributor to the larger deficit was domestic private government policy to reduce financing through loans.
placements in offshore deposits on the asset side, as the
impact of the tax amnesty gradually faded and private In the public sector, the Government was less inclined to
sector transactions returned to normal. In contrast, 2016 draw on foreign loans. In 2017, the Government withdrew
witnessed funds returning to Indonesia during the tax USD3.6 billion in foreign loans, the lowest level in the
amnesty. past 18 years. Of the foreign loans withdrawn, 55.8%
were project loans and the remainder are program loans.
On the asset side, private other investment transactions These loans come from the Asian Development Bank and
recorded a deficit. In 2017, the other investment deficit International Bank for Reconstruction and Development,
on the asset side stood at USD13.2 billion, reversing as well as the governments of France, Japan, China, and
the USD1.8 billion surplus posted in 2016. The reversal South Korea.
stemmed from an increase of placements in offshore
deposits, loan disbursements abroad, and trade credit. In
anticipation of a cyclical and transient spike in demand for 3.3. External Resilience
foreign exchange prior to Idul Fitri, the banking industry
increased placements in offshore deposits, particularly in Solid BOP performance in 2017 strengthened external
the second quarter of 2017. sector resilience in 2017 versus 2016, as evidenced by
various indicators. The current account deficit narrowed
On the liability side, private other investments recorded and remained healthy, fully offset by the significant capital
a surplus, while other investments by the public sector and financial account surplus, which was particularly
experienced a deficit. Other investment transactions in the supported by long-term investment. The basic balance,
private sector recorded a USD3.7 billion surplus in 2017, which deteriorated slightly in the second quarter of 2017,
reversing the USD4.9 billion deficit of the previous year recorded a surplus for the year (Chart 3.17). This indicates
as the effect of corporate consolidation began to fade and structural improvements, because BOP performance was
the corporate sector resumed drawing on foreign loans. not merely reliant on the narrower current account deficit,
In this way, the private sector overturned the net payment but was also driven by capital and financial account
recorded in 2016. The net withdrawal of foreign loans gains, in line with a reduced dependence on short-term
was attributed to non-state-owned enterprises and non- and volatile sources of financing.
Chart 3.16.
Grafik 3.16. Xxx Other Investment Developments Chart 3.17.
Grafik 3.17. Judul Basic Balance Developments

8 10
6 8
4 6
2 4
0 2
-2 0
-4 -2
-4
-6
-6
-8
-8
-10 I II III IV I II III IV I* II* III* IV**
I II III IV I II III IV I* II* III* IV**
2015 2016 2017 2015 2016 2017
Liabilities Assets Other Investment, net Current Account, net Direct Investment, net Basic Balance


Table 3.5. Indicator of External Sector Resilience in terms of Solvency
Percent
Indicator Description 2011 2012 2013 2014 2015 2016 2017**

The indicator used to measure share of IIP to whole
1. Indonesia’s Net IIP to GDP Ratio 35.3 39.2 40.6 43.1 43.7 35.8 33.6
domestic economy.
The indicator of external debt role to finance
2. External Debt to GDP Ratio 25.0 27.4 29.1 32.9 36.1 34.3 34.7
domestic economy.
3. External Debt to Goods and The indicator used to measure share of external debt
105.8 119.6 129.8 147.5 181.3 190.7 182.0
Services Export Ratio to income from goods and services export.
4. Net External Debt1) to Current The indicator used to measure capability of current
31.2 36.5 49.3 56.9 70.5 37.0 33.2
Account Receipts2) account income in servicing external debt net.
5. Net Direct Investment Liabilities to The indicator used to measure direct investment role
22.1 24.7 27.4 25.8 27.2 28.0 25.5
GDP to domestic economy.
6. Non-debt Creating Inflows (Direct
The indicator used to measure non-debt capital
Investment Liabilities + Portfolio 32.0 35.6 35.9 37.3 37.0 38.2 36.6
inflows role to domestic economy finance.
Investment Equity) to GDP
Note:
1) The difference between debt component on Foreign Financial Liabilities (KFLN) side and Foreign Financial Assets (AFLN) side in IIP Indonesia
2) Total of goods and services export and primary and secondary income
**Very preliminary figures
In terms of solvency, external resilience indicators also end of 2016. The position of international reserves at the
demonstrated improvements. The net liability of Indonesia’s end of 2017 was equivalent to 8.6 months of imports or
international investment position to GDP declined (Table 8.3 months of imports and servicing government external
3.5). Meanwhile, the role of foreign non-debt-creating debt, which is well above the international adequacy
flows, as a more secure source of financing, remained standard of three months. Meanwhile, the increasing
stable, evidenced by the ratio of this to GDP. Furthermore, ratio of international reserves to money supply confirmed
other solvency indicators improved in line with stronger the greater capacity of international reserves to meet
economic growth in 2017. monetary system obligations in the domestic private sector
(Table 3.6).
Regarding liquidity, external resilience indicators also
showed gains, influenced by the rising international External resilience as a function of economic ability to
reserves. At the end of 2017, the position of international meet obligations also improved. The Tier 1 debt service
reserves stood at USD130.2 billion, representing an all- ratio (DSR) was normal in 2017 at 25.2%, down from
time high and an increase from USD116.4 billion at the 35.4% in the previous year.5 The decline is attributable to
Table 3.6. Indicator of External Sector Resilience in terms of Liquidity

Percent
Indicator Description 2011 2012 2013 2014 2015 2016 2017**

Indicator used for measuring the adequacy of
1. International Reserves to Imports
international reserves in servicing the needs of goods 58.3 53.0 47.0 55.4 63.8 72.9 71.3
of Goods and Services Ratio
and services imports.
2. International Reserves to Broad Indicator used for measuring the potential impact of
33.3 31.9 27.8 31.8 31.2 30.9 32.3
Money (M2) Ratio the decline in confidence against domestic currency.
3. International Reserves to Short- Indicator used for measuring the adequacy of
Term External Debt (remianing International exchange reserves in servicing short- 235.5 206.4 176.6 188.8 190.9 212.7 237.8
maturity) term foreign debt based on remaining time period.

5 In general, Tier 1 debt service ratio (DSR) adheres to the calculation methodology of
the World Bank, where Tier 1 DSR represents the ratio of total external debt payments
(principal and interest) to current account receipts. Total Tier 1 external debt payments
consist of the long-term principal payment, as well as the long- and short-term interest
payments.

Chart 3.18. Developments in Type of Debt Service
Grafik 3.19. Chart 3.19. External Debt to GDP Ratio
Grafik 3.20.
Ratio (DSR)
Percent Percent
80 40
70
38
36
60
34
50 32
40 30
28
30
26
20
24
10 22
0 20
2015 2016 2017 2015 2016 2017
DSR Tier-1 DSR Tier-2

lower external debt payments coupled with an increase The position of public external debt increased due to
in current account receipts. In anticipation of further risk, issuances of tradeable government securities (SBN).
Bank Indonesia also calculated the Tier 2 DSR.6 Based Public external debt, accounting for 51.3% of total
on the risks, trade credit, with a large weight in the Tier external debt, rose 14.1% in 2017, up from an increase
2 DSR calculation, had a lower risk profile. According of 11% in 2016. Consequently, public external
to this method, Tier 2 DSR stood at 52.4% in 2017, debt increased to USD180.6 billion in 2017 from
down significantly from 61.6% in 2016. The decline USD158.3 billion in 2016. This increase was used
predominantly stemmed from the public sector, although by the Government to finance development, and most
a decrease was also observed in the DSR of the private (98.7%) was long term. Furthermore, public external
sector (Chart 3.18). debt increased on all instruments, including short-term
instruments such as conventional treasury bills, Islamic
treasury bills and long-term instruments, including SUN,
External Debt SBSN, and government global bonds.
Stronger external resilience was further confirmed by The position of private external debt also increased.
Indonesia’s external debt performance and profile. Accounting for 48.7% of the total, the private external
External debt rose by 10.1% in 2017 compared with
a 3.0% increase in 2016. At the end of 2017, it stood
at USD352.2 billion, up from USD320 billion at the
Grafik 3.20.
Chart 8.21. xxxxxxxx
External Debt to GDP Ratio in
end of 2016. Despite the increase, the ratio of external
Selected Countries
debt to GDP remained in safe territory at the end of Percent GDP
2017 at 34.7%, relatively stable on the previous year’s
South Korea
34.3% (Chart 3.19) and within the range recorded in South Africa
peer countries (Chart 3.20). This consistency is due to Turkey
the external debt management efforts of the Offshore Thailand

The Philippines
Commercial Loan Coordinating Team, which consists of
Brazil
staff from the Ministry of Finance and Bank Indonesia. Malaysia
Indonesia*
India
China
6 Tier 2 DSR expands upon Tier 1 DSR by adding short-term loans and trade credit for
0 10 20 30 40 50 60 70 80
more prudent external debt management. Based on this methodology, Tier 2 DSR is
defined as the ratio of total external debt payments (principal and interest) to current
account receipts, consisting of principal and interest payments on external debt as
direct investment excluding offshore subsidiaries, as well as loans and trade credit to Source: Bank Indonesia
non-affiliates. Note: *Indonesia's External Debt as of Q IV 2017

debt grew 6.1% to USD171.6 billion in 2017 from
USD161.7 billion in 2016. Similar to the public sector,
private external debt was dominated by long-term debt,
which accounted for 72.9% of the total. Loan agreements
continued to dominate private external debt.
Based on remaining maturity, the structure of external debt

was sound, indicated by the dominance of long-term debt,
which has reached 84.5% of the total and is now at an
all-time high. The position of long-term external debt was
more dominant than short-term debt in both the public and
private sectors.

CHAPTER 4
The Exchange Rate
In 2017, the rupiah exchange rate charted largely stable
movement on the strength of a balance of payments
surplus. This achievement was also closely linked to Bank
Indonesia policy in managing the exchange rate in line with
fundamentals, maintaining market mechanisms.

In 2017, the rupiah charted a stable course with low balance of payments, which posted a surplus on the
volatility. Supporting this was the fundamental factor strength of brisk foreign capital inflows and a lower
of the balance of payments surplus, improving micro- current account deficit. Capital inflows in Indonesia
conditions on the foreign exchange market, and Bank were stimulated not only by attractive yields, but also
Indonesia policy that kept the exchange rate aligned with improvement in the nation’s economic outlook. On the
fundamentals, amid external risks that emerged during external side, movement in the rupiah was affected by
2017. In general, the rupiah was supported by sustained global dynamics throughout 2017, particularly factors
capital inflows in line with positive perceptions of the driven by economic policy and political events in the
economic outlook for Indonesia. The dynamics of 2017 United States and Europe. In general, external factors
were marked by an appreciating, relatively stable trend worked in favor of the rupiah exchange rate, although
in the rupiah until the end of the third quarter. However, they did have a more adverse impact during the final
the rupiah weakened in the fourth quarter of 2017 in quarter of 2017.
response to external factors, particularly the direction of
monetary policy normalization in advanced nations and The year was marked by stable movement in the rupiah
uncertainty over the direction of US economic policy. until near the end of the third quarter of 2017, followed
by a depreciation through to the end of 2017 (Chart 4.1).
Further support for stability in the rupiah came from The rupiah closed 2017 at a level of IDR13,568 to the US
structural improvements in the domestic foreign exchange dollar, not markedly different from the position at the end
(forex) market, with positive trends visible in the flow of 2016 of IDR13,473 to the US dollar. Averaged over
of funds from non-resident and resident forex market the year, the rupiah weakened fractionally by 0.6% to
participants. This contributed to expanding volume on IDR13,385 to the US dollar in 2017 from IDR13,305 in
the domestic forex market, which was accompanied by 2016. The general stability of the rupiah was evidenced
an increasing proportion of derivative transactions. In by the declining exchange rate volatility; this fell to 3.0%
other developments, the improving efficiency in forex in 2017 from 8.4% in 2016. At this new level, rupiah
transactions was seen in lower transaction costs in keeping volatility came in well below the 8.4% average for
with the greater equilibrium in the forex demand-supply currencies of peer nations (Chart 4.2).
structure.
The largely stable trend in the rupiah exchange rate
The healthy course charted by the exchange rate was during 2017 highlights the importance of improved global
supported by a range of policies pursued by Bank investor confidence in the Indonesian economy. Stronger
Indonesia. Exchange rate policy was consistently global investor confidence led to continued inflows of
directed at keeping movement in the rupiah in line with foreign capital into Indonesia, despite the emerging
fundamentals, while promoting the operation of market risk of global uncertainty. Improved confidence among
mechanisms. In addition, exchange rate policy was
supported by improvements to the forex market structure,
including policies for implementing prudential principles
Chart
Grafik 4.1. Rupiah
4.1. Nilai Tukar Exchange
Rupiah Rate
in non-bank corporate external debt management,
mandatory use of the rupiah in Indonesia, and policies to
Rupiah/ USD
deepen the domestic financial market. 14,000
13,800
13,568
4.1. Dynamics of the Rupiah 13,600
Exchange Rate 13,400
13,200
The rupiah exchange rate remained generally stable
in 2017 and was supported by improvement in the 13,000
fundamentals of the Indonesian economy, despite some 13,000

I II III IV I II III IV
pressure from external factors in the final quarter of the 2016 2017
year. The steady level of the exchange rate was closely Daily Exchange Rate Quarterly Average
linked to the positive performance of the Indonesia Monthly Average

Chart 4.2.
Grafik Exchange Rate
4.2. Perbandingan NilaiChanges and Volatility of
Tukar Rupiah buoyant amid Bank Indonesia’s efforts to take advantage
Selected Currencies of the decline in interest rates to promote economic
Depreciation (-)/Appreciation (+) Volatility recovery.
IDR 3.0
MYR 3.8 Mounting global investor confidence in the Indonesian
THB 4.5 economy helped minimize the downwards pressure on
SGD 4.6
the rupiah caused by global risks, including developments
PHP 5.3
INR 4.4
in the United States, Europe, and China. In the United
KRW 8.8 States, developments in politics and economic policy –
BRL 13.1 including the direction of normalization in US monetary
TRY 16.7
policy – were among events to trigger global uncertainty.
ZAR 19.2
Global uncertainties surrounding China emerged as the
-20 -15 -10 -5 0 5 10 15 0 5 10 15 20
market hesitated in its response to the nation’s forecast-
Appreciation (+)/Depreciation (-) Exchange Rate 2017 (Average)
beating economic growth. In Europe, risks impacting the
Exchange Rate Volatility 2017
global economy were related to the scale of reductions
Source: Reuters and Bloomberg, calculated
in quantitative easing (QE) by the European Central Bank
(ECB).
foreign market participants was reflected in the decision
by Standard & Poor’s to raise Indonesia’s credit rating to The dynamics of the rupiah exchange rate during 2017
investment grade, following similar recognition from Fitch can be divided into two main periods. During the first
and Moody’s. In addition, the improvements in Indonesia’s period, which runs from the first quarter until near the end
competitiveness rating and ease of doing business of the third quarter, the rupiah charted stable movement
provided further impetus for increasing global investor with an appreciating trend. In the second period from
confidence in the Indonesian economy. This confidence in the end of the third quarter to the end of 2017, the
turn helped improve perceptions of risks in the Indonesian rupiah exchange rate weakened. This slide in the
economy, as seen in the downward trend of Indonesia’s rupiah was, however, countered by favorable domestic
credit default swaps (CDS) in 2017 (Chart 4.3). Indonesia macroeconomic conditions and policies pursued by Bank
CDS progressively declined in quarterly averages to 95.6 Indonesia.
basis points in the fourth quarter of 2017 from 161.8
basis points in the fourth quarter of 2016. Volatility in The first quarter of 2017 witnessed appreciation in the
Indonesia CDS was also quite low, providing added rupiah and reduced volatility. By the end of the first
confirmation of steady, positive investor perceptions. In quarter, the rupiah had reached IDR13,326 to the US
general, conditions on the financial market remained dollar, a gain of 1.1% from IDR13,473 per US dollar
at the end of the previous quarter. At the same time,
volatility in the rupiah fell sharply to 2.7% in the first
quarter of 2017 from 8.2% in the fourth quarter of 2016.
Chart 4.3.
Grafik Developments
4.3. Perkembangan VIXindan
Volatility
CDS Index and
Rupiah gains in the first quarter of 2017 were driven by
Credit Default Swaps
domestic and global factors. At home, rupiah appreciation
Index Index
24 180 was triggered by positive investor perceptions of the
22 160 Indonesian economy following the release of the Indonesia
20
140 gross domestic product (GDP) statistics for 2016 with
18
120 growth at 5.03%, ahead of the 2015 GDP growth
100
16 of 4.88%, and releases announcing a high level of
80
14 international reserves and subdued inflation. Regarding
60
12
40
global influences, the rupiah appreciated in response
10 20
to uncertainty over implementation of US policy that put
8 0 downward pressure on the US dollar globally (Chart 4.4).
1 2 3 4 5 6 7 8 9 10 11 12
2017 Uncertainty over US policy implementation related to,
VIX VIX Quarterly Average CDS (rhs) among others, the nation’s plans for protectionist policies,
CDS Quarterly Average (rhs)
Source: Bloomberg

Chart 4.4.
Grafik Developments
4.4. Perkembangan in US
Indeks Dollar Index
Dolar volatility. At the end of September 2017, the rupiah closed
at IDR13,472 to the US dollar, having weakened from
Index Index the August 2017 close of IDR13,343. This performance
98 106
resulted in a third-quarter average exchange rate of
104
100 102 IDR13,333 to the US dollar, slightly weaker than the
USD Appreciation
102 compare to Asia
100 average of IDR13,309 in the second quarter. Consistent
currency 98
104 96
with mounting downward pressure, volatility in the rupiah
106
94 also rose to 4.3% in the third quarter from 1.8% in the
92
108
second quarter.
90
USD Appreciation
88
110 compare to major
currency 86
The rupiah depreciation from the end of the third quarter
112 84
1 2 3 4 5 6 7 8 9 10 11 12 of 2017 was driven mainly by global factors related
2017
to events in the United States, in particular the plans
US Dollar Index to Major Currency
US Dollar Index to Asia Currency (rhs) unfolding at the Federal Reserve for normalization of US
monetary policy and the easing of uncertainty over the
Source: Bloomberg
budget for fiscal 2018. These conditions triggered a slide
in Asian and other emerging market currencies, including
construction of the wall with Mexico and failure to reach the rupiah. Pressure on the rupiah mounted temporarily
agreement on healthcare reforms. in September 2017, stoked by global appreciation in the
DXY dollar index following the adoption of a continuing
The rupiah exchange rate strengthened further in the resolution for the US fiscal 2108 budget, the hawkish
second quarter of 2017 and was accompanied by a speech by then Federal Reserve chair Janet Yellen on 26
further decline in volatility. The rupiah gained 0.30% to September 2017, and positive expectations for tax reform.
an average of IDR13,309 to the US dollar in the second
quarter of 2017, from an average of IDR13,348 in the Pressure on the rupiah continued into the fourth quarter
first quarter. Concurrently, rupiah volatility eased further of 2017, driven mainly by external factors. In the fourth
to 1.8% in the second quarter of 2017 from 2.7% in quarter of 2017, the rupiah averaged IDR13,537 to
the first quarter. Appreciation in the rupiah was also the US dollar, having weakened from the third quarter
supported by positive sentiment from domestic players 2017 average of IDR13,333. Even so, rupiah volatility
and global factors that weakened the US dollar. Positive in the fourth quarter fell to 3.0%, below the 4.3% level
sentiment in Indonesia was spurred by the Standard & of the third quarter. The depreciation in the rupiah was
Poor’s upgrade of Indonesia’s sovereign credit rating to triggered by positive developments in the economy,
investment grade, subdued inflation throughout the Idul politics and monetary policy of the United States. These
Fitri religious festivities in 2017, and a steady increase events prompted appreciation in the US dollar on a
in international reserves. At the global level, ongoing global scale that in turn led to downward pressure on
uncertainty over policy outcomes in the United States, other national currencies, including the rupiah. The main
including the healthcare reform agenda and pro-growth factors driving depreciation in the rupiah were the release
policies, were a significant driver of negative sentiment of data indicating positive GDP performance in United
over the US economy and further depreciation in the States in the third quarter of 2017, positive expectations
US dollar. In addition, the announcement of higher GDP of tax reforms with the legislative process requiring only a
growth in China during the first quarter of 2017 – at simple majority, and the normalization of monetary policy
6.9% compared to 6.8% in the preceding quarter – and the Federal Reserve’s balance sheet. In addition,
fueled positive expectations for the export outlook for the phased reductions in volume of QE by the ECB also
emerging market economies. In contrast, the escalation in led to downward pressure on the rupiah. However, the
geopolitical tensions in the Middle East and on the Korean pressure on the rupiah was countered by positive domestic
peninsula, particularly during the second quarter, had only sentiment relating to sound domestic macroeconomic
limited impact on global financial markets. conditions, as seen in the subdued inflation and steady
growth in international reserves.
Downward pressure on the rupiah mounted at the end
of the third quarter of 2017, accompanied by increased

The stability in the rupiah exchange rate during 2017 of the 89.2% compliance in the fourth quarter of 2016.2
was closely linked to policies pursued by Bank Indonesia. Compliance with the three-to-six month hedging ratio
Exchange rate policy sought to keep rupiah movement similarly improved to 93.6% in the third quarter of
in line with fundamentals, while promoting the smooth 2017 from 93.4% in the fourth quarter of 2016. In
operation of market mechanisms. The rupiah exchange other developments, the percentage of reporting parties
rate was not only managed in a manner consistent complying with the liquidity ratio held steady at a high
with the inflation target, but also in support of external 87.6%, similar to that of the fourth quarter of 2016
equilibrium with a sound current account deficit. Bank (Chart 4.5). In regard to compliance with the minimum
Indonesia’s exchange rate policy was also backed credit rating, 44.2% of corporations subject to mandatory
up with policies for structural improvement in forex reporting disclosed information on their credit rating
supply and demand. This included a policy related to in December 2017. This represented an improvement
implementing activities for prudential principles (KPPK) in minimum credit rating compliance compared to
in the management of non-bank corporate external debt, the December 2016 position of 34.2%. Among the
a policy concerning mandatory use of the rupiah in corporations that reported their credit rating in December
Indonesian territory, and a policy to deepen the domestic 2017, all complied with the minimum credit rating.
financial market (see Chapter 7, Monetary Policy).
The policy for the rupiah exchange rate also operated
The implemented policy for prudential principles in in synergy with mandatory use of the rupiah within the
the management of non-bank corporate external debt national territory of Indonesia. Mandatory use of the
had a positive effect on safeguarding rupiah stability.1 rupiah in Indonesia had a positive impact on management
Indicators for management of corporate external debt, of forex demand from domestic parties, reflected in the
such as liquidity and solvency ratios, eased in 2016 and decline in forex transactions among domestic players.
were relatively stable in 2017. The debt service ratio This obligation is governed by Bank Indonesia Regulation
(DSR), a proxy for the liquidity risk of private external No. 17/3/PBI/2015, which prescribes that every
debt, fell to 54.7% in the fourth quarter of 2017, from transaction conducted within Indonesia by residents or
58.8% in the fourth quarter of 2016 and 71.8% at the non-residents, whether in cash or in non-cash form, must
end of 2015. Alongside this, the private external debt-
to-GDP ratio, a proxy for solvency risk, fell to 17% in
both 2016 and 2017 from 20% at the end of 2015. The Chart 4.5.
Grafik Compliance
4.5. Rasio KepatuhanLevel of Prudential
Pelaporan KPPK Principle
prudent management of liquidity and solvency risk amid (KPPK) Reporting Based on Number of
renewed positive growth in private external debt in 2017 Companies
Percent
reflected the positive impact of the KPPK principles in the 96

94 93.6
management of external debt risks.
92
89.8
90
87.6
The overall compliance rating of parties reporting on 88
86
implementation of prudential principles showed steady 84
overall improvement. During the third quarter of 2017, 82
compliance with the three-months-or-less hedging ratio 80

78
was recorded at 89.8% of all reporting parties, ahead 76
III IV I II III IV I II III
2015 2016 2017
Hedging Ratio 0-3 Months Hedging Ratio above 3 to 6 months

Liquidity Ratio
1 The Implementing Activities for Prudential Principles (KPPK) are activities undertaken by
non-bank corporates to mitigate exchange rate risk, liquidity risk and overleverage risk 2 The number of entities reporting implementing activities for prudential principles
relating to their external debt. The prudential regulations are based on Bank Indonesia increased to 2,847 in the third quarter of 2017 from 2,618 in the fourth quarter of
Regulation No. 16/21/PBI/2014 concerning Application of Prudential Principles in 2016. A total of 2,622 reports on implementing activities for prudential principles were
Management of Non-Bank Corporate External Debt. This regulation has three main received for the third quarter 2017 reporting period, an increase of 7.0% over the
stipulations. First is the minimum hedging ratio of 25%. Second, corporations with 2,451 reports in the fourth quarter of 2016. Regarding the volume of debt, the debt
external debt are required to maintain a liquidity ratio at a minimum of 70%. Third, owed by the 2,487 reporting companies represented 87.5% of the total external debt
corporations intending to issue or draw down new external debt after 1 January 2016 owed by all private sector companies required to report external debt, up from 82.7% in
are required to submit information on compliance with the minimum BB- credit rating. the fourth quarter of 2016.

Chart
Grafik 4.6. Domestic
4.6. Transaksi Foreign
Valas Exchange
Domestik Transactions
dan Nilai Tukar Chart 4.7.
Grafik Foreign –Exchange
4.8. Permintaan NetNeto
Penawaran Supply – Demand
Valas di
and Rupiah Exchange Rate in Spot Market
USD billion Rupiah/USD USD billion Rupiah/USD
7 15,000 5 14,500
4 14,300
6 14,500
3 14,100
5 14,000 2 13,900
4 13,500 1 13,700
0 13,500
3 13,000
-1 13,300
2 12,500 -2 13,100
-3 12,900
1 12,000
-4 12,700
0 11,500 -5 12,500
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2015 2016 2017
Domestic Foreign Exchange Transactions Exchange Rate (rhs) Net S(+)/D(-) nonresident Net S(+)/D(-) resident
Net S(+)/D(-) Total Exchange Rate (rhs)
be conducted in rupiah. In the period following the March during the fourth quarter of 2017, a period of sustained
2015 launch of this policy, domestic forex transactions of appreciation in the US dollar (Chart 4.8).
Indonesian residents fell steadily, reaching USD1.2 billion
in December 2017 (Chart 4.6). Inflows of non-resident funds were placed in various rupiah-
denominated financial instruments. During 2017, inflows
of non-resident investor funds were recorded in government
4.2. Capital Flows on the Domestic securities and sharia-compliant government securities,
Foreign Exchange Market in contrast to the outflow of funds from stock market
placements. In 2017, inflows of funds into Indonesian
Regarding capital flows on the forex market, an increased government securities rose to USD11.8 billion from USD8.0
forex supply from non-resident investors will benefit billion in 2016, and into SBSNs to USD0.9 billion from
stability in the rupiah. During 2017, net forex sales by USD0.1 billion. On the stock market, non-resident investors
non-residents were USD16.6 billion, up from the 2016 recorded outflows of USD3.0 billion, which mainly took
value of USD12.8 billion. During the first half, net forex place in the second half of 2017.
sales by non-residents came in at a substantial USD11.7
billion, but this diminished to USD4.9 billion in the second
half (Chart 4.7). This is explained by appreciation in
the US dollar during July and then again at the end of
September and early October 2017, which spurred
Chart 4.8.
Grafik Inflow
4.8. Aliran of Masuk
Dana BI Certificate (SBI),dan
SBI , SUN, Government
Saham
forex demand among investors. In October, non-resident Bonds (SUN), and Stocks
investors recorded a net forex purchase of USD1.1 billion.
USD billion Rupiah/USD
4 15,000
Consistent with the increased supply of foreign exchange 3 14,500

from non-resident investors, inflows of non-resident funds
2
into domestic financial instruments also increased during 14,000
1
2017. Flows of non-resident funds into government 13,500
0
securities, sharia-compliant government securities (SBSNs), 13,000
-1
Bank Indonesia Certificates (SBIs) and shares came to
12,500
USD9.7 billion in 2017, surpassing the USD9.4 billion -2
reached in 2016. Over the course of 2017, inflows of non- -3

12,000
resident funds were recorded until the third quarter of that 2015 2016 2017
year. However, non-residents recorded outflows of funds Stock SUN SBI Rupiah Exchange Rate (rhs)
Source: Bank Indonesia, BEI-Indonesia Stock Exchange, and Bloomberg

Higher inflows of non-resident funds were spurred by the Chart
Grafik4.10. Comparison Imbal
4.10. Perbandingan of Investment Yields in
Hasil Investasi
continued attractiveness of Indonesian bond yields. In Selected Countries
2017, yields on Indonesian bonds reached 15.6% (Chart Percent
4.9). Although slightly below the 15.8% recorded in 10

8.64
2016, yields in 2017 were still higher than the weighted 8
annual average for Indonesian bond yields over the 6

previous 10 years. In addition, Indonesian bond yields 3.62
4 3.36
were also generally higher and more attractive compared
2
to levels in peer nations (Chart 4.10). 0.46
0
Support for a stable rupiah exchange rate also came from -2
the relatively steady supply of forex from residents. After -4 I II III IV
significantly high net forex buying at USD17.2 billion 2017
India Indonesia Malaysia Philippines Korea Thailand

in 2015, residents’ buying and selling of forex moved
closer together in 2016 and 2017. In 2016, residents
Source: Bloomberg
recorded net forex selling of USD4 billion. Subsequently
in 2017, residents booked a modest net forex purchase
of USD2.1 billion. Other positive developments were period, when the market recorded net forex demand
also visible in the net forex selling by residents during the averaging about USD18.5 billion.
periods of downward pressure on the rupiah in July and
October 2017, recorded at USD0.4 billion and USD0.6
billion. One of the sources that boosted forex supply from 4.3. Structure of the Domestic
residents was the increase in the corporate supply of forex Foreign Exchange Market
during the past two years, particularly from companies
engaged in commodity-based exports. Further support for exchange rate stability in 2017
came from positive developments in the structure of the
Bolstered by this support from both non-residents and domestic forex market. This was reflected in increased
residents, the supply of forex remained at a buoyant transaction volume, improvements in market efficiency,
level on the domestic market in 2017. Although supply and a growing share of derivative transactions. Volumes
was below that of 2016, when net forex supply reached were up for spot, forward, swap and option transactions
USD16.8 billion, the outcome in 2017 was still a on the domestic forex market, while derivatives accounted
substantial USD14.6 billion. At this level, net forex supply for an expanding proportion of total market transactions.
was in far better condition than in the 2011 to 2015 Efficiency in forex transactions also showed steady
improvement, reflected in the decline in forex transaction
costs in line with the growing equilibrium in the demand-
supply structure on the domestic forex market.
Grafik 4.9.
Chart 4.9. Imbal Hasil Obligasi
Indonesian NegaraBond
Government IndonesIa
Yields
In 2017, the domestic forex market was marked by

Percent
50 increased volume. Forex market transaction volume rose
42.2
40 34.9 7% to an average USD5.4 billion per day in 2017 from
30 an average USD5 billion per day in 2016. This growth
19.7
15.8
20 9.5 6.2 10.5
15.6
was supported by increased portfolio investment flows in
10
the first half of 2017 in anticipation of Indonesia’s May
0
2017 credit rating upgrade by Standard & Poor’s.
-10
5.9
-20 16.1
-30
Positive developments in market efficiency were visible in
31.0
-40 the narrowing of the bid-ask spread in rupiah/US dollar
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 spot transactions. The declining trend that began in 2013
Bond Yield of Domestic Country Exchange Rate Factor
carried forward into 2017, with the spread dropping to
Risk Adjusted Return
an average of IDR5 per US dollar in 2017 from the IDR13

Chart 4.11.
Grafik Domestic Foreign
4.11. Perkembangan PasarExchange
Valas Market Chart 4.13.
Grafik Spot Transaction
4.13. Perkembangan Volume
Volume Transaksi Spot

6 4.5
4.0
5 3.5
3.0
2.5
3
2.0
1.5
2
1.0
0.5
0 0
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2016 2017 2016 2017
Spot Swap Forward Option
per US dollar average in 2016 (Chart 4.12). This bears Positive developments were also visible on the market for
testimony to the growing confidence of market participants forward transactions. Daily average volume of forward
in the liquidity of the domestic forex market, which in turn transactions reached USD240 million, an increase of
contributed to lower forex transaction costs. 4.1% over 2016 (Chart 4.14). The highest daily average
transaction volumes were recorded by domestic players
Regarding the composition of forex transactions, growth and particularly corporate customers, who were driven by
took place in transactions of all types. In 2017, daily the need to hedge forex exposures.
average transaction volume for spot deals was recorded
at USD3.4 billion with growth at 7.8% (Chart 4.13). Developments on the swap market were also positive,
At this level, growth had begun to reach a stable range although more limited growth was seen compared to the
after improving slightly from the 7.2% growth recorded in spot and forward markets. In 2017, the daily average
2016. The dominant periods of transactions were in the volume of swap transactions reached USD1.7 billion, an
second and third quarters, commensurate with the inflows increase of 4.1% (Chart 4.15). There was also significant
of portfolio investment from non-resident clients. growth in swap transactions conducted by domestic
participants, especially in interbank trading, compared
to the year before. Amid expectations of an increase in
Chart
Grafik 4.12. Bid-Ask
4.12. Bid-Ask Spread
Spread in US Dollar/Rupiah
Transaksi Spot USD/IDR Chart 4.14.
Grafik Forward Transaction
4.14. Perkembangan Volume Forward
Volume Transaksi
Spot Transactions
Rupiah/USD USD billion
25 0.30
0.25
20
0.20
15
0.15
10 0.10
0.05
5
0
0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2013 2014 2015 2016 2017 2016 2017
Nonresident Resident

Chart 4.15.
Grafik Swap Transaction
4.15. Perkembangan VolumeVolume
Transaksi Swap began hedging by using call-spread options (CSO).3 The
growing interest among domestic corporates is explained
USD billion by the greater cost-efficiency when using CSO transactions
1.6 in hedging compared to costs for conventional derivatives,
1.4
such as forward transactions.
1.2
1.0
Taken together, derivative transactions accounted for
0.8
a 38% share of total forex transactions, not greatly
0.6
different from the proportion seen in 2016. This represents
0.4
a heartening development consistent with the Bank
0.2
0
Indonesia policy of mandatory hedging on external debt
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
by non-bank corporates meeting certain criteria. Bank
2016 2017
Indonesia also worked actively to encourage domestic
Nonresident Resident corporates, and in particular state-owned enterprises, to
make use of hedging. Support for this was provided in the
completion of standard operating procedures for hedging
by state-owned enterprises. This initiative did lead to an
short-term US interest rates prompted by the monetary increase in hedging by state-owned enterprises that in
policy of the US Federal Reserve, interest among banks turn contributed to a slight increase in the proportion of
in conducting swap transactions to secure rupiah liquidity derivative transactions.
remained strong. This behavior became more visible
early in the second half of 2017, when the exchange rate
maintained a stable trend in the wake of two increases in
the Federal Funds Rate in March and June 2017.
For options transactions, conditions were somewhat

different. Daily average volume in option transactions
reached USD20 million, relatively small in comparison
with other transaction types (Chart 4.16). In terms of
growth rates however, options transactions grew 40%
in 2017, well ahead of growth rates of other types. This
brisk growth was driven by domestic corporates, which
Chart 4.16.
Grafik Options Transaction
4.16. Perkembangan Volume Volume
Transaksi Options
USD billion
0.035
0.030
0.025
0.020
0.015
0.010
0.005
0
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2016 2017 3 Call-spread options (CSO) are a combination of buying and selling call options that are
exercised simultaneously in a single transaction contract for the same amount, but at
Nonresident Resident different strike prices.

CHAPTER 5
Inflation
Consumer Price Index (CPI) inflation was kept under control
in 2017 and remained within the target range of 4.0±1% for
the third consecutive year. This achievement is supported by
the consistency of Bank Indonesia’s monetary policy and its
success in maintaining macroeconomic stability, as well as
policy coordination with the Government.

Consumer price index (CPI) inflation in 2017 remained Grafik 5.2.
Chart 5.2. Pola HistorisCPI
Monthly Inflasi IHK Patterns
Inflation
under control and within the target range of 4.0±1%. The
low CPI inflation figure of 3.61% in 2017 means inflation Percent, mtm
targets have been met for three consecutive years (Chart 1.4
5.1). Low inflation was prevalent evenly across Indonesia. 1.2
The inflation developments of 2017 were reflected in 1.0
monthly inflation, which was regularly recorded at a 0.8
lower level than average monthly inflation over the last 0.6
three years. Notably, in the second half, every individual 0.4
month was lower than the average monthly inflation of the 0.2
last three years (Chart 5.2). Breaking this down into the 0
individual inflation components, controlled core inflation -0.2
1 2 3 4 5 6 7 8 9 10 11 12
and low volatile food (VF) inflation contributed to these
inflation successes, but administered prices (AP) inflation 2017 Historical in the last 3 years
rose, driven by the policy of targeted electricity subsidies.

However, the second-round effect of the electricity subsidy
policy on other commodity prices was relatively limited.
The inflation achievements of 2017 were supported by
This controlled inflationary pressure was driven by positive Bank Indonesia’s consistent monetary policies, as well
domestic and external developments (Figure 5.1). On as by policy coordination with the Government. Bank
the domestic front, inflation expectations were anchored, Indonesia’s consistent monetary policy on macroeconomic
inflationary pressure was well managed, and food stability pushed inflation expectations downwards;
supplies were maintained, all factors supportive of low they were anchored in the 4.0±1% target range.
inflationary pressure. On the external side, a fairly stable Policy coordination between Bank Indonesia and the
exchange rate accompanied by low global commodity Government was particularly relevant in terms of supply
prices, particularly of imported food, eased inflationary chains. Government policy was aimed at maintaining the
pressure. These conditions led to both low core inflation availability of supplies, ensuring distribution efficiency,
and low VF inflation in 2017. In addition, the second- and stabilizing food prices to support controlled inflation.
round effect of the AP targeted electricity subsidies policy Strengthened policy coordination between Bank Indonesia
on other commodity price increases was minimal, meaning and the Government on inflation control was achieved
inflationary pressure remained under control. through Central and Regional Inflation Control Team (TPID)
forums.
5.1. Core Inflation

Grafik 5.1.
Chart 5.1. Realisasi InflasiPrice
Consumer IHK Index
dan Sasaran Inflasi and
(CPI) Inflation
Its Targets Lower core inflation was a key contributor to the controlled
Percent, yoy
CPI inflationary pressure in 2017. Core inflation at the
12
11.06 end of 2017 was 2.95%, down from 3.07% from the
10
previous year. It also entered into a lower regime in 2016
8.38
8 6.96
8.36
than has been seen since 2000 (see Box 5.1 Low Core
6
Inflation Regime). This encouraging development was
6.59
supported by consistent monetary policy.
4 4.30 3.35 3.61
3.79
2 2.78 3.02 The controlled core inflationary pressure in 2017 is
0
reflected in inflation rates for core goods and services
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 components. Core goods inflation stood at 2.88% and
core services inflation at 3.07% (Chart 5.3). Low core
Range Inflation Target Realization
goods inflation was mainly due to low inflationary
Source: BPS-Statistics Indonesia and Finance Ministry, calculated pressure on durable goods, which registered inflation of

Gambar
Figure 5.1. Determinan
5.1. Inflasi
Determinants of 2017
Inflation in 2017
Favorable Supply Conditions

• Global food inflation getting slow
• Food supply increased
Minimal Domestic Minimal External
Pressure Pressure
• Stable exchange Volatile Food 0,71% (yoy)

• Agregat demand
was well maintained rate Energy subsidy
• Global non-oil and reform continued
• Inflation expectations
gas inflation getting Core CPI Administered Prices
were declined slow mainly driven 3,61% (yoy) • Targeted subsidy
2,95% (yoy) 8,70% (yoy)
by lower global policy for 900VA
food commodity
prices CPI 2017 in the inflation target
Bank Indonesia Policy Government Policy (Central and Regional Levels)

1. Taking a consistency of monetary policy with the inflation target
2. Maintaining the stability of the exchange rate based on its fundamental value Coordination with The Government 1. Affordability price
3. Strengthening the effectiveness of monetary policy transmission and liquidity (Central and Regional) through the 2. Availability of Supply
management Inflation Monitoring and Controlling Team 3. Smooth Distribution
4. Strengthening the management of supply and demand for foreign currency (TPI) and their regional counterparts (TPID)
5. Taking further steps to deepen financial markets 4. Effective Communication
6. Strengthening the inflation control and boosting the real sector from the
supply side
only 1.17%.1 In contrast, non-durable goods saw inflation three years. This rise in core inflation early in the year
of 3.61% (Chart 5.4). Low inflation for core durable was driven by escalating core inflationary pressures in
goods is attributed to the successful management of the services sector, particularly in telecommunications
demand pressures, the stable rupiah exchange rate and and housing services (Chart 5.6). The rise in inflation in
moderate global commodity price pressure. telecommunications was due to a rise in mobile phone
call rates, while the rise in housing services inflation was
Controlled core inflation for 2017 was also reflected linked to increasing home rental rates. Housing services
in monthly core inflation movements, which tended to inflation was also pushed up by the second-round effect
be lower than seen in the previous three years (Chart of the 900 volt-ampere (VA) electricity tariff increase –
5.5). On a monthly basis, temporary factors lifted core part of the government plan to reform electricity subsidies
inflation substantially early in 2017, but in March the – for some customer groups. Inflation in rental rates in
rate returned to a lower level than seen in the previous the first quarter of 2017 stood at 0.08%, slightly higher
than the 0.04% seen in the same period of 2016.2 The
telecommunications and housing services sectors were
Grafik 5.3.
Chart 5.3. Inflasi
CoreIntiInflation
Barang of
Dan Inflasiand
Goods Inti Services
Jasa
Grafik 5.4.
Chart 5.4. Inflasi inti Durable
Durable GoodsGood
and Non-durable
Percent, yoy dan Non Durable Good
Goods Inflation
6
Percent, yoy
5 8
7
4
6
3
5
2 4
3
1
2
0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1
2015 2016 2017
0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
Core Inflation Core Inflation of Services Core Inflation of Goods 2015 2016 2017
Core Inflation of Goods Core Inflation of Durable Goods

Source: BPS-Statistics Indonesia, calculated Core Inflation of Nondurable Goods
1 Durable goods commodities are commodities in Consumer Price Index (CPI) baskets that
are long-lasting, while non-durable goods commodities are commodities in CPI baskets 2 Based on historical patterns, adjustments in rental rates are mainly made at the
that are not long-lasting. beginning of the year.

Grafik 5.5.
Chart 5.5. Pola HistorisCore
Monthly InflasiInflation
Inti Bulanan
Patterns Table 5.1. Contributors of Core Inflation
Percent
Persen, mtm
Percent, mtm
0,6
0.6
No Commodity 2016 2017
0,5
0.5
Inflation
1 Cellphone Tariff 0.10 0.16

0,4
0.4
2 Gold Jewelry 0.07 0.12
0,3
0.3
3 Rice and Side Dish 0.09 0.09
0,2
0.2
4 House Rental Rates 0.09 0.08
0,1
0.1 5 House Keeper Salary 0.04 0.08
0 6 Noodle 0.04 0.05

1 2 3 4 5 6 7 8 9 10 11 12 7 Academy/College 0.04 0.05
Historis 3 tahun terakhir

2017Inflation 2017
Core Three Years Moving Average 8 Senior High School 0.04 0.04
Deflation
Sumber:BPS-Statistics
Source: BPS, diolah Indonesia, calculated
9 Sugar 0.06 -0.07
10 Cement -0.03 -0.03

among the largest contributors to inflation in the core Source: BPS-Statistics Indonesia, calculated
group in 2017 (Table 5.1).
Low core inflation was supported by a demand side to relatively stable over the past two years (Chart 5.7). Such
which the supply side was still able to respond. This was moderate demand pressures were in line with fairly weak
reflected in developments in money supply, credit and public consumption.
retail sales over 2017, all of which continued to grow
moderately. In 2017, money supply grew by 8.3% and Another factor that played an important role in controlling
consumer loans by 11.0%, while retail sales rose 3.1%. core inflation in 2017 was the anchoring of inflation
In addition to the above indicators, two other demand expectations within the inflation target range. In the first
indicators confirm that demand pressures remained half of 2017, inflation expectations rose as the targeted
moderate: the demand sensitive to inflation indicator and subsidy policy for electricity – meaning reduced subsidies
the core flexible price indicator.3 Both these indicators for medium- to high-income customers – was implemented.
Nevertheless, in line with the limited second-round effect
of the AP policy and the consistency of Bank Indonesia’s
macroeconomic stability policies, inflation expectations
Grafik 5.6.
Chart 5.6. Inflasi
CoreIntiServices
Jasa Inflation

7 19
Grafik 5.7.
Chart 5.8. Indikator
Demand Tekanan Permintaan
Pull Inflation Indicators
6
14 Percent, yoy Percent, yoy

5
25 7.0
4
9
20
3 6.0
2 15
4 5.0
1 10
4.0
0 -1
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 5
2015 2016 2017
3.0
Core Service Inflation except Cellphone Tariff and Housing Service 0
Housing Service Inflation Cellphone Tariff Inflation (rhs)

-5 2.0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
Source: BPS-Statistics Indonesia, calculated 2015 2016 2017
Retail Sales Core Flexible Price (rhs)

3 Demand sensitive to inflation refers to non-food core commodities in the CPI basket, Demand Sensitive to Inflation (rhs)
while core flexible price refers to core commodities that often undergo significant price
Source: BPS-Statistics Indonesia and Bank Indonesia, calculated
changes.

declined in the second half of 2017. The fall in inflation Grafik 5.9.
Chart 5.12. Consensus Forecast,
Consensus IHKSticky
Forecast, StickyPrice
PriceCPI,
expectations was seen in Consensus Forecast and Bank dan Inti Sticky Price
and Core Sticky Price CPI
Indonesia surveys of financial sector participants, which Percent, yoy
showed a decline in inflation forecasts for 2017 (Chart 7
5.8). The Consensus Forecast survey results in the third 6
quarter of 2017 predicted that inflation in 2017 would 5
reach 4.0%, lower than the figure from the corresponding 4
survey in early 2016 of 4.8%. Meanwhile, the results of 3

a Bank Indonesia survey, the Survey of Macroeconomic
2
Indicator Projections, also indicated a decrease in
1
inflation expectations for 2017 to 3.86% in the third
quarter of 2017, compared with an expectation of 4.83% 0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017
recorded in the first quarter of 2016. A decline in inflation
expectations also occurred among business participants Consensus Forecast Core Sticky Price CPI Sticky Price
in the real sector. The results of Bank Indonesia’s Business

Source: Consensus Forecast and BPS-statistics Indonesia, calculated
Survey, conducted in the third quarter of 2017, predicted
inflation of 3.24% for 2017, down from full year
predictions of 3.54% made in the first quarter of 2017. sector was due to increases in construction sector
Sticky price CPI and core sticky price CPI (Chart 5.9) also commodity prices and construction sector minimum wages;
confirmed the anchoring of inflation expectations.4 Despite only a small part of the increase is attributed to stronger
an upturn at the beginning of the year, both of these property demand (Chart 5.11). The limited increase
indicators moved within the inflation target range and in property asset prices resulted in slowing rental rates
displayed a downward trend. during 2017. Increases in these asset prices, however,
especially in the financial sector, were still higher than
These lower inflation expectations were reflected in asset price rises in the real sector. The relatively substantial
slowing price increases in 2017 of assets such as price rises of financial assets seemed to be triggered by
property, gold, and financial assets (Chart 5.10). The investment motives. In general, these developments had a
rise – albeit a limited rise – in asset prices in the property minimal wealth effect on rising prices of goods in the real
sector.
Grafik 5.8.
5.9. Ekspektasi The controlled core inflation was also influenced by the
Chart InflationInflasi 2017 2017
Expectations
stable rupiah exchange rate and moderate rises in global
Percent, yoy commodity prices. The average rupiah exchange rate
6
4
Grafik 5.10.
Chart 5.13. Harga
AssetAset dan
Prices IHKCPI
and
3
Percent, yoy
2 70
60
1
50
0 40
I II III IV I II III IV*
30
2016 2017
20
Consensus Forecast Survey of Macroeconomic Indicators Projection (SPIME)
10
Survey of Business Activities
*) Inflation Q-IV 2017 in SPIME is a realization 0
-10
Source: Consensus Forecast and Bank Indonesia
-20
-30
4 Sticky price and core sticky price CPI are commodities in the CPI basket and core 2015 2016 2017
commodities that have each historically experienced minimal price changes as periodic, Gold Price Residential Property Price Financial Asset
infrequent price adjustments have been made. The price adjustments that do occur in
these commodities are assumed to have accommodated future inflation expectations until
Source: Antam-Mining Company, Bloomberg, and Bank Indonesia
a price adjustment period occurs again.

Chart
Grafik 5.11. PropertyHarga
5.14. Kenaikan Price,Properti,Komoditas
Building Sector Grafik 5.13.
Non-oilTekanan
and GasEksternal
ExternalNon Migas
Pressure
sektor bangunan, dan Jasa sektor and
Commodity Price, Housing Service
Perumahan Indicator
Percent, yoy
Sector Rate Percent, yoy Percent, yoy
9 30 10
8 9
20 8
7
6 7
10
5 6
4 5
0
3 4
2 -10 3
1 2
0 -20 1
I II III IV I II III IV I II III IV 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017 2015 2016 2017
Residential Property Price House Rental Rates Imported Inflation Price Index Appreciation (-)/Depreciation (+) Rupiah
Salary and Construction Materials Inflation Core Traded (rhs) Wholesale Price Index (rhs)
Source: BPS-Statistics Indonesia and Bank Indonesia, calculated Source: BPS-Statistics Indonesia and Bank Indonesia, calculated
during 2017 did not differ greatly from that of 2016, with 5.2. Volatile Food Inflation
only a slight depreciation of 0.6%. Meanwhile, reference
to International Monetary Fund (IMF) and World Bank Low VF inflation supported the controlled CPI inflation in
data shows composite global commodity prices increased 2017. VF inflation was recorded at 0.71% in 2017 – the
by 13.8% in 2017. The upturn was a factor of rising lowest annual VF inflation rate in 13 years (Chart 5.14).
oil prices, as food commodity prices were falling (Chart The low VF inflation rate was also seen in monthly VF
5.12). In line with low global food prices, the non-oil and inflation, which was lower than in the prior three years,
gas import price index, which has a significant effect on most notably in the period from January to September
domestic inflation, continued to decline (Chart 5.13). (Chart 5.15). Entering the fourth quarter of 2017,
Minimal cost pressures from exchange rate and global however, VF inflationary pressure rose in line with an
non-oil and gas price factors, along with well-managed increase in the prices of nine major VF commodities.5
demand pressure, encouraged businesses not to pass This was due to a seasonal decline in the supply of
price increases on to the consumer. This was reflected
in slower core inflation of traded goods compared to a
rise in the wholesale price indexes of non-oil and gas Grafik 5.14.
Chart 5.15. Perkembangan
Volatile Food Inflasi VF
Inflation
commodity imports.
Percent, yoy
20
15
Grafik 5.12.
GlobalHarga Komoditas
Commodity Global
Prices
10
Percent, yoy
100 5
80
60 0
40
20 -5
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-20
-40
-60 Source: BPS-Statistics Indonesia
-80
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017
Global Food Price Oil Price Global Commodity Price 5 The main volatile food (VF) commodities consist of nine foodstuffs, including eight
basic and essential goods, plus garlic. These eight basic and essential goods are rice,
shallots, red chilli, bird's eye chilli, chicken, beef, cooking oil and eggs. These basic and
Source: World Bank and IMF, calculated
essential goods are stipulated under Presidential Regulation No.71 of 2015.

Grafik 5.15.
Chart 5.16. Dinamika
DynamicsInflasi VF 2017
of Volatile Food Inflation Table 5.2. Contributors of Volatile Food Inflation
Percent, mtm
Percent
4
3
2
Deflation
1
1 Red chili 0.17 -0.18
0
2 Onion 0.33 -0.16
-1
3 Garlic 0.09 -0.11
4 Bird’s eye chili 0.07 -0.08

-2
5 Beef 0.04 -0.01

-3
1 2 3 4 5 6 7 8 9 10 11 12 Inflation
Volatile Food Inflation 2017 Historical at the last 3 years 6 Rice -0.01 0.13
9 Main VF Commodities
7 Purebred Chicken Egg -0.02 0.09
8 Purebred Chicken Meat 0.00 0.06
9 Cooking Oil 0.06 0.02
some commodities such as rice and several horticultural 10 VF Out of 9 Main Commodities 0.34 0.36
products, especially red chillies, amid high demand Source: BPS-Statistics Indonesia, calculated
ahead of Christmas and New Year. Nevertheless, this

fourth quarter rise in inflation was still lower than average
food items declined slightly towards the end of the year
monthly inflation over the last three years.
as weather conditions became less favorable. This caused
the price of rice and red chillies to rise in November and
Low VF inflation in 2017 was driven by a steady
December 2017 (Chart 5.17). The weather dynamics at
flow of domestic supplies along with more favorable
the end of the year also had an adverse impact on the
weather conditions than in 2016, with the absence of
supply and price of fresh fish.
El Niño and the minimal effect of La Niña (Chart 5.16).
The advantageous weather had a positive impact on
The trend of falling global food prices in 2017 also
agricultural commodity production and food supplies.
influenced the low level of VF inflation. This decline in
Some of the key climate-affected VF commodities – such
global food prices was driven by abundant production
as shallots, red chillies and bird’s eye chillies – contributed
in some producing countries, such as America, China
to deflation in 2017 (Table 5.2). Although generally
and Australia. However, a deeper decline in global food
maintained well throughout the year, the supply of some
commodity prices was stifled by an increase in oil prices
Chart 5.16. Climate Indicator Grafik 5.17.

Chart 5.18. Pasokan Komoditas
Domestic Dari Dalam
Food Commodity Negeri
Supply and
Price
Celcius Degree Ton Rupiah per kilogram
3.0 5,000 50,000
El Nino La Nina La Nina
2.5
2.0 4,000 40,000
1.5
3,000 30,000
1.0
0.5
2,000 20,000
0
-0.5
1,000 10,000
-1.0
DJF
JFM
FMA
MAM
AMJ
MJJ
JJA
JAS
ASO
SON
OND
NDJ
DJF
JFM
FMA
MAM
AMJ
MJJ
JJA
JAS
ASO
SON
OND
NDJ
0 0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2016 2017 2017 2017 2017
Rice Supply Onion Supply Chilli Supply
Rice Price (rhs) Onion Price (rhs) Chilli Price (rhs)
Source: National Weather Centre, USA
Note: Horizontal Axis shows 3 months period, for example
DJF : December, January, and February Source: Strategic Food Price Information Center (PIHPS), Jakarta Food Station, and Main
Market Kramat Jati Jakarta, calculated

from the beginning of the second half of 2017. This oil Chart 5.19. Changes in Global Price (Corn, Oil) and
Grafik 5.20. Perubahan Harga Jagung, minyak
price rise resulted in an increase in prices of international internasional vsDomestic Price ayam
inflasi daging (Chicken
danand
telurEgg)
ayam
food commodities related to biofuels, such as corn.
Percent, mtm Percent, mtm
6 15
Global food prices fell by 0.2% in 2017. This decline
4 10
led to a decrease in the prices of some similar domestic
food commodities, as well as in food commodities that 2 5
are derived from global commodities (Chart 5.18). 0 0

However, an increase in the international corn price in the
-2 -5
fourth quarter of 2017 caused a rise in domestic animal
feed prices. This was one of the factors underlying the -4 -10
increased price of chicken and eggs at the end of the -6 -15
year, at a time when demand was high in the lead up to 1 2 3 4 5 6 7 8 9 10 11 12
Christmas and New Year (Chart 5.19). Global Corn Price Global Oil Price
Chicken Egg Price (rhs) Chicken Meat Price (rhs)
Low VF inflation was also driven by a stronger focus from Source: World Bank and BPS-Statistics Indonesia, calculated
Indonesia’s Government on stabilizing food prices. The

government price stabilization policy was not only enacted aimed at cooking oil and garlic. In addition, as part
over national religious holidays, when food prices tend of efforts to maintain domestic food price stability, the
to rise, but also outside of these periods whenever there Government continued to import frozen beef and live
were significant price increases of essential commodities cattle to increase the domestic beef supply (Chart 5.20).
(Table 5.3). The price stabilization policy in 2017 was The Government also continued with its policy of importing
broader in that it not only involved market operations and buffalo meat to provide an alternative protein to beef and
low-cost markets, but also cooperation with producers to maintain the stability of beef prices.
and importers to maintain supply. Such cooperation
with producers and importers was intended to ensure
low prices for consumers, primarily in the period before 5.3. Administered Price Inflation
Ramadan and Idul Fitri in 2017.6 This policy was mainly
Unlike core inflation and VF inflation, AP inflation
increased as subsidy reforms continued. AP inflation in
Grafik 5.18.
Chart 5.19. Harga
GlobalPangan Globaland
Food Prices danVolatile
Inflasi VF
Food 2017 reached 8.70%, higher than the previous year’s
Inflation level of 0.21%. The rise in AP inflation was driven
Percent, yoy
primarily by the 900 VA electricity tariff adjustment
15
10
5
Grafik 5.20.
Chart 5.21. Pasokan Komoditas
Commodities darifrom
Supply Luar Abroad
Negeri
0
-5
Thousand Tons Thousand Tons
-10
120 470
-15 460
100
-20 450
440
-25 80
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
430
2015 2016 2017
60 420
Global Food Price VF Inflation 410
40
400
Source: World Bank and BPS-Statistics Indonesia, calculated 390
20
380
0 370
2015 2016 2017 2015 2016 2017
6 The Ministry of Trade facilitated a Memorandum of Understanding between the
Beef Garlic
Indonesian Retailers Association (Aprindo) and producers concerning the provision
of commodities at affordable prices for consumers. The Ministry of Trade also set a Beef Garlic (rhs)
maximum retail prices for cooking oil in the retail market of IDR12,000/liter, and
encouraged importers to supply garlic to the market at a price of IDR25,000 to
Source: Bank Indonesia, calculated
IDR27,000 per kg.

Table 5.3. Government Volatile Food Inflation Control Policy
No Policy 2016 2017
Market Operation and Bazaar by The National Logistics Agency (BULOG), Trade Ministry and the Regional Inflation
1 √ √
Monitoring and Controlling Team (TPID).
2 Movement of Food Stabilization and Food Centers (RPK) Network by The National Logistics Agency (BULOG). √
3 Increase the supply of staple goods with imports, especially garlic, beef, buffalo meat, and sugar. √ √
Availibility of staple goods stock in the National Logistics Agency (BULOG) other than rice (onion, garlic, beef, buffalo
4 √ √
meat, corn, cooking oil, sugar, and soybean).
Implementation of Memorandum of Understanding between The Association of Retail Merchants Indonesia (Aprindo)
5 with sugar, cooking oil, and beef distributor in order to The Highest Retail Price Policy (HET) for sugar, cooking oil, and - √
beef.
Implementation of Memorandum of Understanding between Traditional Market Traders (IKAPPI) and Associations of
6 Provincial Government throughout Indonesia with The National Logistics Agency (BULOG), food distributor in order to - √
The Highest Retail Price Policy (HET) for sugar, cooking oil, frozen meat, onion, and garlic.
7 Ensure the private sector have 1,5 million liters of cooking oil stock that ready for used to price stabilization if needed. - √
Instructing garlic importers and The National Logistics Agency (BULOG) for Market Operation to traders of the people’s
market on price IDR 25,000-IDR 27,000/kg on the Celebration of The National Religious Days (HBKN) (price in
8 - √
market IDR 50,000- IDR 55,000/kg) and on price IDR 17,000/kg after the Celebration of The National Religious Days
(HBKN). The National Logistics Agency (BULOG) imports 986 tons of garlic.
The implementation of the ownership of the list of distribution business agents (TDPUD) of basic commodities and the
9 - √
responsibility to report the stock for distributors/sub-distributors and agent of basic commodities.
Source: Trade Ministry, The National Logistics Agency (BULOG), and Agriculture Ministry, calculated
policy which was implemented in three stages, namely The rise in AP inflation was seen in several months of
in January, March and May of 2017, and increased 2017, tracking government policies. AP inflation rose
electricity prices by an average 32% (Chart 5.21).7 The sharply in the first half of 2017, driven by the electricity
increase in electricity tariffs in 2017 was part of a policy tariff increase, an increase in vehicle registration number
of retargeting subsidies and transferring them to more extension fees and higher transport fares (Chart 5.22).8
productive sectors. The rise in transport fares in this period was influenced by
seasonal factors such as Ramadhan, Idul Fitri and school
The second-round effect of increased electricity tariffs on holidays. Entering the second half of 2017, AP inflation
other commodity prices was minimal. A limited second- was fairly controlled as no tariff adjustments were made
round effect was, however, seen in an increase in rental for electricity subscribers of 1,300 VA and above, and
rates. In general, however, the second-round effect of
strategic AP commodity price increases tended to decrease
Grafik 5.21.
Chart 5.22. Tarif Listrik Rumah
Household Tangga
Electricity Rates
in line with inflation expectations that were increasingly
anchored in the target range. The low level second-round
Rp/Kwh
effect of AP increases was also attributable to the fact that 1,600
1,467
the electricity tariff rises only applied to a small proportion 1,400
of household groups. It had minimal forward linkage to 1,200

1,352
1,034
the production of goods and services, and therefore did 1,000
not lead to a great increase in input costs. 800

791
605
600
415
400
200
0
7 In 2017, 18.4 million 900 VA customers experienced an increase in electricity tariffs,
1 2 3 4 5 6 7 8 9 10 11 12
and 4.1 million continued to be subsidized by the Government. The electricity tariff
for non-subsidized 900 VA customers is IDR1.352/Kwh, while the tariff for subsidized
450 VA 900 VA Subsidy 900 VA Nonsubsidy >900VA
customers is IDR586/Kwh. The electricity tariffs rose in January, March and May, and
consequently AP inflation also increased substantially in the following month. The tariff
Source: State Electricity Company (PLN) and Ministry of Energy and Human Resources
increases did also affect inflation in the months in which they were imposed, but this
increase was only experienced by 900 VA prepaid electricity customers. Postpaid
customers of 900 volt-ampere (VA) experienced an increase in billing in the month after
the tariff increase took effect. 8 The transportation fares concerned were air transport, intercity transport and rail fares.

Grafik 5.22.
Chart 5.23. Inflasi AP 2017
Dynamics Bulanan
of Administered Prices Table 5.4. Contributors of Administered Prices
Inflation in 2017 Inflation Percent
Percent, mtm
3.0
2.5 1 Electricity Tariff 0.06 0.76

2.0
2 Renewal Fee of Vehicle Number Letter 0.00 0.24
1.5
1.0
3 Fuel -0.42 0.17
0.5 4 Clove Cigarette 0.18 0.15

0
5 Air Transport Fares 0.13 0.09
-0.5
6 Cigarette 0.08 0.08
-1.0
-1.5 7 Household Fuels -0.01 0.06

1 2 3 4 5 6 7 8 9 10 11 12 8 Inter-city Transport Fares -0.01 0.05
Administered Prices Inflation 2017 Historical in the last 3 years 9 White Cigarette 0.06 0.04
10 Rail Fares 0.02 0.02

as transport fares normalized again after the Idul Fitri and the weakening of the rupiah in the fourth quarter of
holiday. However, AP inflationary pressure intensified 2017.
towards the end of the second half of 2017, mainly driven
by increases in airfares (Chart 5.23).
5.4. Regional Inflation
Also in the AP sector, the fuel prices, cigarettes, and
household fuels rose in 2017 (Table 5.4). Several fuel In line with the national picture, regional inflation was
prices, including Pertalite and Pertamax, rose on the back generally kept under control in 2017, and within the
of increased world oil prices in the second half of 2017, national inflation target of 4.0±1% (Figure 5.2). Provincial
and on exchange rate pressures, especially in the fourth inflation rates converged to within the inflation target
quarter of 2017. Meanwhile, the increase in cigarette range and tended to be lower than national inflation
prices was driven by a 10.5 % rise in excise tax in 2017. (Chart 5.24). Some provinces in eastern Indonesia even
The increase in household fuels was due to a shortage of recorded lower inflation than the target range, and Mapua
3kg liquid petroleum gas (LPG) cylinders and an increase recorded the lowest inflationary pressure (Chart 5.25).
in the 12kg LPG cylinder price. The 12kg LPG cylinder
price increase was linked to the rising price of LPG gas As at the national level, low food inflation also influenced
the controlled regional inflation. The low inflationary
pressure on food items was mainly seen in food
Grafik 5.23.
5.24. Inflasi production centers such as Sumatra, Java, Balinusra, and
Chart Fuel,Bahan Bakar Transportasi
Air Transport, and Electricity Rate
dan Tarif Listrik Inflation Sulawesi (Chart 5.26). Food inflation in 2017 in these
Percent, mtm Percent, mtm
regions was lower than in 2016, but in Mapua food
15 6 inflation rose compared with 2016.
5
10
4
Low food inflation in some regions was caused by a
5 decline in the prices of various spices (Chart 5.27). The
3
price of foods used as spices, including shallots, red chilli,
2
0
bird’s eye chilli, and garlic, decreased significantly in
1
2017 (Chart 5.28). The decline in shallot prices led to
-5
0 low food inflation in Java, especially in the province of
-10
1 2 3 4 5 6 7 8 9 10 11 12
-1 Central Java, a center of shallot production. The decline in
2017 shallot prices was also the reason for low food inflation in
Fuel Air Transport Fares Electricity (Rhs) Balinusra, Kalimantan, Sulawesi, and Mapua. Meanwhile,
low food inflation in Sumatra was caused by a fall in

Gambar
Figure 5.2.Peta
5.2. Perkembangan
Regional Inflation Inflasi
in 2017Daerah (Persen, yoy)
ACEH
4.2
NORTH
NORTH KALIMANTAN
SUMATRA 2.8 NORTH
3.2 SULTENG SULAWESI
RIAU 4.3 2.4
RIAU ISLANDS EAST NORTH WEST
4.2 4.0 WEST KALIMANTAN GORONTALO PAPUA
KALIMANTAN 3.1 MALUKU
WEST 1.4
4.1 4.3 2.0
SUMATRA BABEL
2.0 JAMBI CENTRAL WEST
2.8 ISLANDS KALIMANTAN
3.2 SULAWESI
3.1 3.8
SOUTH PAPUA
BENGKULU SUMATRA 2.1
3.0 SOUTH SOUTH MALUKU
3.6
KALIMANTAN SULAWESI 0.78
JAKARTA 3.7 SOUTH EAST
4.4
LAMPUNG 3.7 CENTRAL JAVA SULAWESI 3.0
3.0 3.7 BALI EAST NUSA
WEST JAVA
BANTEN 3.6 3.3 TENGGARA
4.0 2.0
DIY
4.2 EAST JAVA
WEST
4.0
NUSA TENGGARA
3.7
Inflation ≥ 5.0% 4.0 ≤ Inflation < 5.0% 3.0% ≤ Inflation < 4.0% Inflation < 3.0%
the price of red chillies. This red chilli price decline also In line with the low inflationary pressure on food, regional
resulted in food deflation in red chilli production centers, price disparities in the nine major VF commodities were
including South Sumatra, West Sumatra and North generally also down. This decline in price disparities was
Sumatra. reflected in a decrease in the coefficient of variation of
the price of these nine commodities from 11.47 in 2016
Although spice prices fell, rises in the price of fish and to 9.26 (Chart 5.29).9 Nevertheless, the price of these
grains fueled food inflation in some regions. Adverse nine commodities was still higher in some provinces than
weather conditions accompanied by rougher seas in the others. The price of these nine commodities in Papua, for
last two months of 2017 led to low catches, pushing up example, was 29.05% higher than the average in other
prices significantly and contributing to food price inflation. provinces, while in South Sulawesi the price of these nine
Meanwhile, increases in the prices of grains, especially food commodities was 15.16% lower than the average in
rice, were affected in particular by limited supplies as the other provinces (Figure 5.3).
harvesting season came to an end. Steep increases in fish
and grain prices were a key factor in the increased food
inflation in 2017 in Mapua compared to 2016. Grafik 5.25.
Chart 5.25. Inflasi Regional
Regional Inflation Comparison
Percent, yoy
6
5.40 5.46 5.35
5.07
Grafik 5.24.
Chart 5.26. Sebaran InflasiofProvinsi
Distribution Province Inflation 2017 5 4.69 4.74
3.94
4 3.78
3.45
Percent, yoy 3.30 3.20
14 3
12 11.91 2
1.53
10.87
10
1
8
0
6.75
6 5.84 6.14 6.15
Sumatra Java Balinusra Kalimantan Sulawesi Mapua
4.44
4
Average 2014-2016 2017
2
1.08
0.35 0.78 Source: BPS-Statistics Indonesia, calculated
0
2013 2014 2015 2016 2017
Inflation Target Province Inflation Above National Inflation

National CPI Province Inflation Below National Inflation
9 The coefficient of variation is a measure that shows the deviation in the interregional
Source: BPS-Statistics Indonesia, calculated inflation of the nine major VF commodities against the national inflation of these nine
Note: Highest and lowest annual inflation
major (volatile food) VF commodities.

Grafik 5.26.
Chart 5.27. Inflasi
FoodBahan Pangan
Inflation by Region Grafik 5.28.
Chart 5.29. Disagregasi SubKelompok
Disaggregation of Sub-groups of
Bumbu - bumbuan
Selected Spices by Region
9 8.43 5
8
0
7
-5
6 5.63
5.31
5 4.53 -10
4 -15
3 2.45
-20
2 1.30 1.36 1.29
1.03 0.93 0.97
0.76 -25
1
0 -30
Sumatra Java Balinusra Kalimantan Sulawesi Mapua Sumatra Java Balinusra Kalimantan Sulawesi Mapua
Chilli Onion Garlic

2016 2017
Bird's eye chili Others
Sumber: BPS-Statistics Indonesia, calculated Source: BPS, calculated
The low food inflation and declining food price disparities relation to urban farming, TPIDs in Sumatra, Kalimantan,
in some regions were influenced by food security Sulawesi and Papua carried out activities such as planting
programs initiated by Regional Inflation Control Teams chillies in urban areas, as part of the Chilli Planting
(TPID). These programs included the development of Movement to control price volatility and meet the high
food security clusters – food networks or cooperatives – demand for red chillies. Meanwhile at red chilli production
as well as urban farming, the strengthening of farming centers in Java, TPIDs explored better planting patterns to
organizations through programs designed to modernize ensure that chillies are available at all times.
farming businesses, and optimizing the role of regional
government enterprises in agriculture. The new food Improved efficiency in food distribution systems also
security clusters in West Java, Banten, North Sumatra contributed to low food inflation and declining food price
and Lampung were intended to increase the production disparities. Food distribution systems were improved
of various spices, while in Kalimantan, Sulawesi and through the integration of the marine toll program, an
Mapua, they were focused on increasing production of initiative to improve sea connections between Indonesia’s
food commodities and horticulture. For example, in West islands, with ‘Rumah Kita’ logistical centers. These are
Kalimantan the Hazton method – a new method of rice food logistics centers designed to improve food supplies
cropping – was applied to enhance grain productivity. In to remoter areas. This was a joint initiative between the
Grafik 5.27.
Chart 5.28. Disagregasi Inflasi of
Disaggregation Bahan
FoodPangan
Inflation by Grafik 5.29.
Chart 5.30. Koefisien Keragaman
Inter-regional Antar
Diversity Wilayah
Coefficient
Region
5 14 20
4
12 15
3
10
2 10
1 8
5
0 6
-1 0
4
-2
2 -5
-3
-4 0 -10
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
Sumatra Java Balinusra Kalimantan Sulawesi Mapua 2015 2016 2017
Grains, Tubers, and The Result Meat and The Result Fish
Diversity Coefficient 9 Main VF Commodities
Various Spices Other Food Ingredients

Gambar
Figure 5.3. Disparitas
5.3. Harga 9ofBahan
Price Disparities Nine Makanan Pokok Foods
Major Essential Pentingamong
Antar Provinsi di Indonesia
Provinces in Indonesia
ACEH
(-7.58%)
NORTH NORTH
SUMATRA KALIMANTAN NORTH
(-9.36%) (13.86%) GORONTALO
(3.84%) MALUKU
RIAU RIAU (22.11%)
(-3.90%) ISLANDS WEST KALIMANTAN EAST CENTRAL
(3.75%) NORTH
(2.92%) KALIMANTAN SULAWESI
(8.75%) SULAWESI WEST
BABEL CENTRAL (-3.23%)
JAMBI (7.78%) PAPUA
ISLANDS KALIMANTAN (26.74%)
WEST (-7.36%) (12.72%) SOUTH WEST
(10.33%)
SUMATRA KALIMANTAN SULAWESI
SOUTH (3.83%)
(-0.47%) SUMATRA (-11.06%) PAPUA
BENGKULU SOUTH EAST MALUKU (29.05%)
(3.72%)
(-0.83%) SULAWESI (25.21%)
JAKARTA SOUTH (3.90%)
(9.95%) CENTRAL JAVA SULAWESI
LAMPUNG (-6.76%) (-15.16%) EAST
(-7.85%) NUSA TENGGARA
BANTEN EAST BALI
JAVA (-10.80%) (9.26%)
(0.73%) WEST JAVA
DIY (-13.7%)
(1.03%) (-5.96%)
WEST
NUSA TENGGARA
(-11.57%)
Price Disparity ≥ 5% 0% ≥ Price Disparity < 5% Negative Price Disparity
Ministry of Trade, Ministry of Transportation, state-owned because the number of 900 VA electricity customers
enterprises and local governments. By 2017, 13 marine affected varied from region to region. High electricity
toll routes and 19 ‘Rumah Kita’ logistical centers were inflation occurred in areas with a large number of non-
operating to distribute food and other essential goods to subsidized 900 VA electricity subscribers, such as Java.
remote areas in Sumatra, Kalimantan, Sulawesi, Mapua In fact, electricity tariff inflation in Java accounted for
and Balinusra. The distribution process was also supported approximately half of the national electricity inflation rate
by land and air intermodal transport to reach remote of 22.5% in 2017, in line with the high proportion of
areas. In addition, there was increasing cooperation electricity consumed in Java compared to other regions
among local governments to supply food from areas of (Chart 5.30). In contrast, the contribution of electricity
surplus to areas of deficit, thereby also contributing to low inflation in Mapua regions with national electricity
food inflation. inflation was minimal, owing to the small number of
900 VA electricity subscribers in the region and the low
An interesting development seen in AP inflation is that the electrification ratio.
impact of the targeted electricity subsidy policy – subsidy
reforms – on inflation was different in each region,
Chart 5.30. Contribution of Electricity Tariff Inflation Chart 5.31. Air Transport Inflation by Region
Grafik 5.31. Sumbangan
and Portion Inflasi Tarif Listrik dan Porsi
of Non-Subsidized 900 VA Grafik 5.32. Inflasi Angkutan Udara
Pelanggan Listrik 900 VA Non Subsidi
Electricity Customers
Percent, yoy
14 60
40
34.6
12 50
30 26.7
10
40 19.2 20.2
20
8 12.7
30 8.1
10
6
2.9 3.0
0.3 1.1 1.3
20
4 0
2 10
-10
0 0 -14.6
-20
Contribution of electricity tariff inflation
Non-subsidized 900 VA electricity customer portion (rhs) 2016 2017


In addition to electricity tariff inflation, air transport
inflation was also one of the contributors to high AP
inflation in the regions. The increase in airfares was
influenced by seasonal factors, such as national religious
holidays, school holidays and New Year, with the highest
inflation seen in Java due to high demand during these
periods. In Balinusra, however, air transport inflationary
pressure in 2017 was lower than in 2016, because of
the decrease in the number of flights as a result of the
November 2017 eruption of Mount Agung (Chart 5.31).

Box 5.1. Grafik 2.
Chart 2 Boks 5.1. Ekspektasi
Inflation Inflasi
Expectation
Low Core Percent, yoy
Inflation Regime 8
C
ore inflation in Indonesia, which was at the 3
lower limit of the 4.0±1% target in 2016 and 2

2017, had entered a new regime in 2016. A 2014 2015 2016 2017
study by Susan and Merlin (2017)1 was conducted using Inflation Expectation 3-Months ahead Inflation Expectation 6-Months ahead
the Markov switching method2 and identified changes in Inflation Expectation 9-Months ahead Inflation Expectation 12-Months ahead
this core inflation regime. The Markov method was chosen Source: Consensus Forecast, calculated
because it can detect structural changes in univariate time

series data movements without requiring other explanatory Low core inflation is attributable mainly to well-anchored
variables. inflation expectations. Bank Indonesia’s consistency in
maintaining macroeconomic stability, including low and
Based on the Markov switching analysis, Indonesia’s core stable inflation, anchored inflation expectations to within
inflation has shifted to a new regime of low core inflation the inflation target range of 4.0±1% in 2016 and 2017,
(Chart 1). In this new regime, the average core inflation whereas in the prior five years expectations tended to
rate is 3.28% yoy, lower than the previous regimes seen be above the target range (Chart 2). Bank Indonesia’s
since the 1997/1998 crisis. communications to the public and to business also helped
Chart 1. Inflation Regime Analysis Results with Markov Switching

Percent, yoy
14
12
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Average Core Inflation Average Inflation per Regime (percent, yoy)

1 2 3 4
8.48 6.90 4.64 3.28

Source: BPS, calculated
1 Susan, N. and Merlin (2017), New Core Inflation Regime, Working Paper Bank
Indonesia, forthcoming.
2 The data used was core inflation data from 2000 to November 2017. The analysis
results, using the specification of Markov Switching – Auto Regressive Moving Average
(MS_ARMA) (4, 3, 1,1) variance with shared generalized autoregressive conditional
heteroscedasticity (GARCH), indicated that four inflation regimes exist. Adequacy tests in
the determination of this regime have been fulfilled (normality test, ARCH [autoregressive
conditional heteroscedasticity] test and Portmanteau test) at a significant level of α = 1%.

Grafik 3.
Chart 3 Boks 5.1. Volatilitas
Exchange Rate and Nilai
CoreTukar dan Inflasi In
Inflation Grafik 4.
Chart 6 Boks 5.1.ofPangsa
Share Impor Barang
Manufactured Manufaktur
Imports to Total
Volatility Imports and Domestic Consumption
Percent Percent, yoy Percent Percent
18 6 90 6
16 80
5
5
70
14
60 4
12 4
50
10 3
3 40
8
30 2
6 2
20
4 1
1 10
2
0 0
Before GFC GFC Period After GFC Before GFC GFC Period After GFC
0 0
Share of Manufactured Share of Manufactured Imports
2014 2014 2014 2014
Imports to Total Imports to Domestic Consumption (Rhs)
Rupiah Volatility Core Inflation (Rhs)
Source: Bank Indonesia, calculated Source: World Input Output, calculated
to anchor inflation expectations; these communications thereby maintaining core inflation at a low level
gave the public and the business community confidence in (Chart 5).4
future inflation rate estimates.
A third factor fueling low core inflation was the decline
The second factor driving low core inflation was the in the second-round effect of AP policy on core inflation.
decline in the impact of the exchange rate on inflation This decrease was partly due to higher fuel prices and the
(exchange rate pass through/ERPT). In 2016 and 2017, fact that price adjustments only affected certain groups
the low volatility of the rupiah contributed to the decline in of customers. The impact of AP policy on core inflation in
ERPT (Chart 3). In addition to the stable rupiah, the rising the post-crisis period was 0.05, lower than its impact in
proportion of manufactured goods imports in household the period before and during the global financial crisis of
consumption baskets, particularly since the 2008/2009 2008 and 2009.
global financial crisis (Chart 4), also contributed to the
fall in ERPT. It is known that imports of manufactured
goods tend not to be elastic in response to movements in
Grafik 5.
Chart 4 Boks 5.1. IHPB,
Wholesale Inflasi
Price Inti, Core
Index, dan Kenaikan
Inflation, Bia
the rupiah.3 The elasticity of manufactured goods imports
and Cost Pressures4
against the exchange rate is 0.63, lower than the elasticity Percent, yoy Percent, yoy
of raw materials imports against the exchange rate, which 16 20
stands at 1.19. 14 15
12
10
Another factor driving the decline in ERPT was the 10
5
behavior of producers, who refrained from passing on 8
0
increased production costs to consumers. The results of 6
an analysis of core inflation in 2015 and 2016 period 4

-5
show that the increase in import costs, as reflected in the 2 -10
wholesale price index, was not passed on to consumers, 0

-15
2014 2015 2016 2017
Wholesale Price Index Core Inflation Cost Pressures (Rhs)
Source: BPS-Statistics Indonesia and Bank Indonesia, calculated
3 Manufactured goods commodities are those coded SITC 5, 6, 7 and 8. Meanwhile,

commodities classified as raw materials are those coded SITC 0, 1, 2, 3 and 4. The 4 Cost pressures refer to the sum of the rupiah's appreciation/depreciation and changes
observation period was 2005 to 2017. in Indonesia's non-oil and gas import price index.

CHAPTER 6
Fiscal Policy
Fiscal policy in 2017 was aimed at speeding up the
economic recovery and achieving sustainable and equitable
economic growth. This strategy was pursued by balancing
stimulus needs over the short and long term and, at the same
time, maintaining fiscal sustainability.

Fiscal policy in 2017 aimed to speed up economic 6.1. Fiscal Dynamics
recovery in order to achieve sustainable and equitable
economic growth. The 2017 State Budget (APBN) Both global and domestic economic developments affected
balanced stimulus needs over the short and long policy formulation and the fiscal realization of the central
term, while also maintaining fiscal resilience. On the government in 2017. The APBN was set in November
income side, the Government continued to widen the 2016 and assumed higher economic growth in 2017 of
taxpayer database and increase tax compliance, 5.3%, up from 5.0% realized growth in 2016. In turn,
which contributed to higher tax revenues in 2017 the assumption of higher economic growth influenced the
versus 2016. The increase in 2017 income was also inflation assumption; inflation was expected to increase to
supported by rising commodity prices, including for oil 4.7%. However, economic dynamics prompted changes to
and gas. However, the tax-to-GDP ratio fell, highlighting these macroeconomic assumptions, and the Government’s
the ongoing challenges Indonesia faces in generating financial achievements up to mid-2017 were not as
income, particularly tax revenues. On the expenditure expected (Table 6.1). Consequently, it issued the 2017
side, the Government made efforts to improve the Revised State Budget.
quality of spending and to balance short- and long-
term stimuli. In this context, spending on non-priority The fiscal policy strategy of accelerating economic growth
goods was reduced and on energy subsidies flattened, is seen in the original 2017 State Budget. Domestic income
while spending on social assistance and infrastructure was targeted at IDR1,750.3 trillion, up 12.5% on the
increased. The Government was able to keep the 2017 realized 2016 figure. State spending was set at IDR2,080.5
fiscal deficit at a healthy level of 2.5% of GDP and the trillion, up 11% versus the actual 2016 figure (Table 6.2).
government debt ratio at a safe 29.2%. These estimates gave rise to a 2017 budget deficit of
approximately 2.5% of GDP, in line with the 2016 figure.
The direction of regional fiscal policy in 2017 was The 2017 State Budget was to be funded in part through
consistent with central policy; the goal was to accelerate a net issuance of state securities (SBN) at IDR400 trillion,
economic recovery. Policy strategy was pursued by slightly lower than the IDR407.3 trillion realized in 2016.
reducing the dependence of regional funding on central
sources of funding and by channeling expenditure toward By the middle of 2017, however, economic realities meant
productive sectors such as infrastructure development. The that the 2017 budget assumptions were no longer valid,
Government boosted the role of the regions in stimulating undermining fiscal policy for the year. Actual tax revenues in
the economy by increasing funding transfers to the the first quarter of 2017 were low, only reaching 15.8% of
regions and village funds (TKDD); this funding was used the full year budget target. This was weaker than in the first
optimally, including that portion spent on infrastructure quarter of previous years, except the first quarter of 2016,
development. which was affected by a tax amnesty program (Chart 6.1).1
Table 6.1. State Budget (APBN) Macroeconomic Variable Assumptions and Realization
2016 2017
Macroeconomic Assumption
State Budget Revised Budget Realization State Budget Revised Budget Realization
Economic growth (percent, yoy) 5.3 5.2 5.0 5.3 5.2 5.1
Inflation (percent, yoy) 4.7 4.0 3.0 4.7 4.3 3.6
Exchange rate (Rp to USD) 13,900 13,500 13,307 13,900 13,400 13,385
Average of 3-month Government Treasury Bill interest rate
5.5 5.5 5.7 5.5 5.2 5.7
(percent annual)
Indonesia Crude Oil Prices-ICP (USD/barrel) 50 40 40 50 48 50.3
Indonesia oil lifting (thousand barrels per day) 830 820 829 815 815 804
Indonesia gas lifting (thousand barrels oil equivalence per
1,155 1,150 1,184 1,150 1,150 1,140
day)
Source: Ministry of Finance
1 A tax amnesty program began in July 2016. As a result, tax revenues in the State Budget
up to the first quarter of 2016 were quite low, even lower compared to tax revenues than
collected in the first quarter of previous years.

Chart
Grafik 6.1.6.1. First Quarter and First Half Tax Revenue was to be financed through additional net issuances of
2013‑2017 SBN of IDR467.3 trillion.
Percent to State Budget
45 As 2017 unfolded, the fiscal management strategy
40
resulted in better budget performance. Revenues and
35
expenditure grew and the fiscal deficit remained below
30
3% of GDP. Revenues in 2017 grew by 7.0%, up from
25
20
3.2% growth in 2016, mainly lifted by contributions
15 from oil, gas and natural resources, but non-oil and gas
10 revenues – especially income tax – were below target.
5 Spending in 2017 grew by 7.4%, up from 3.2% growth in
0
2016, while the absorption rate of spending set out in the
2013 2014 2015 2016 2017
2017 Revised State Budget increased to 93.9% in 2017
First Quarter First Half from 89.5% in 2016. An acceleration in both government
consumption spending and government investment began
Source: Ministry of Finance, calculated
in the third quarter of 2017 following the revisions,
which were approved in July 2017. Higher government
It was a concern because it threatened fiscal sustainability consumption spending was supported by social assistance
and could have reduced stimulus funding. payments, which rose 11.5% in 2017 versus 2016, while
infrastructure spending rose 44.3%. Overall, the 2017
The disappointing economic developments and tax fiscal deficit was maintained at a safe 2.5% of GDP, with
realization of the first quarter of 2017 prompted the a government debt ratio at a healthy 29.2% of GDP.
Government to lower the full year economic growth
forecast to 5.2% from 5.3%. The inflation assumption
was lowered to 4.3% from 4.7%; this was influenced by 6.2. State Revenue
a revised exchange rate assumption of IDR13,400/USD.
The global oil price assumption was lowered to USD48 State income rose in 2017, driven by increased growth
per barrel, while the oil and gas liftings assumption was of both tax and non-tax revenues. Domestic income was
left unchanged. recorded at IDR1,655.5 trillion, up 7.0% from 2016
– and higher than the 3.2% growth recorded in 2016
These changes in assumptions prompted the Government – lifted by increases in the prices of oil, gas and other
to issue a revised budget. Changes in world oil price commodities. A strong domestic economic recovery in
assumptions resulted in lowered assumptions for oil and the second half of 2017 also supported tax revenues,
gas tax or non-tax revenues. The Government also made especially VAT. Revenues were also boosted by the tax
downward adjustments to the forecasts for components amnesty program, which widened the tax database
of non-oil and gas tax revenues, among others non-oil and the tax compliance of taxpayers, both bodies and
and gas income tax, value-added tax (VAT) and land individuals.
and buildings tax. These adjustments caused the tax
revenues target in the 2017 Revised State Budget to fall The increase in tax revenues in 2017 was mainly sourced
by IDR26.1 trillion to IDR1,472.7 trillion. The Government from increases in oil and gas income tax, VAT, excise
also adjusted its spending plans by making cuts in tax and international trade tax (Chart 6.2). Strong
purchasing for ministries and agencies and increasing growth in oil and gas income tax in 2017 was driven
the allocation for national priority programs. The social by rising international prices, while the increase in VAT
assistance budget was increased, payments under the was underpinned by the better performance of domestic
Family Hope Program speeded up and capital expenditure industry and imports. The fairly high excise tax revenues of
rose as government-funded infrastructure projects were IDR153.3 trillion came mainly from cigarettes. Meanwhile,
accelerated. In total, the spending forecast rose by an increase in international trade tax was underpinned
IDR52.8 trillion to IDR2,133.3 trillion, but the concomitant by higher revenues from import and export duties,
decline in the revenues forecast caused the fiscal deficit including a positive contribution from the enforcement of
to increase to 2.9% of GDP (Table 6.2). The larger deficit

Table 6.2. State Revenues and Expenditure 2016-2017
Revised State Revised

Budget Realization 2016 Budget Budget Realization 2017
2016 2017 2017
Items
Growth Growth
Rp Rp % Revised Rp Rp Rp % Revised
% GDP (percent, % GDP (percent,
Trillion Trillion Budget Trillion Trillion Trillion Budget
yoy) yoy)
A. Domestic Revenue 1,786.2 1,556.2 12.5 3.2 87.1 1,750.3 1,736.1 1,665.2 12.3 7.0 95.9
I. Domestic Revenue 1,784.2 1,547.3 12.5 3.4 86.7 1,748.9 1,733.0 1,655.5 12.2 7.0 95.5
1. Tax Revenue 1,539.2 1,285.3 10.4 3.6 83.5 1,498.9 1,472.7 1,343.6 9.9 4.5 91.2
2. Non-tax Revenue 245.1 262.0 2.1 2.5 106.9 250.0 260.2 311.9 2.3 19.0 119.9
II. Grants 2.0 9.0 0.1 -24.9 449.4 1.4 3.1 9.7 0.1 7.8 308.7
B. Total Expenditure 2,082.9 1,864.3 15.0 3.2 89.5 2,080.5 2,133.3 2,002.8 14.8 7.4 93.9
I. Central Government
1,306.7 1,154.1 9.3 -2.5 88.3 1,315.5 1,367.0 1,260.8 9.3 9.2 92.2
Expenditure
1. Employee
342.4 305.1 2.5 8.5 89.1 343.3 340.4 312.7 2.3 2.5 91.9
Expenditure
2. Goods Expenditure 304.2 259.6 2.1 11.3 85.4 296.6 318.8 290.6 2.1 11.9 91.1
3. Capital Expenditure 206.6 169.5 1.4 -21.3 82.0 194.3 206.2 205.2 1.5 21.1 99.5
4. Debt Interest
191.2 182.8 1.5 17.1 95.6 221.2 219.2 216.6 1.6 18.5 98.8
Payments
5. Subsidies 177.8 174.2 1.4 -6.3 98.0 160.1 168.9 166.4 1.2 -4.5 98.5
6. Grant Expenditure 8.5 7.1 0.1 67.3 83.9 2.2 5.5 5.4 0.0 -23.6 99.0
7. Social Assistance 53.4 49.6 0.4 -48.9 92.9 57.0 58.1 55.3 0.4 11.5 95.2
8. Other Expenditures 22.5 6.0 0.0 -40.1 26.8 41.0 49.9 8.7 0.1 44.2 17.4
II. Transfer to Regions and
776.3 710.3 5.7 14.0 91.5 764.9 766.3 742.0 5.5 4.5 96.8
Village Fund
1. Transfer to Regions 729.3 663.6 5.3 10.2 91.0 704.9 706.3 682.2 5.0 2.8 96.6
2. Village Fund 47.0 46.7 0.4 124.8 99.3 60.0 60.0 59.8 0.4 28.0 99.6
C. Primary Balance -105.5 -125.3 -1.0 -12.1 118.7 -109.0 -178.0 -121.1 -0.9 -3.4 68.0
D. Surplus/Deficit -296.7 -308.0 -2.5 3.2 103.8 -330.2 -397.2 -337.6 -2.5 9.6 85.0
E. Financing 296.7 334.5 2.7 3.5 112.7 330.2 397.2 362.2 2.7 8.3 91.2
Chart
Grafik 6.2 6.2. Growth of Tax Revenue Components regulations on import duties on passengers’ luggage.2
The high revenues from tax on international trade in 2017
Percent, yoy also stemmed from the positive impact of a regulation
50
concerning export goods that are subject to export duties.3
40
30
20
The increase in revenues from oil and gas income tax,
10 VAT, excise tax and international trade tax minimized
0 the impact of the weaker performance of other tax
- 10
components, including the land and property tax and non-
- 20
- 30
oil and gas income tax. The lower growth in revenues from
- 40
- 50
Oil and Gas Non-oil Value Land and Duty International
Income Tax and Gas Added Tax Building Tax Trade Tax
2 PMK No. 188/PMK.04/2010 concerning Imported Goods Carried by Passengers,
Income Tax
Transport Facility Crews, Border Crossers, and Posted Goods.
2013 2014 2015 2016 2017
3 PMK No. 13/PMK.010/2017 concerning the Determination of Export Goods which are
subject to Export Duties and Export Duty Tariffs.

the property tax reflects the impact of a tariff reduction Chart
Grafik 6.36.3. Non-Oil and Gas Income Tax Growth
policy to ease the issuance of real estate investment funds

and changes in the regulations governing the use of forest Rp trillion Perscent, yoy
lands.4,5 The decline in the performance of non-oil and 700 25
gas income tax in 2017 owed more to the base effect of 600 20
Indonesia’s tax amnesty program, which began in July 500 15
2016 and brought in IDR135 trillion in total (Table 6.3). In 400 10

2016, the high non-oil and gas income tax receipts were
300 5
supported by relatively high income of IDR114 trillion
200
0
from phases I and II of the tax amnesty program. Phase
100 -5
III took place over the first quarter of 2017 and brought
in IDR21 trillion. If receipts from the tax amnesty program 0 -10
2013 2014 2015 2016 2017

are stripped from non-oil and gas income tax receipts for
Non-oil and Gas Income Tax Non-Oil and Gas Income Tax exclude Tax Amnesty Program
2016 and 2017, non-oil and gas income tax receipts Non-oil and Gas Income Tax Growth (rhs)
grew faster in 2017 than 2016 (Chart 6.3). Non-oil and Gas Income Tax Growth exclude Tax Amnesty (rhs)
In 2017, there was an encouraging increase in the

number of registered taxpayers who report their annual The positive performance of national revenues was also
tax returns, reflecting success in the tax amnesty program. supported by high national non-tax revenues (PNBP),
Besides widening the tax database, the tax amnesty which were driven by rising oil and commodity prices
program also helped to increase the taxpayer compliance (Chart 6.4). PNBP reached IDR311.9 trillion, well above
rate. The compliance rate for tax return submissions rose the IDR260.2 trillion revised target. PNBP grew by 19%
to 71% in 2017 from 62.3%. Despite this, however, the in 2017, again far higher than the 2.5% growth of
increase in the non-taxable income limit to IDR54 million 2016. This development mainly reflects brisk growth in
per year (effective as of July 2016) from IDR36 million revenues from natural resources, which reached 72.3%,
per year cut the number of taxpayers who are required driven by higher oil and commodity prices in the second
to submit annual tax returns to 16.6 million in 2017 from half of 2017. The uptrend in commodity prices also
20.2 million in 2016 (Table 6.4). contributed toward the improving performance and
Table 6.3. Tax Amnesty Program Developments
Rp billion
Period I Period II Period III

Period I,
No. Items July August Sept Oct Nov Dec Jan Feb March
Cumulative Cumulative Cumulative II, and III
2016 2016 2016 2016 2016 2016 2017 2017 2017
Amnesty
Ransom and
1. 130.2 4,816.2 88,790.8 93,737.2 734.5 1,015.5 7,734.3 9,484.3 449.8 1,110.4 9,432.9 10,993.1 114,214.5
Tax Arrears
Deposit
Termination of
2. Initial Evidence 0.5 65.7 287.9 354.1 44.9 84.1 256.2 385.2 32.6 11.7 964.8 1,009.1 1,748.5
Investigation
Termination of
3. Initial Evidence 986.8 1,137.1 941.0 3,064.8 0.0 0.0 6,911.1 6,911.1 508.3 813.9 7,659.0 8,981.2 18,957.1
Investigation
4. Total Wealth 1,117.5 6,019.0 90,019.6 97,156.1 779.4 1,099.6 14,901.7 16,780.7 990.7 1,936.0 18,056.7 20,983.4 134,920.1
4 Economic Policy Package XI comprises facilities for income tax and duties on the
acquisition of land and building rights in the form of a cut in tariffs to 1% from 5% for
companies issuing real estate investment funds.
5 PP No. 105 of 2015 dated 22 December 2015 concerning the Use of Forest Lands for
the Consideration of Development Outside of Forestry Activities.

Table 6.4. Number of Taxpayers and Grafik 6.5.
Chart 6.5. Tax Revenues and Tax Ratio
Compliance Level
Million Rp trillion Percent, GDP
1,400 16
Items 2011 2012 2013 2014 2015 2016 2017
1,200 14
Registered
22.3 24.8 28.0 30.6 33.3 32.8 36.0 12
Taxpayer 1,000
Registered 10
800
Taxpayer 17.7 17.7 17.7 18.4 18.2 20.2 16.6 8
Compulsory SPT 600
6
Annual SPT
8.2 9.2 10.0 10.9 11.0 12.6 11.8 400
Income Tax 4
200 2
Compliance
46.2 52.3 56.2 59.1 60.4 62.3 71.0
Ratio (%) 0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Tax Revenue Tax Ratio (rhs)

higher profits of state-owned enterprises in 2017. There
was also an increase in non-tax revenues from public
service agencies, due to improved efficiency. However, 6.3. State Expenditure
the performance of other non-tax revenues declined from
2016. This was due to the base effect of receipts from Various fiscal spending strategies have been pursued to
Bank Indonesia’s remaining surplus in 2016 and lower accelerate economic recovery. The quality of spending
income from bond premiums in 2017, as yields from was improved, while the balance between short-term
the issuances of benchmark SBN series tended to move and long-term fiscal stimulus was maintained. Both
around the market yield in 2017. central government spending and transfers to TKDD have
been improved, with energy subsidies better targeted
Amid higher state revenues in 2017, the challenge and efficiencies made in spending on goods, thereby
to increase tax revenues remained at the fore, given providing space for increased spending on social
the decline in the tax-to-GDP ratio to 9.9% in 2017 protection, education, health and infrastructure.
from 10.4% in 2016 (Chart 6.5). This issue warrants
greater attention, because it threatens Indonesia’s fiscal As a consequence, government spending in 2017
sustainability. reached IDR2,002.8 trillion, up 7.4% compared to 2016
(Chart 6.6). This increase was also accompanied by better
absorption of spending in 2017 compared to 2016,
Grafik 6.4.
Chart 6.4. Growth of Non-Tax State Revenue Grafik 6.6.
Chart 6.6. Lorem Ipsum
Growth of State Expenditure
Components
Percent, yoy Rp trillion Percent, yoy
80 2,500 35
60 30
40 2,000 25
20 20
1,500
0 15
-20 10
1,000
-40 5
-60 500 0
-80 -5
Non-tax Revenue Part of Profit from Other Non-tax Public Service
for Natural State Owned Revenue Agency Income 0 -10
Resources Enterprises 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2013 2014 2015 2016 2017 State Expenditure State Expenditure Growth (rhs)
Source: Ministry of Finance, calculated Source: Ministry of Finance, calculated

meaning that the realization of state spending in relation 2016 of 7.4% (Chart 6.8). Spending was channeled
to the 2017 Revised State Budget target was also higher. through the Social Rehabilitation Program, Social Security
This condition was reflected in higher central government and Protection Program, and the Social Empowerment
spending, which grew by 9.2%, and higher transfers to Program. To improve the quality of social protection
TKDD, which grew 4.5% in 2017 (Chart 6.7). programs, the Government improved the quality of data
held on beneficiaries of conditional cash transfers under
To achieve better results from short-term spending stimuli, the Family Hope Program and recipients of food subsidies
the government changed the way energy subsidies are under the Rastra rice program. Furthermore, to improve
allocated. This was necessary because the total amount of the effectiveness of social protection, the Government
energy subsidies had risen. In the case of fuel, subsidies achieved synergy between social protection programs
increased temporarily following the suspension of plans by diverting some of the money set aside for Rastra
to limit the distribution of subsidized 3kg gas cylinders. rice subsidies into electronic money in 44 large cities in
In the case of electricity subsidies, higher subsidies Indonesia.
were reallocated to the lower-income 450 volt-ampere
(VA) households. Meanwhile, the distribution of 900 The short-term stimulus – which was directed towards
VA electricity subsidies was improved by removing the supporting the sustainability of long-term growth – was
better-off households from the list of beneficiaries, so that pursued by the Government through its education and
subsidies were only given to low income families. health budgets. To support improvements in the quality
of education, the mandatory education budget level was
To maximize short-term stimulus, the government also maintained at 20% of state expenditure for both central
found cost efficiencies in spending on goods. Cuts and regional spending. In fact, the education budget in
were made to operational and non-priority expenditure, 2017 came in at 20.9% of state spending and increased
including official travel and meeting packages, and in value by 13% (Chart 6.9). In part at least, this increase
this gave the government room to increase spending owed to additional payments to raise the professional
on national priorities, including accelerating the land allowance of teachers at the Ministry of Religious
certification program, the 2018 Asian Games, the 2018 Affairs in order to improve the quality of teachers. The
regional elections, and the 2019 presidential election. Government also maintained a health budget at 5% of
state spending. For central government spending, some
Strategies to maximize short-term stimulus were also of the budget was given to the Ministry of Health for
realized by increasing the budget allocation, quality implementation of the national health insurance program
and effectiveness of social protection programs. The through the Healthy Indonesia Card. For transfers to
allocation for spending on social protection increased the regions, the health budget was channeled through
to 7.9% of the 2017 budget versus an actual spend in special allocation funds (DAK), used to finance health-
Chart
Grafik6.7. Absorption
6.7. Lorem Ipsumof State Expenditure Chart 6.8. Social Security Expenditure
Rp trillion Percent, yoy Rp trillion Percent

2,500 40 180 8.0
160 7.8
30
2,000 140 7.6
7.4
20 120
1,500 7.2
100
10 7.0
80
1,000 6.8
0 60
6.6
500 40 6.4
-10
20 6.2
0 -20 0 6.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017*
TKDD Central Government Expenditure
Central Government Expenditure Growth (rhs) Social Security Expenditure Realization Percent to Expenditure (rhs)
TKDD Growth (rhs)
Source: Ministry of Finance, calculated Note: *Revised Budget 2017

Chart 6.9. Realization of Education Budget Chart 6.11. Ratio of Subsidies, Infrastructure Budget,
Grafik 6.11. and Social Security Budget to State
Expenditure
Rp trillion Percent Percent to State Expenditure
450 22.0 25
400
21.5
350 20
21.0
300
15
250 20.5
200 20.0
10
150
19.5
100
5
19.0
50
0 18.5 0
2013 2014 2015 2016 2017* 2013 2014 2015 2016 2017*
Education Budget Realization Percent to Expenditure (rhs) Share of Energy Subsidies Share of Infrastructure
Share of Social Security
Source: Ministry of Finance, calculated Source: Ministry of Finance, calculated
Note: *Revised Budget 2017 Note: *Revised Budget 2017 (Social Security and Infrastructure)
related projects and priorities that are to be implemented by increasing physical DAK and setting a minimum
by regional governments. Health and family planning, of 25% of the allocation of profit-sharing funds (DBH)
operational funding for health services and family and general allocation funds (DAU) to be spent on
planning operational assistance were funded in this way infrastructure. Considering the high cost of infrastructure
(Chart 6.10). development and the limited budgetary capacity, priority
infrastructure was also funded via investment financing
The stimulus to support sustainable long-term economic support. These factors together increased the infrastructure
growth was achieved through a productive capital budget to 19.4% of state spending in 2017 from 14.4%
expenditure policy and by increasing local involvement in 2016 (Chart 6.11).
in infrastructure development. For central government
spending, actual capital expenditure rose by 21.1%, as The role of the regions in supporting fiscal stimulus was
the continuing fiscal reforms shifted spending from energy also encouraging, though further improvement is needed.
subsidies to infrastructure. Actual transfers to TKDD in 2017 came to IDR742 trillion,
although growth slowed to 4.5% versus 14% in 2016. The
Indonesia’s regional governments also facilitated slowing TKDD growth owed, at least in part, to a delay in
infrastructure development. The strategy was implemented the transfer of DBH funds and slower growth in physical
DAK for spending on facilities and physical infrastructure.
This latter point is related to a new regulation requiring
Chart
Grafik6.10. Realization
6.10. Lorem Ipsumof Health Budget
local governments to submit a proposal first. Meanwhile,
2017 non-physical DAK – used for operational purposes
Rp trillion Percent
120 6 – grew by a brisk 19% and village funds by 28%, in line
with the increase in the social protection budget, which is
100 5
partly channeled through the regions, and the intention to
80 4 empower and strengthen the villages.
60 3
40 2
6.4. Deficit Financing
20 1
The increase in state revenues and controlled spending

0 0
2013 2014 2015 2016 2017* helped to maintain the 2017 fiscal deficit at a healthy
Realization of Health Budget Percent to Expenditure (rhs) level. The actual 2017 deficit was IDR337.6 trillion or
2.5% of GDP, below the 2.9% deficit targeted in the
Note: *Revised Budget 2017

revised budget and at a safe and healthy level to maintain Chart 6.13. Composition of Government Debt to GDP
Grafik 6.13.
fiscal sustainability. The healthy fiscal conditions were also

supported by a decline in the primary balance deficit to Percent GDP
0.9% of GDP, down from 1.0% of GDP in 2016 (Chart 40
6.12). 35
30
The gap in the budget that appeared following the 25
July revisions was plugged by foreign loans and the 20
issuance of SBN. In 2017, the gross issuance of these 15
state securities in rupiah and other currencies reached 10
IDR708.9 trillion, while net issuances reached IDR463.8 5
trillion. Meanwhile, the drawdown of gross foreign loans 0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
in 2017 was IDR52.8 trillion, or slightly lower than the
IDR54.3 trillion seen in 2016. SBN External Debt Total Debt

The issuance of SBN was split by denomination, timing
and tenor, and was made in both in rupiah and foreign
currency denominations, namely the US dollar, euro in a safe corridor at 29.2% of GDP, little changed from
and yen. This strategy was undertaken in the framework 2016’s level of 27.8% of GDP. Government debt sourced
of safeguarding the stability of the money market and from SBN reached 23.1% of GDP, while the remainder
domestic liquidity. Concerning timing, the issuance of came from foreign loans (Chart 6.13). This ratio remains
foreign currency SBN began at the beginning of 2017 lower than that of other countries in the region, including
with USD3 billion, equivalent to IDR40 trillion. This was Malaysia, Thailand and the Philippines (Chart 6.14).
done to raise the potential for spending at the beginning
of the year and minimize instability in the domestic market. By currency type, the Government’s debt position was
SBN were issued in tenors of three years, five years, up to dominated by the rupiah; rupiah-denominated debt
15 years, with this variation in tenors chosen to deepen increased to take a 59% share of the total in 2017, up
the market and divide the risk on maturing SBN. from 57% in 2016 (Chart 6.15). The debt position in
foreign currencies was dominated by US dollars at more
Overall, the financing through SBN and foreign loans kept than 70%, while the proportion of SBN denominated in
government debt at a healthy level. The Government’s foreign currencies has risen since 2015 (Chart 6.16).
debt ratio in 2017 was also maintained at a low level and
Chart 6.12. Fiscal Deficit and Primary Balance

Grafik 6.12. Chart
Grafik6.14. Government
6.14. Debt Ratios of
Selected Countries
Percent GDP Percent GDP
3 80
2 70
60
1
50
0
40
-1
30
-2 20
-3 10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Indonesia India Malaysia The Philippines

Fiscal Deficit Primary Balance
Thailand Vietnam
Source: Ministry of Finance, calculated Source: IMF, calculated

Chart 6.15. Position of Government Debt Based on
Grafik 6.15. budget have risen such that for the last two years the
Currency budget allocated to regional transfers is higher than that
Percent, share allocated to central government agencies and ministries
100 (Chart 6.17). By region, the largest increases in transfer
90
funds were made to Sumatra, Java and Balinusra, with a
80
70
particular focus on North Sumatra, East Java and West
60 Nusa Tenggara. Meanwhile, transfer funds to Kalimantan
50 declined due to a fall in the profit-sharing DBH revenues.
40
30
Alongside the increase in the transfer of funds to the
20
10
regions, the consolidated Regional Revenues and
0 Expenditure Budget (APBD) in 2017 showed increases in
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
both budgeted revenues and expenditure. The revenues
Rupiah US Dollar Japanese Yen
Euro Monetary Gold Others budget rose 1.7% to IDR1,051.3 trillion compared to
the previous year and, in line with this increase, the
expenditure budget increased by 0.4% to IDR1,098.7
trillion (Table 6.5). As the budgeted increase in revenues
6.5. Regional Fiscal Policy was greater than the budgeted increase in spending,
the APBD deficit in some areas shrank. The consolidated
The direction of regional fiscal policy was generally financing deficit in 2017 was recorded at IDR47.3 trillion,
consistent with the fiscal policy of the central government, lower than the IDR60.8 trillion deficit in 2016. As in
i.e. to accelerate economic recovery, particularly in the 2016, the source of the deficit financing in 2017 was still
regions. This policy was pursued through strategies to the remaining budget balance (SiLPA) from the previous
maximize various sources of revenues, both those coming budget year, which reached IDR55.5 trillion (Table 6.6).6
from the central government and those arising in the form
of locally-generated revenues. Further, the strategy for By region, the increase in the 2017 APBD was uneven
expenditure was achieved by overseeing the distribution across the regions. Increases in the 2017 APBD revenues
of TKDD. budget occurred in most regions in Java, Sumatra
and Balinusra. The largest increases were mainly in
Each region’s fiscal role continues to be strengthened,
as the funds transferred to the region have increased
significantly since implementation of regional autonomy Chart 6.17. Comparison of Ministry/Institute
Grafik 6.17 Judul
Budget Expenditure Allocations and
in 2001. Transfers to the regions under the state
Transfer Funds
Rp trillion
800
Chart 6.16. Position of SBN Based on Currency

Grafik 6.16. 700
600
Percent, share 500
100 400
90
300
80
200
70
60 100
50 0
2001* 2004** 2016 2017
40
30
Ministry/Institute Expenditure Transfer Funds
20
10 Source: Ministry of Finance, calculated

Note: *Implementation of UU 25/1999 **Implementation of UU 33/2004
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
6 SiLPA (with a small letter i) is the remaining budget balance, i.e. the difference in the
SBN in Rupiah SBN in Foreign Currency
actual income and expenditure in one budgetary period. Meanwhile, SILPA (with a
capital letter I) is the remaining financing in the budgetary year in question, i.e. the
difference between the surplus or deficit and net financing.

Table 6.5. Consolidated State Budget 2016-2017
Rp trillion
Items 2016* 2017**
1. Revenue 1,034.0 1,051.3
1.1. Local Revenue 229.4 243.0
1.1.1. Local Tax 160.2 168.8
1.1.2. Local Retribution 11.8 11.7
1.1.3. Results of Segregated Local Wealth Management 7.6 7.7
1.1.4. Other Legitimate Local Revenue 49.9 54.8
1.2. Transfer 736.7 736.5
1.2.1. Balanced Funds 628.2 664.5
1.2.1.1. Sharing Funds 100.4 85.0
1.2.1.2. General Allocation Fund 384.8 409.2

1.2.1.3. Special Allocation Funds 143.0 170.3
1.2.2. Special Autonomy 108.5 71.9
1.3. Other Legitimate Local Revenue 67.9 71.9
1.3.1. Inter Local Governmental Transfer 47.5 46.5
1.3.2. Emergency Funds 0.2 0.0
1.3.3. Grants 4.5 4.6
1.3.4. Other Revenue 15.7 20.7
2. Expenditure 1,094.7 1,098.7
2.1. Employee Expenditure 402.9 405.0
2.2. Goods and Services Expenditure 223.9 233.9
2.3. Capital Expenditure 250.9 221.7
2.4. Social Assistance Expenditure and Grants 67.4 72.3
2.4.1. Social Assistance Expenditure 7.3 7.2
2.4.2. Grants Expenditure 60.1 65.1
2.5. Transfer Expenditure 144.6 158.5
2.6. Other Expenditure 5.0 7.2
2.6.1. Interest Expenditure 0.3 0.5
2.6.2. Subsidies Expenditure 2.4 3.8
2.6.3. Unexpected Expenditure 2.3 2.9
2.6.4. Other Expenditure
Surplus/Deficit -60.8 -47.3

Note:
*Aggregate figures of Local Budget of District/City and Province provided on Ministry of Finance as of May 2016
**Aggregate figures of Local Budget of District/City and Province provided on Ministry of Finance as of May 2017
Yogyakarta, West Nusa Tenggara, West Sumatra By source of revenue, balancing funds – meaning DAK
and Bali, as major tourist destinations. Meanwhile, for special allocations, DAU for general allocations and
revenues declined in a number of regions in Kalimantan the profit-sharing DBH fund – still account for the largest
and Sulawesi – mainly regions reliant on mining and proportion of budget revenues. The share of balancing
agriculture, such as East Kalimantan, South Kalimantan funds in the 2017 budget revenues reached 63.2%, up
and West Sulawesi (Chart 6.18). from 60.8% in 2016. The proportion of balancing funds

Table 6.6. Surplus, Deficit, and Regional Budget Surplus (SiLPA)
Rp trillion
2016 2017
Region
Deficit Realization SiLPA Local Budget Deficit SiLPA
Sumatra -13.7 16.2 -9.7 11.9
Java -26.7 36.6 -21.3 27.3
Kalimantan -10.3 11.8 -6.2 5.8
Balinusra -2.6 3.2 -3.7 3.8
Sulawesi -3.7 3.6 -3.3 3.3
Mapua -3.8 4.0 -3.0 3.5

in the budget revenues is lowest in Java and in North relation to the mechanism to disburse DAK, disbursement
Sumatra, Riau and the Riau Islands. In comparison, is based on fund absorption performance based on a
in most other regions of Sumatra, Sulawesi, Mapua, quarterly review and the region’s output. DAK rose in the
Balinusra (excluding Bali) and Kalimantan (excluding East 2017 APBD regional budget in most regions, with the
Kalimantan and South Kalimantan) the share of balancing highest increases seen in East Java, North Sumatra and
funds as a proportion of total income exceeds 75%. South Sumatra at over 50%.
Breaking down the balancing funds by component, DAK The second balancing funds component, DAU or the
in the 2017 APBD regional budget increased in line with general allocation budget, was also increased as part of
government policy to raise spending on infrastructure in the drive to strengthen local government. Nonetheless,
the regions and improve public services. DAK rose by this increase in DAU in the 2017 APBD regional budget
19.1% underpinned by a reformulation of the policy on its was limited – up 6.3% from 2016 – due to the impact
disbursement. When allocating physical DAK – funds to be of applying the allocation adjustment policy. In 2017,
spent on infrastructure – the central government also took a more flexible DAU policy ceiling was implemented.
into account the proposals of the regional governments. This affected the amount of DAU in each region, with the
Besides physical and non-physical DAK, the central actual distributed DAU adjusted for the ups and downs
government also allocates funding – known as physical of net domestic revenues. The limited increase in DAU
affirmation DAK – for the development of underdeveloped was also affected by the policy, implemented in 2017, of
regions, borders, islands and areas of transmigration. In limiting expenditure on regional civil servant salaries, one
component of the DAU calculation.
The use of profit-sharing funds (DBH) as a balancing fund

Grafik6.18. Revenue
Chart 6.18 Judul Budgets by Region was also expanded to meet regional needs and priorities
and bolster regional economic activity, in accordance
Rp trillion
450
with Law No.18 of 2016 concerning the 2017 APBN. In
400 essence, 50% of the DBH received by a local government
350 from excise tax on tobacco products can be used for other
300 priorities, as decided by the local government. In the case
250 of additional oil and gas natural resources, the rule allows
200
for 0.50%.
150
100
Unlike DAK and DAU, which rose during this period of
50
0
expansionary policy, the role of DBH fell in the 2017
Sumatra Java Kalimantan Balinusra Sulawesi Mapua regional budget, due to the decline in natural resource
2015 2016 2017 revenues from oil and gas and non-oil and gas mining.
The share of DBH in the regional budget fell 15.3%
Source: Ministry of Finance, calculated compared to 2016, as a result of lower oil and gas liftings

and the still relatively weak performance of mineral and Chart 6.19. Composition
Grafik 6.19. Lorem Ipsum of Revenue in State Budget
coal mining. The largest drop in DBH occurred in the by Region 2017
main areas of oil and gas production – Aceh, Riau and Percent
East Kalimantan – and in the main minerals- and coal- 100
producing areas, including Bangka Belitung, Central

80
Kalimantan, South Kalimantan, Southeast Sulawesi, West
Sulawesi and Papua. The decline in DBH was also related 60
to the adjustment policy for sharing regular DBH, which

made reference to the dynamics of tax revenues and non- 40
tax revenues.
20
Overall, the increase in regional transfer funds increased 0

the fiscal capacity of the regions to develop their economic
growth. This increase can be measured by the reading of Local Revenue Balanced Funds Other Legitimate Local Revenue
the fiscal capacity index, which was higher than it was in

2015 (Table 6.7). Several regions experienced a positive
shift in fiscal capacity, such as Java from high to very high,
and Balinusra from low to medium. Jakarta, East Java, Yogyakarta and Banten, and was supported by brisk
and West Nusa Tenggara in particular showed significant activity in trade, tourism and commercial flights. The
improvements but, in contrast, Sumatra and Kalimantan increase in Sumatra was also quite high, especially in
experienced a decline in fiscal capacity due to the fall in Bengkulu, the Riau Islands, Lampung and Bangka Belitung.
DBH revenues. In Eastern Indonesia, the increase in PAD was relatively
moderate, although some provinces were able to record
Better fiscal capacity was supported by greater fiscal significant increases, boosted by brisker economic activity.
independence, which was achieved via higher locally- The highest increase occurred in Southeast Sulawesi,
generated revenues (PAD) in 2017. These higher locally- and was driven by the development of industrial areas.
generated revenues helped to support a more balanced In North Maluku, the increase was underpinned by high
APBD budget, which rose 5.9% primarily due to an levels of economic activity in mining and fisheries, while
increase in income from tax and other sources. This a strong tourism sector pushed up PAD in Bali and West
increase came after regional governments took steps to Nusa Tenggara (Chart 6.20).
optimize local tax revenues. The share of PAD in total
budget revenues in 2017 increased to 23.1%, up from The increase in regional revenues supported an
22.2% in 2016. Out of all the regions, Java had the increase in more productive spending, mostly backed
largest share of PAD in total budget revenues (Chart 6.19).
An increase in PAD was seen in most regions. The largest

Chart
Grafik 6.20. Locally-Generated
6.20. Lorem Ipsum Revenue (PAD)
increase was seen in Java, especially in DKI Jakarta, by Region
Trillion
200
Table 6.7. Regional Fiscal Capacity Index (IKF)
150
2015 2017
Region
IKF Category IKF Category 100
Sumatra 0.84 moderate 0.77 moderate

50
Java 1.35 high 2.74 very high
Kalimantan 2.26 very high 1.98 high

0
Balinusra 0.42 low 0.50 moderate
Sulawesi 0.76 moderate 0.77 moderate
2015 2016 2017
Mapua 1.26 high 1.45 high
Source: Ministry of Finance and BPS-Statistics Indonesia, calculated Source: Ministry of Finance, calculated

by revenues sourced from the DAU and DBH transfer Chart 6.21. Composition
Grafik 6.22. Lorem Ipsum of State Budget Expenditure
funds. This was consistent with central government
efforts to improve the use of general transfer funds by Percent
requiring a minimum 25% to be spent on basic public 100
services infrastructure (Table 6.8). The allocation for more 90

80
productive spending is reflected in the share of spending 70
on goods and services, in addition to the persistently 60
high level of capital expenditure (Chart 6.21). Spending 50

40
on both goods and services and on capital expenditure
30
exceeded 20% of total spend. By region, the allocation 20
for productive spending was generally quite high in most 10
areas. The productive spending of Mapua was around 0

2015 2016 2017
47% of its total spend, given the focus on developing
Employee Expenditure Goods and Services Expenditure Capital Expenditure
infrastructure and alleviating poverty. Productive spending Transfer Expenditure Other Expenditure
in Sumatra, Sulawesi and Balinusra was also fairly high
at around 40% (Chart 6.22), and was focused on road
infrastructure, developing public facilities prior to the
2018 Asian Games, as well as industrial areas and spending on employees, which only rose by 0.5% to
tourism facilities. 36.9%. The proportion was also lower than the combined
share allocated to capital expenditure, spending on
Acceleration of infrastructure development in some goods and services, and spending transfers. The relatively
regions was underpinned by a higher allocation of unchanged allocation of spending on employees was also
capital expenditure; regional governments spent in affected by the existence of a policy on division of tasks
line with the central government policy to accelerate between the regency/city governments and the provincial
strategic government infrastructure projects in the regions. governments or the central government.
North Sumatra, Lampung, Yogyakarta, Bali and West
Nusa Tenggara received higher allocations for capital In its efforts to boost regional economies, the central
expenditure in the 2017 APBD. government also increased the allocation for spending
by ministries and agencies in the regions and for village
The fiscal stimulus in the regions prioritized more- funds. The spending ceiling of ministries and agencies in
productive and higher-quality spending. As such, there the regions rose an average 4.6% from 2016, with the
was little change in the 2017 APBD allocation for largest increase seen in Java. Besides a higher ceiling,
Table 6.8. Control of Transfers to Regions and Chart

Grafik6.22. Composition
6.23. Xxx of State Budget Expenditure
Village Funds by Region
Percent
Expenditure
No. Regulation Note 100
Allocation
Minimum 20% of Act 20 of 2003 concerning
1 Education 80
Local Budget National Education System
Minimum 10% of Act 36 of 2009 concerning
2 Health 60
Local Budget Health
Minimum 25% of
Local Act 18 of 2016 concerning 40
3 General Transfer
Infrastructure State Budget of 2017
Funds
20
Minimum 10% of
Village General Allocation Act 6 of 2014 concerning
4
Funds Funds and Shared Village 0
Funds Sumatra Java Kalimantan Balinusra Sulawesi Mapua
Presidential Regulation 19 Employee Expenditure Goods and Services Expenditure

Health 3% of salary and
5 of 2016 concerning Health Capital Expenditure Transfer Expenditure Other Expenditure
Insurance wage per month
Security
Source: Ministry of Finance and BPS-Statistics Indonesia, calculated

Chart 6.23. State
Grafik 6.24. Xxx Budget Expenditure by Region
Rp trillion Percent
500 100
450
400 95
350
300 90
250
200 85
150
100 80
50
0 75
Jak Ea W Ce No So Pa So Ac W Ba DIY W Ea No Ba Lam So Ea W Ma Ce W So Ria Ria Jam Ce No Be Go W No Ba
art st J est ntra rth uth pua uth eh est nte est st r li pu uth st K est N luk ntra est P uthe u uI ntr rth ng ro est rth be
av Ja Su n Ka Nus th Su sla bi al k n l
a a va l Jav Sum Sula Su
ma ma lim a law
ng Ka ali
lim ma usa
u l S ap as
ula ua t S nd Ka Mal ulu talo Sula Kali Islan
a atr we t t r a T e a n T we u s lim uku we ma ds
a si ra a nta ng esi nta tan en law a s i nta
n ga n gg si esi n tan n
ra ara
2016 Budget 2017 Budget Realization to 2016 Budget (rhs) Realization to 2017 Budget (rhs)
the realized spending of ministries and agencies in the East Java, Aceh, West Java, Papua and North Sumatra
regions increased to 91.0% in 2017 from 85.5% in 2016 (Chart 6.24).
(Chart 6.23).
To accelerate the contribution of fiscal stimuli toward
In the case of village funds, the central government regional economic growth, the Government has taken
increased the amount allocated to develop and empower steps to speed up the budget distribution mechanism,
villages in 2017 to IDR60 trillion, up from IDR47 trillion thereby allowing regional governments to begin spending
in 2016. This increase was done progressively in line earlier. It adopted policies to speed up the distribution of
with Law No.6 of 2014 concerning Villages, which village funds and physical DAK through the State Treasury
stipulates that village funds are set at 10% of the total Service Office (KPPN), branches of which are found
transfer of funds to the region. The goal of these funds is across Indonesia. The aim was to improve coordination,
to improve connectivity infrastructure and bring economic accessibility and consultation between the regional and
improvements and price stability to the regions. Village central government, in this case the Ministry of Finance.
funds were distributed among 74,954 villages in 2017, To facilitate monitoring, the distribution of village funds
with the largest allocations for villages in Central Java, and DAK was undertaken in stages. Village funds were
Chart 6.24. Distribution

Grafik 6.25. Xxx of Village Funds by Region
Rp trillion
0
Ri
Ba lan
DI Isla
So
Ba
Ea
Ba
Be
Ce
Ri
So
Ce
So
W ast
So
La Sula tan
So ng
Ea
N usa
Pa Sum gga
Ac ava
Ea
Ce va
Ja
au
au
or
or
or
or
or
al
Y
pu
ng
es
es
es
es
es
st
st mat
st
ut
ut
ut
ut lima esi
ut
be ds
li
nt
eh
nt
nt
nt
uk
on
bi
pu we
th
th
th
th
h
he
h
en
ra
ra
tS
tN
ra
tP
t K ula
tJ
Ka
Ja
a
ku
Is
u
Su
Ka
S
Ka
ta
Su
lK
lS
lJ
ap
um
a
lu
lim
u
us
lo
al
av
la
la
lim
lim
ul
al
nd
ua
a
at
S
an
u
w
at
w
Te
aw
a
im
ku
an
Te
ra
an
s
es
ra
es
ra a
n
ta
n
si
an
es
ng
i
ta
w
ta
i
n
ta
i
n
n
ga
2016 2017
n
r
ra

Figure
Grafik 6.1.
10.1. Peta Absorption
Pertumbuhan of Local
Ekonomi Daerah 2016Government Expenditure in 2017
ACEH Sumatra: Kalimantan: Sulawesi: Aggregate absorption:

80.5 80.6 (66.9) 77.7 (66.6) 83.7 (68.5)
81.1 (67.2)
NORTH
SUMATRA NORTH
72.5 CENTRAL GORONTALO SULAWESI
RIAU EAST AND SULAWESI 90.2 84.2
ISLANDS NORTH KALIMANTAN 83.8
RIAU 82.2 76.4 NORTH
81.6 WEST MALUKU
KALIMANTAN 85.6
WEST 89
SUMATRA BABEL WEST
JAMBI WEST PAPUA
83.3 82.9 ISLANDS CENTRAL
86.9 KALIMANTAN SULAWESI 43.5
77.1 83.8
SOUTH
SUMATRA SOUTHEAST
82.3 SULAWESI PAPUA
BENGKULU 83.1
87.7 SOUTH SOUTH MALUKU 47.2
DKI JAKARTA KALIMANTAN SULAWESI 75.4
Mapua:
82.9 69.2 82.4
LAMPUNG
JATENG 68.9 (65.1)
80.4 Balinusra:
81.1
WEST NUSA
BANTEN
BALI TENGGARA 76.9 (64.0)
80.7 85.8
71.6
WEST JAVA
84.6 DIY
Java: 89.7 EAST JAVA
EAST NUSA
82.6 (67.8) 84.7
TENGGARA
66.1
_ 90%
APBD > _ APBD < 90%
80% > _ APBD < 80%
70% > APBD < 70%
Source: TEPRA as of January 2018
Note: Figures in parentheses are realization of 2016
distributed in two phases, while DAK was distributed also increased in 2017, reaching IDR59.8 trillion, up from
quarterly. In regard to DAK, regional governments are IDR46.7 trillion in 2016. Indications of the impact of the
obliged to report the actual absorption they achieved in distribution policy for physical DAK and village funds,
the previous quarter. which was done progressively on a quarterly basis and
through KPPN, the State Treasury Service Office, can be
Efforts to increase the realization of regional spending seen in the pattern of regional government fund savings in
were also strengthened by Ministry of Finance Regulation the banking system; the amount was lower compared with
(PMK) Number 50/PMK.07/2017 concerning the the pattern over the last two years, especially in the first
management of TKDD, the transfers to regions and village half of 2017 (Chart 6.25).
funds. As of the fourth quarter of 2017, the aggregate
realization of APBD spending had reached 81.1%, up
from 67.2% in the fourth quarter of 2016.7,8 The highest
spending realization was seen in regions of Sulawesi,
where aggregate realization reached 83.7%, supported
by a strong performance in Gorontalo. Next, Java
reached 82.6% spending realization, with the highest
Grafik 6.25. Local
Chart 6.26. Realisasi Penggunaan
Government Dana in
Deposits Desa Menurut
Banks
absorption seen in Yogyakarta (Figure 6.1).
Kegiatan
Rp trillion
The new regulation was able to increase the realization of
350
TKDD, with transfers taking place earlier, meaning regions
300
could act earlier. This helped to drive economic growth in
250
all regions. The realization of distributed TKDD in 2017
reached 96.8%, up from 91.5% in 2016. In addition, the 200
realization in nominal terms of distributed village funds 150
100
50
7 Based on data on the realization of the Quarter IV 2017 APBD from the Budget 0
Realization Evaluation and Supervisory Team as of the end of January 2018. 1 2 3 4 5 6 7 8 9 10 11 12
8 Based on data on the realization of the Quarter IV 2016 APBD from the Budget 2015 2016 2017
Realization Evaluation and Supervisory Team as of January 2017. The 2016 APBD
actual numbers from the Ministry of Finance were made available as of 6 October 2017
at www.djpk.kemenkeu.go.id.

Box 6.1 crisis, the government budget has been directed more
towards routine spending, subsidies and debt repayment.
The Impact of
Infrastructure Over the last few years, the Government has once again
begun to focus on infrastructure development, increasing
Development on investment expenditure and reducing subsidies. In the
Indonesia’s Economy 2015-2019 National Medium Term Development Plan, the

Government laid out plans for 225 infrastructure projects,
known as national strategic projects (PSN), including the
I
development of better connectivity between regions. The
nadequate infrastructure is one of the main challenges
private sector was also brought into the interconnectivity
facing Indonesia’s economy at present. Data from the
project, although the Government still played a dominant
World Economic Fund’s Global Competitiveness Index
role.
2017-2018 shows the quality of Indonesia’s infrastructure
is still lower compared with that of other ASEAN countries.
Infrastructure plays a crucial role in stimulating the
Inadequate infrastructure hinders efforts to achieve
economy, over both the short and long term. The impact
economic growth that is of quality, is sustainable and
on the economy of increased government investment on
highly competitive. Limited infrastructure connectivity
infrastructure will be twofold. In the short term, government
between the regions – a lack of ports and highways –
investment will increase aggregate demand through
leads to high logistics costs, which has an effect on the
the fiscal multiplier. Over the medium and long term,
competitiveness of Indonesia’s economy and affects the
government investment in infrastructure will increase the
investment climate.
output capacity of the Indonesian economy.
Indonesia’s inadequate infrastructure can be explained, at

The positive impact of infrastructure development can
least in part, by low government expenditure in the past.
be measured by using the dynamic stochastic general
The average expenditure of the Indonesian Government
equilibrium model, developed by Bank Indonesia. One
on infrastructure spending from 2000 to 2014 was
advantage of using this model is its formulation, which
approximately 2% of GDP (Chart 1), far below the 6% of
begins with the micro approach of the behavior of
GDP spent prior to the 1997/1998 Asian crisis.1 Post-
economic agents, such as households, the Government
and the central bank.2 This model allows the impact of
Grafik1.1. Government Spending on Infrastructure
government consumption and investment on output to
Chart
be measured, both in the short and long term. In short,
Rp trillion Percent
it incorporates the economic behavior of households,
450 3.5 companies, the Government, the central bank and external
400
3.0
factors, and is calibrated using parameters consistent with
350 Indonesia’s economic conditions (Figure 1).
2.5
300
2.0
250
The results of Bank Indonesia’s simulation show an
200 1.5
increase in government consumption has a positive
150
1.0 effect on GDP. The results of the impulse response
100
0.5 functions show that, in the short term, a 1% increase in
50
government consumption may boost economic growth
0 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 by 0.04% (Chart 2). This is mainly attributable to an
Total Infrastructure Expenditure Percent to GDP increase in aggregate demand arising from the increase
1 Tabor, S.R. (2015), Constraints to Indonesia’s Economic Growth, DB Papers on 2 Sahminan et al. (2016), DSGE Development Model to Assess the Impact of Structural
Indonesia No. 10. Reforms on Indonesia’s Economy, The Research Findings Report of Bank Indonesia.

Gambar
Figure 1. 1. Model Scheme Grafik2.7.15.
Chart Hasil Simulasi
Simulation Dampak
on Impact Peningkatan
of Increase in
Pengeluaran Pemerintah Terhadap Output
Government Expenditure to GDP
Increase of Economic Growth (Percent)
Government
0.05
Produce
Pay taxes governmental
needs goods 0.04
Provides Provides
public goods infrastructure 0.03
Supply the labor

Household and consume the goods
Firm 0.02
0.01
Export
Supply
the consumption
Import 0
goods 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Period (Quarter)
Central Bank World Government Consumption Government Investment
Sets the policy
in government consumption. Cumulatively, over the long In addition, the results of the simulation also show the
term, the output multiplier from the increase in government type of infrastructure that is developed will influence
consumption reaches 0.03 (Table 1).3 the magnitude of the impact of government investment
on economic growth.4 The higher the productivity of
Furthermore, the results of the simulation show an increase the public infrastructure that is developed, the greater
in government investment may potentially lift GDP growth the potential for an increase in economic growth. This
more than government consumption. The results of the means that Indonesia should prioritize projects that raise
impulse response functions show that a 1% increase in economic productivity and therefore have the maximum
government investment can result in a 0.05% increase possible impact.
in short-term economic growth (Chart 2). In the medium
to long term, the increase in economic growth can reach
0.20% (Table 1). This increase in GDP was underpinned
by an increase in temporary demand due to investment
(demand side) and the availability of public infrastructure
to support production capacity (supply side). Essentially,
this means government policy to stimulate the economy
is far more effective through investment expenditure as
opposed to consumption expenditure.
Table 1. The Simulation on Impact of Increase in

Government Expenditure to GDP
Type of Period (Quarter)
Government Output Multiplier
Expenditure 1 8 12 16 20
Consumption 0.04 0.03 0.03 0.03 0.03 0.03
Investment 0.05 0.06 0.07 0.09 0.11 0.20

3 The cumulative impact (multiplier) is calculated each period based on the ratio between
the government’s cumulative output and cumulative expenditure. The output multiplier is 4 Bom, P. and Jenny Ligthart (2014), Public Infrastructure Investment, Output Dynamics,
the cumulative impact over a period of 100 quarters. and Balanced Budget Fiscal Rules, Journal of Economic Dynamics and Control Vol 40.

CHAPTER 7
Monetary Policy
Bank Indonesia’s monetary policy in 2017 was consistently
focused on safeguarding macroeconomic stability. Bank
Indonesia engaged in prudent, measured relaxation
of monetary policy to support the domestic economic
recovery, in moves commensurate with the well maintained
macroeconomic and financial system stability.

In 2017, Bank Indonesia maintained a consistent 7.1. Interest Rate Policies And
monetary policy focus on safeguarding macroeconomic Minimum Reserve Requirement
stability. Bank Indonesia pursued a monetary policy Ratio
stance commensurate with efforts to keep inflation within
the target range and the current account deficit at a safe Bank Indonesia has consistently charted a course
level. In line with the comfortably secure macroeconomic in monetary policy that is aimed to safeguard
and financial system stability, Bank Indonesia pursued macroeconomic stability. Measures to protect
a cautious, measured relaxation of monetary policy to macroeconomic stability are crucial, because the stability
complement the relaxation cycle that has been underway will provide a solid foundation for economic recovery. In
since 2016. The monetary policy relaxation was intended this regard, Bank Indonesia’s measured monetary policy
to bolster the ongoing momentum for economic recovery. responses were pursued with caution, taking into account
Bank Indonesia also employed exchange rate policy to the dynamics and risks in both the global and the domestic
safeguard macroeconomic stability; which was done economy. Broadly speaking, Indonesia successfully
by maintaining exchange rate stability in line with maintained macroeconomic stability, despite the
fundamentals, while also allowing market mechanisms to emergence of challenges. The global challenge pertains
prevail. Further, to improve the effectiveness of monetary to recovery in the world economy followed by monetary
policy transmission, Bank Indonesia also strengthened policy normalization in some advanced nations, which
monetary operations and took further steps to deepen the may trigger capital reversal to advanced economies. At
financial market. The financial market deepening policy home, with inflation on a downward trend, the challenge
was focused on three pillars of development: (i) sources arises in finding measures to accelerate the corporate and
of economic financing and mitigation of risks; (ii) market banking consolidation, in order to boost momentum in the
infrastructure; and (iii) policy coordination, regulatory domestic economic recovery.
harmonization, and education. This area of development
has been pursued in part by enriching the variety of The monetary policy stance pursued by Bank Indonesia
instruments used, expanding the market base, and throughout 2017 was aligned with efforts to keep inflation
building the integrity of market actors. within the target range and the current account deficit
at a safe level. Inflation stayed within the target range
Events in 2017 indicate that monetary policy was throughout 2017 and closed the year at 3.61%, the third
transmitted well, although transmission through the credit consecutive year in which Indonesia has achieved its
channel was inadequate. Monetary policy relaxation with inflation target. Inflation expectations for one to two years
the lowering of the policy rate, the BI 7-Day (Reverse) ahead were also anchored and moved stably within the
Repo Rate (BI7DDR), was followed by downward target range. In addition, the current account deficit was
movement in interbank money market rates and bank managed at a comfortably safe level in 2017, easing to
interest rates. The reductions in the policy rate also spurred 1.7% of GDP from the 2016 level of 1.8% of GDP.
increases in asset prices on the stock and bond markets
and an expansion in non-bank financing. However, In policy implementation, Bank Indonesia proceeded
challenges in monetary policy transmission continued to in a cautious and measured manner to take advantage
surface in relation to the still-limited bank credit expansion. of the space available for monetary policy relaxation.
From an overall perspective, the monetary policy stance During the first half of 2017, Bank Indonesia kept the
succeeded in maintaining macroeconomic stability in BI7DRR policy rate on hold at 4.75%. This decision took
2017, as inflation remained within the target range and into consideration the rising inflation expectations in the
the current account deficit was held at a prudent level. This first half of 2017 (Chart 7.1). During the second half of
effective maintenance of macroeconomic stability was due 2017, Bank Indonesia harnessed the available space
in part to close coordination of inflation control between for relaxation by lowering the policy rate by 25 basis
Bank Indonesia and the central and regional governments. points in August and again in September 2017, resulting
in a new BI7DRR rate level of 4.25% (Chart 7.2). These
decisions were made after considering the declining
inflation expectations, the safe level of the current account
deficit, greater clarity in the direction of monetary policy
normalization of the United States and progressive easing

Chart
Grafik7.1. Inflation
7.2. Lorem IpsumExpectations and Realization Chart
Grafik7.3. Economic
7.1. Lorem IpsumPolicy Uncertainty (EPU) Index
in 2017 and Volatility Index (VIX)
Percent, yoy Index Index
5.0 450 30
4.3 4.4
4.5 3.9 400
3.8 3.3
3.8 3.7 3.6 25
4.0 3.6
3.5 4.2 350
3.5
3.0 20
3.0
250
4.4 4.3 4.4 4.3
2.5 4.2 4.2 4.2 4.2 4.2 4.0 3.9 3.9 200 15
2.0
150
10
1.5
100
1.0
5
0.5 50
4.4 4.4 4.4 4.3 4.2 4.2 4.2 4.1 4.1 3.8 3.7 3.6
0 0 0
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2017 2015 2016 2017
Inflation Expectation 2017 Inflation Expectation 2018

US EPU Indonesia EPU VIX (rhs)
Inflation (T-1)
Source: BPS-Statistics Indonesia and Consensus Forecast, calculated Source: Bank Indonesia, www.policyuncertainty.com, and Bloomberg
of economic uncertainty. The reduced uncertainty was to the variable rate tender (VRT) system for placements
evident in the Economic Policy Uncertainty (EPU) Index in tenors of more than one week. The change in the
and the Volatility Index (VIX) (Chart 7.3).1 The monetary auction mechanism was made for greater effectiveness in
policy relaxation in 2017 carried forward the cycle of liquidity absorption. The use of the VRT method, alongside
relaxation that has been underway since 2016, and increased transparency and greater communication with
that is expected to provide the foundations for economic market actors, prompted the overnight interbank rate to
recovery. move away from the lower limit of the interest rate corridor
– the deposit facility – and closer to the policy rate. The
Bank Indonesia also took measures to strengthen monetary switch to the VRT mechanism also supported the formation
policy transmission to longer-term interest rates. On of yield curves for monetary operations instruments
1 February 2017, Bank Indonesia switched from the (Chart 7.4).
fixed rate tender mechanism in open market operations
For greater effectiveness in monetary control, Bank
Indonesia also moved to optimize the absorption of
Chart
Grafik 7.3.7.2.
Lorem Ipsum Policy Rate and Overnight Inter-Bank
bank liquidity. Volume steadily increased for long-tenor
Money Market (PUAB O/N) Rate instruments for monetary operations, such as the Bank
Percent
7 Δ BI rate = 100 bps

Chart
Grafik 7.4.7.4. YieldMoneter
Yield Curve Operasi Curves
(OPT)for Monetary Operation
Instruments
6
Percent
5 Δ BI7DRR 6.5
= 100 bps
4 6.0
3
5.5
2
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 5.0
2016 2017
4.5
Overnight Interbank Money Market BI Rate DF Rate
BI7DRR LF Rate 4.0
Source: Bank Indonesia 3.5
3.0
1 The Economic Uncertainty Policy (EPU) Index was developed by Bank Indonesia and DF 1m 2m 1b 3b 6b 9b 12b
uses big data to measure economic uncertainty caused by economic policy. It is based December 2016 August 2017
on the method applied by Baker et.al. (2015) to measure the EPU in the United States. September 2017 December 2017
The VIX, on the other hand, is an index published by the Chicago Board Options
Exchange that reflects expectations of volatility in the S&P 500 share index.

Indonesia Certificates of Deposit (SDBIs). This not only (iii) to provide space for liquidity placements in a way
points to improved management of banking liquidity, that promotes financial market deepening (see Box 7.1
but also resulted in a greater level of control in liquidity Implementation and Evaluation of Reserve Requirement
management. Meanwhile, banks scaled back their Averaging).
placements in short-tenor monetary instruments, such as
the deposit facility, mostly until the third quarter of 2017
(Chart 7.5). The combination of these two factors has 7.2. Exchange Rate Policy
prompted a general tendency towards longer duration of
monetary operations instruments, particularly in the wake The Bank Indonesia policy direction – of safeguarding
of the Idul Fitri holiday season, when cash is returned to macroeconomic stability through changes in the policy
the banking system. With the increase in banking liquidity, rate and introducing reserves averaging – received further
the yield curve on monetary operations instruments also support from exchange rate policy. Bank Indonesia sought
moved downwards in line with the reductions in the policy to maintain stability in the rupiah and keep movement
rate during August and September 2017. Bank liquidity in line with fundamentals, while still allowing market
placements in monetary operations returned to short mechanisms to prevail. This policy was consistent with
duration towards the end of the year, as banks prepared efforts to achieve the inflation target and to keep the
themselves for the likelihood of increased public demand current account deficit at a safe level. Stability in the
for cash. rupiah in line with fundamentals can assist a process of
economic adjustment should external shocks occur and
For improving the effectiveness in transmission of can help maintain steady inflation expectations. A stable
monetary policy relaxation, Bank Indonesia continued exchange rate will have a positive effect on the confidence
the reformulation of the monetary policy operational of market actors. It will also mitigate risks for business from
framework that was begun in 2016.2 Reformulation of the excessive transmission of rupiah depreciation, an event
monetary policy operational framework in 2017 involved that in turn could impair Indonesia’s ability to meet its
implementation of reserve requirement (RR) averaging inflation target.
and financial market deepening. The objectives of the
RR averaging, launched in July 2017, are: (i) to provide Bank Indonesia implemented its exchange rate policy of
flexibility in managing liquidity and thus improve banking managing the stability of the rupiah exchange rate in line
efficiency; (ii) to serve as an interest rate buffer and thus with fundamentals. Exchange rate policy sought to curb
reduce interest rate volatility on the money market; and volatility arising from imbalances in foreign exchange
supply and demand by employing foreign exchange
intervention and dual interventions. The dual intervention
Chart
Grafik 7.5.7.5. Monetary
Posisi Instrumen Operation
Operasi Moneter (OPT) Instruments strategy involved selling intervention on the foreign
Position exchange market accompanied by government bond
Rp Trillion purchases on the secondary market. The dual intervention
600
strategy was adopted to maintain exchange rate stability,
500
while ensuring rupiah liquidity remained adequate.
400
300
At the operational level, Bank Indonesia further
200
strengthened liquidity management on the domestic
100
foreign exchange market by increasing the scheduled
0
frequency of foreign exchange term deposit auctions for
-100
tenors greater than one week. From the end of February
-200
I II III IV I II III IV 2017, the frequency for one-week, one-month, and three-
2016 2017
Standing Facilities Term Repo/Depo Reverse Repo SBN

month tenors was increased to three times per week from
Bank Indonesia Securities FX Swap Bank Indonesia Deposit Certificate twice per week. Alongside this, regular auctions of US
Source: Bank Indonesia dollar-denominated foreign exchange swap instruments
continued to be held twice a week. The increased
frequency of foreign exchange term deposit auctions met
2 On 19 August 2016, Bank Indonesia reformulated the monetary policy operating
framework by switching the policy rate from the BI Rate to the BI 7-Day (Reverse) Repo
with a positive response from the market, visible in the
Rate (BI7DRR).

growing trend in the preference for bank placements in as indicated by growth in the foreign exchange supply
longer tenors. This was reflected in the downward trend in from domestic corporations. Domestic corporate and retail
the share of overnight foreign exchange term deposits, in foreign exchange demand also maintained a downward
tandem with the expanding share of longer tenor foreign trend (Chart 7.7).
exchange term deposits (Chart 7.6). The rising frequency
of placements in longer tenors also led to reduced Bank Indonesia also took action to promote local currency
fluctuation in short-tenor foreign exchange liquidity, settlement in trading transactions, as part of the drive
thereby holding foreign exchange liquidity at safe levels to reduce exchange rate risk and dependence on a
on the domestic market. Domestic foreign exchange single currency. To this end, Bank Indonesia, the Bank
liquidity was also managed through the issuance of of Thailand and Bank Negara Malaysia signed an
foreign currency Bank Indonesia Securities (SBBIs) in agreement in Jakarta on 11 December 2017 to establish
tenors longer than three months. This measure was a a collaborative framework for promoting bilateral trading
step in support of financial market deepening, as these settlement and direct investment in local currencies. This
instruments can be traded on the secondary market. agreement is expected to reduce transaction costs, as they
will be conducted by direct quotation and will not carry
Exchange rate policy was reinforced by improvements charges for cross-currency conversion from the rupiah to
in the supply and demand structure on the domestic the US dollar and subsequently to the desired national
foreign exchange market. Actions taken by Bank currency. This is expected to reduce the dependence
Indonesia in 2017 include more robust implementation of the rupiah currency on one single currency, expand
of the regulations for mandatory use of the rupiah money markets in the region and foster access and active
in Indonesian national territory. Bank Indonesia also participation by international trading actors who agree to
imposed an obligation for non-bank corporates with settle in local currency.
foreign debt to implement prudent management of
their foreign borrowings in line with the provisions of Bank Indonesia also bolstered the adequacy of
Implementing Activities for Prudential Principles (KPPK). international reserves, a first line of defense against
Bank Indonesia also took further measures to strengthen turmoil on financial markets, to support its exchange
the market and expand the selection of foreign exchange rate policy. At the end of December 2017, Indonesia’s
market instruments by acting on the need for hedging international reserves stood at USD130.2 billion, ahead
of economic activities in non-US dollar currencies. To of the USD105.9 billion at the end of 2016 and also a
this end, at the end of 2017 Bank Indonesia introduced historical high (Chart 7.8). Tax revenues, the government
hedging swap transactions in Japanese yen, the euro and share of oil and gas export revenues, issuance of global
Chinese renminbi. The structural improvements made to bonds and proceeds from auctions of SBBIs contributed
the domestic foreign exchange market had positive results, to the higher level of international reserves. At this
Chart
Grafik 7.7.7.6.
Komposisi TDComposition
Valas Konvensional of Conventional Forex Term Chart 7.7.
Grafik 7.6. PermintaanDomestic Corporate
Valas Korporasi dan Individu and Retail Foreign
Per Tenor
Deposits by Tenor Exchange Demand
Percent Billion USD per Month
100 16
90
14
80
12
70
60 10
50 8
40
6
30
4
20
2
10
0 0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2012 2013 2014 2015 2016 2017
O/N 1 Week 2 Weeks 1 Month 3 Months Corporation Retail

Chart 7.8.
Grafik 7.8. International Reserves Position
Lorem Ipsum the rupiah and improves perceptions of risks for foreign
investors in Indonesia.
USD billion Month
150 9 The strengthening of international reserves was supported
130.2
by reinforced second line of defense facilities, which
120 8
assigned a greater role to the international financial
90 7 safety net. Indonesia has regional financial arrangements
and bilateral collaboration with several partner nations.
60 6
This includes the ASEAN Swap Arrangement (ASA),
30 5
the Chiang Mai Initiative Multilateralization (CMIM)
and the Bank Indonesia–Bank of Japan Bilateral Swap
0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
4
Arrangement (BSA) (Table 7.1).
2015 2016 2017
International Reserves
In Months of Imports and Government External Debt Payment (rhs) Regionally, Bank Indonesia has also concluded a swap
arrangement with ASEAN nations in the ASA for USD2
billion, effective until 2019. The ASA may be used to
help meet the short-term liquidity needs of member nations
level, the international reserves position was sufficient facing pressure in their balance of payments (BoP). Bank
for 8.6 months of imports or 8.3 months of imports Indonesia also has a BSA scheme in place with the Bank
and servicing of official debt, above the international of Japan for currency swaps between the rupiah and the
adequacy standard of about three months of imports. An US dollar. The purpose of this collaboration is to overcome
international reserves position higher than the international liquidity difficulties resulting from problems in the BoP and
standard strengthens market confidence in the stability of short-term liquidity. The BSA collaboration, worth a total
of USD22.8 billion, was initially signed on 17 February
Table 7.1. Swap Arrangement Cooperation
Signing of
Facility Type Purpose Value Validity Period Explanation
Agreement
Multilateral cooperation in the form of USD2 billion
swap between the USD/JPY/Eur and local (maximum facility
Extension several times
ASEAN Swap currency ten ASEAN countries, aiming that can be drawn
17 November 2017 2 Years since the first signing
Arrangement to provide short-term liquidity support for by Indonesia
on November 2005
member countries experiencing balance of amounted to
payments problems USD600 million)
Multilateral cooperation in the form of USD240 billion Amandment of the
swaps between USD and ASEAN+3 (maximum facility agreement for the
currencies, aims to overcome liquidity that can be drawn provision of CMIM. The
CMIM 17 July 2014 Unlimited
problems due to problems of balance of by Indonesia preliminary agreement
payment and short-term liquidity in the amounted to was signed in March
region USD22.76 billion) 2010
Extension several times
Bilateral Bilateral cooperation in the form of a swap
after the first signing in
Swap between USD and Rupiah, aims to prevent
USD22.76 billion 12 December 2016 3 Years February 2003, with
Arrangement and overcome the difficulties of short-term
an increase in the value
BI-BoJ foreign currency liquidity
and type of facilities
Bilateral financial cooperation in the form
Bilateral
of swap KRW and IDR, aims to increase CNY10.7 trillion/
Currency
bilateral trade between Indonesia and Rp115 trillion
Swap 6 March 2017 3 Years
Korea, as well as to strengthening the (equivalent to USD10
Arrangement
financial cooperation for the economic billion)
BI-BoK
development in both countries
Bilateral Bilateral financial cooperation in the form
Currency of swap AUD and rupiah, aims to increase AUD10 billion
Due on 15 December
Swap bilateral trade between Indonesia and (equivalent to Rp100 15 December 2015 3 Years
2018
Arrangement Australia, and other purposes as agreed by trillion)
BI-RBA both parties

2003 and was most recently extended on 12 December Chart
Grafik 7.9.7.9. Rupiah
Perkembangan Money Market
Pasar Uang
2016 for a period of three years.

Rp Trillion Percent
To promote bilateral trade and guarantee settlement 35 2.5
of transactions made in the local currencies of the two 30

2.0
nations involved, Bank Indonesia also strengthened 25
collaboration under the bilateral currency swap 20

1.5
arrangement (BCSA) scheme. This collaboration involves

15
1.0
the Bank of Korea and the Reserve Bank of Australia.
10
For Indonesia, the collaboration is expected to reduce 0.5
5
dependence on the use of the US dollar and promote
stability in the rupiah. The BSCA between Bank Indonesia 0 0
2013 2014 2015 2016 2017
and the Bank of Korea was signed in 2014 with a
Average Daily Volume Money Market Transactions
term of three years and was subsequently extended Outstanding Ratio of Rupiah Money Market to GDP (rhs)
on 6 March 2017 for a facility of IDR115 trillion. The Source: Bank Indonesia, Financial Ministry, and The Depository and Settlement
Institutions in the Capital Market-KSEI, calculated
BCSA between Bank Indonesia and the Reserve Bank of
Australia was signed on 15 December 2015. It enables
swap transactions to be conducted in the local currencies encouraged the issuance of money market instruments by
of the two nations up to a value of AUD10 billion or bank and non-bank corporates, an activity that has been
IDR100 trillion. dormant since the Asian financial crisis of 1997. In pursuit
of this, Bank Indonesia issued Regulation No. 19/2/
PBI/2017 concerning Certificates of Deposit Transactions
7.3. Financial Market Deepening on the Money Market and Bank Indonesia Regulation No.
19/9/PBI/2017 concerning Issuance and Transactions in
Bank Indonesia’s monetary policy direction was also Commercial Paper. These regulations establish a number
supported by its policy to deepen the financial markets. of key principles, including standardization of instruments,
These measures were taken to improve the effectiveness the transaction mechanism on the money market, prudence
of monetary policy transmission, expand the sources of for issuers and supporting institutions, and mandatory
economic financing and mitigate the risk from turmoil licensing and supervision from Bank Indonesia.
on financial markets. Bank Indonesia pursued strategic
initiatives for deepening the money market under Following the introduction of the new policy for
three pillars of development: (i) sources of economic certificates of deposits, banks developed a growing
financing and risk mitigation; (ii) market infrastructure; interest in issuing money market instruments in the form
and (iii) policy coordination, regulatory harmonization
and education. These actions successfully sustained the
momentum of market deepening, as reflected in the
Chart 7.10.
Grafik 7.10. Foreign
Perkembangan Exchange Market
Pasar Valas
increase in transactions on the money market and foreign
exchange market (Charts 7.9 and 7.10). Added to this
USD Billion Percent
were positive developments in the availability of a wider 6 2.0
variety of instruments, expansion of the investor base 1.8

5
and credibility of financial market actors. These financial 1.6
1.4
market developments led to improved effectiveness of 4
1.2
monetary policy transmission through formation of a 3 1.0
money market yield curve responsive to Bank Indonesia’s 0.8

2
monetary policy stance. Meanwhile, transmission through 0.6
0.4
the exchange rate was strengthened through the healthier 1
0.2
liquidity and structure of the foreign exchange market. 0 0
2013 2014 2015 2016 2017
To develop the first pillar, namely sources of economic Average Daily Volume Forex Market Transactions
Average Daily Ratio of Volume Forex Market Transactions to Trade Flows (rhs)
financing and mitigation of risks, Bank Indonesia

of certificates of deposits. Following a regulation from the concerning Foreign Exchange Transactions Against
Financial Services Authority (OJK) concerning issuance Rupiah between Banks and Domestic Parties, and Bank
of certificates of deposit by banks in 2015, and a Bank Indonesia Regulation No. 18/19/PBI/2016 concerning
Indonesia regulation concerning certificates of deposit Foreign Exchange Transactions Against Rupiah between
transactions on the money market in 2017, the certificates Banks and Foreign Parties. Bank Indonesia coordinated
of deposit position climbed steadily to IDR21.6 trillion closely with the OJK to ensure that an increase in the
at the end of the fourth quarter of 2017 from IDR4.9 provision of CSO hedging instruments by domestic banks
trillion in the fourth quarter of 2014 (Chart 7.11). This was accompanied by an upholding of prudential banking
was matched by growth in the number of issuers to 19 principles. In 2017, a total of seven banks offered
banks in 2017. Looking to the future, there is still potential CSO transaction facilities and recorded steady growth
for further expansion. Based on the experience of other in transaction value (Chart 7.12). Potential demand
economies, including China, Taiwan, South Korea and from non-bank corporations was also strong given that,
Japan, certificates of deposit can serve as a reliable beginning in 2017, non-bank corporations have been
money market instrument for raising funds for banks, and required to arrange hedging through domestic banks
benefit from liquid trading on the secondary market. under the Bank Indonesia regulation concerning prudential
principles on the management of external debt.
In regard to the development of these money market
instruments, Bank Indonesia also opened registration for Under the second pillar of its goal of deepening financial
money market supporting institutions intending to provide markets, Bank Indonesia built up market infrastructure
services in issuing and conducting commercial paper by strengthening the credibility of the Jakarta Interbank
transactions. The purpose of the registration is to ensure Offered Rate (JIBOR) as a reference rate for short-
the integrity and competence of these institutions so that term funding. Contributor banks were encouraged
issuance of commercial paper, beginning in 2018, can be to become accustomed to using the mechanism for
conducted in a prudent and efficient manner. tradable quotations by placing quotations of a more
real nature that would strengthen the credibility of the
Further measures for development of the first pillar JIBOR. Positive developments are already visible, as
were also taken forward with foreign exchange market seen in the narrowing of the spread between the JIBOR
instruments, particularly instruments to encourage domestic and the interbank money market rate for tenors ranging
corporates to hedge. Bank Indonesia took further steps from overnight to three months, in comparison to the
to encourage the domestic banking system to offer preceding year (Chart 7.13). In line with this trend, the
hedging instruments in the form of call-spread option JIBOR has come into increasing use among market actors
(CSO) structured products. These products are regulated as a reference rate in calculating the value of derivative
in Bank Indonesia Regulation No. 18/18/PBI/2016 contracts and loans with floating interest rates.
Chart 7.11.
Grafik 7.11. Issuances
Perkembangan Certificates of Deposit
Penerbitan Sertifikat Chart 7.12.
Grafik 7.14. Value
Perkembangan of CSO
Transaksi Call Spread Option (CSO)
Deposito
Transactions
Rp Trillion Number of Banks Million USD
25 20 131
140
20 120
15
100
15
10 80
10
60
5
5
40
0 0
III IV I II III IV I II III IV I II III IV 20
2014 2015 2016 2017

0
1 2 3 4 5 6 7 8 9 10 11 12
The Value of Outstanding Issuance
Cumulative number of issuing banks (rhs) 2017
Source: The Depository and Settlement Institutions in the Capital Market-KSEI, calculated Source: Bank Indonesia

Chart 7.14.
Grafik 7.13. Spread sukuJakarta
bunga JIBORInterbank
dan PUAB Offered Rate (JIBOR) Chart 7.13.
Grafik 7.12. Repo
Perkembangan Transactions
Transaksi Repo
and PUAB Rate Spread

bps Percent Rp Billion
25 100 1,400
90
1,200
20 80
70 1,000
15 60
800
50
10 600
40
30 400
5
20
200
10
0
0 0
O/N 1 week 1 month 3 months
2013 2014 2015 2016 2017
O/N >O/N - 1 Week >1 Week - 1 Month >1 Month

2016 2017
Total Volume (rhs)
Bank Indonesia also introduced measures to strengthen (GMRA).3 The Indonesia GMRA, a Bank Indonesia
the financial market infrastructure and code of ethics initiative, was signed by banks in 2016 in accordance
for market actors, and set up a task force to establish with OJK regulations, and the capacity building was the
the Indonesia Derivatives Central Counterparty to next step. The capacity building succeeded in sustaining
reduce credit risk and improve efficiency in derivative the upward trend in the volume of repo transactions,
transactions. The task force, set up jointly with the Ministry which has been building since 2013. Further, it also led
of Finance and OJK, has prepared a roadmap, which to a better operational understanding of repo transactions,
will be followed by establishment of an agency, pilot which in turn led to greater variation in the tenor of repo
operations and ultimately full implementation. transactions compared to previous years (Chart 7.14).
To bolster the credibility of the financial market, Bank Coordination with the Government, particularly the
Indonesia issued Regulation No. 19/5/PBI/2017 Ministry of State Owned Enterprises, occurred in
concerning Treasury Certificates and Adoption of Market the preparation of guidelines on standard operating
Code of Ethics. These provisions stipulate the obligation procedures in hedging for state-owned corporations that
of market actors to ensure that directors and employees intend to use structured product instruments, such as CSOs.
involved in treasury activities hold treasury certification This initiative proved effective in expanding hedging
in keeping with specified classifications and levels of activity by state-owned enterprises, which had previously
certificates. Market actors are also required to have faced restrictions in accessing more economically priced
internal procedures to ensure staff adhere to the code of and flexibly structured CSO hedging instruments.
market ethics in treasury activities.
To deepen the sharia-compliant financial market, Bank
In relation to development of the third pillar – policy Indonesia focused on developing instruments and
coordination, regulatory harmonization and education – expanding the market actor base. Bank Indonesia
Bank Indonesia organized capacity building activities for researched the development of waqf-linked sukuk
banks in Business Category 1 and Business Category 2 (endowment-linked Islamic bonds) and corporate sukuk
(commercial banks are divided into four categories based for Islamic social institutions. In collaboration with the
on their assets), as well as regional development banks, OJK, Bank Indonesia also discussed the development of
in collaboration with the Indonesia Foreign Exchange sharia-compliant certificates of deposit as an alternative
Market Committee. Capacity building was held to improve funding source for sharia banks. In regard to building
understanding about the operations of repo transactions
and the Indonesia Global Master Repurchase Agreement
3 Under OJK Regulation No. 9/POJK.01/2015 concerning Guidelines for Repurchase
Agreement Transactions for Financial Services Institutions, each repo transaction
conducted by a financial services institution must be made using the Indonesia Global
Master Repurchase Agreement (GMRA).

the market base, Bank Indonesia worked continuously Chart 7.15.
Grafik 7.15. Lorem IpsumPolicy Rate and Overnight Inter-Bank
to educate market actors in the use of sharia-compliant Money Market Rate Spread
hedging instruments. bps
230
180
7.4. Monetary Policy Transmission
130
Monetary policy in 2017 was generally transmitted
well, notwithstanding insufficiently strong transmission 80
to the credit channel. Monetary policy transmission

performed well through the interest rate channel, reflected 30
in downward movement in interest rates commensurate 0

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017
with the decline in the policy rate. Transmission also Spread of BI rate & O/N Interbank Rate
operated through the asset price channel as indicated Spread of BI-7DRR & O/N Interbank Rate
Average of Spread after BI-7DRR Implementation
by the strengthening performance of the Indonesian
Stock Exchange Composite Index (IDX Composite) and
the government bonds market, as well as an increase
in non-bank financing. However, credit charted more came to 16 basis points, down from the average 26 basis
limited expansion at 8.2% in 2017, despite a continuing point spread in 2016. This indicated steady expansion in
decline in loan interest rates. The inadequate rate of credit liquidity on the interbank market, bolstered by improved
expansion then influenced developments in monetary efficiency in interbank trading. In addition, the relatively
aggregates and in particular broad money (M2), which adequate liquidity levels helped keep volatility in the
maintained stable growth compared to 2016. overnight interbank rate at a lower level compared
to 2016. A trend toward more relaxed conditions in
aggregate banking liquidity was visible in the increase in
Transmission through the Interest Rate Channel the average net monetary operations position; this moved
to IDR440 trillion in 2017 from IDR338 trillion in 2016.
The year 2017 was marked by a steady increase in the
strength of monetary policy transmission through the Transmission of monetary policy relaxation also showed
interest rate channel. Movement in the overnight interbank in bank time deposit rates. At the end of December 2017,
rate came into closer alignment with the policy rate. This the weighted average time deposit rate had dropped 187
steady improvement in transmission of the policy rate to basis points compared to the beginning of 2016, equal
the overnight interbank rate was supported not only by to 94% of the total decline in the policy rate since 2016.
2016’s reformulation of the monetary policy operational This decline in deposit rates was recorded in all tenors,
framework, but also by reinforcement of the monetary with short tenors experiencing the largest rate reductions
operations strategy. The 200 basis point decline in the (Chart 7.16). By category of bank, Business Category
policy rate beginning in 2016 was shadowed by the 3 commercial banks recorded the steepest fall in interest
overnight interbank rate, which fell 192 basis points to rates at 181 basis points, followed by Business Category
stand at 3.90% at the end of December 2017. The daily 1 banks (139 basis points), Business Category 2 banks
average spread between the policy rate and the overnight (130 basis points) and Business Category 4 banks (91
interbank rate after the launching of the BI7DRR was 43 basis points). Deposit rates responded more strongly to the
basis points (Chart 7.15) policy rate relaxation in 2017 with support from the more
relaxed trend in bank liquidity. Reflecting this was the
Bank Indonesia also consistently performed fine tune spread between the policy rate and the weighted average
contraction and expansion operations to curb volatility in deposit rate that reached 182 basis points at the end
overnight interbank rates.4 In 2017, the average spread of 2017, or 197 basis points narrower than the spread
between minimum and maximum overnight interbank rates recorded at the end of 2016.
However, lending rates responded more slowly and

4 In June 2017, Bank Indonesia launched fine tune expansion for non-overnight tenors in on a more limited scale to monetary policy relaxation
response to bank liquidity needs in the period approaching the Idul Fitri festive season.

Chart
Grafik7.16. Time Ipsum
7.16. Lorem Deposit Rates by Tenor Chart
Grafik7.17. CreditIpsum
7.17. Lorem Growth and Credit Interest Rates
Percent Percent Percent, yoy

9.5 14.5 13
9.0 14.0
12
8.5 13.5
11
8.0 13.0
7.5 12.5 10
7.0 12.0 9
6.5 11.5
8
6.0 11.0
7
5.5 10.5
5.0 10.0 6
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017 2015 2016 2017
1 Month 3 Months 6 Months Weighted Average of Credit Interest Rate

12 Months 24 Months Weighted Average of Deposit Interest Rate Working Capital Credit Interest Rate Consumption Credit Interest Rate
Investment Credit Interest Rate Credit Growth (rhs)
compared to the response in time deposit rates. At the Monetary relaxation was also transmitted to other interest
end of December 2017, the weighted average loan rates on the financial market. Reflecting this, government
interest rate stood at 11.3%, having dropped 153 basis bond yields declined an average 161 basis points in
points from the level in early 2016. By the end of 2017, 2017. The reduction took place in all tenors and was
transmission of the policy rate cuts onto loan interest rates strongest in short tenors (177 basis points), while yield
amounted to 77% of the total decline in the policy rate in medium and long tenors experienced less decline at
since 2016, when the current cycle of cuts began. This 166 basis points and 127 basis points (Chart 7.20).
represents a more robust transmission compared to the The fall in yields prompted an increase in total non-
range of 66% to 69% seen in the previous relaxation bank financing, which includes issuances of bonds,
cycle. The slower decline in loan interest rates compared medium-term notes (MTNs), promissory notes, negotiable
to deposit rates is explained by the ongoing banking certificates of deposit (NCDs) and stocks (see Chapter 8,
consolidation, which has introduced into the system Macroprudential Policies).
measures that include mitigation of credit risk and
improvements in banking efficiency and profitability (see
Chapter 8, Macroprudential Policies). Nonetheless, loan
interest rates have fallen to their lowest level in several
years, prompted by this monetary relaxation (Chart 7.17).
By type of use, the steepest drop was recorded in interest

Chart 7.18.
Grafik 7.18. Lorem IpsumCredit Interest Rates by Bank Group
rates for working capital credit at 178 basis points,
followed by investment credit at 157 basis points and Percent
consumption credit at 122 basis points (Chart 7.17). 16
Analyzed by category of bank, the steepest reductions

in loan interest rates took place in Business Category 3 14
commercial banks (189 basis points), followed by Business

Category 2 banks (160 basis points), Business Category 4 12
banks (132 basis points) and Business Category 1 banks

(58 basis points) (Chart 7.18). Accordingly, the spread 10
between loan and deposit rates eased to 523 basis points

at the end of 2017 from 532 basis points at the end of 8
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2016 (Chart 7.19). 2015 2016 2017
BUKU 1 BUKU 2 BUKU 3 BUKU 4

Chart
Grafik7.19. Time Ipsum
7.19. Lorem Deposit and Credit Interest Rate Transmission through the Asset Price Channel
Spread
Percent Percent In contrast to the limited expansion in bank lending, the
14 6 monetary relaxation stimulated increases in financial asset
12 5 prices and growth in non-bank financing. The IDX stock
index rose steadily, bolstered by the micro-fundamentals
10 4
of company performance and increased initial public
8 3
offerings. Performance on the government bonds market
6 2 was also positive, reflected in the substantial decline in
yield. Non-bank financing reached IDR309.8 trillion with
4 1
growth at 32.2% yoy; corporate bond issues dominated
2
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
0
the growth in non-bank financing (see Chapter 8,
2015 2016 2017
Macroprudential Policies).
BI Rate BI-7DRR Weighted Average Deposit Rate
Weighted Average Credit Rate Spread Credit - Time Deposit (rhs)

Transmission through the Liquidity Channel
Transmission through the Bank Credit Channel In 2017, growth in base money (M0) climbed significantly
to 9.7% from 4.6% in 2016 (Chart 7.21). M0 expansion
Transmission of monetary policy relaxation continued was driven primarily by increased demand for cash
through the bank credit channel, albeit on a relatively outside banks in line with the upswing in economic
limited scale. In 2017, credit growth was recorded activity. In 2017, cash outside banks expanded 15.4%,
at 8.2% yoy, slightly ahead of the 7.9% reached in ahead of the 8.2% growth recorded in 2016. The
2016. On the supply side, one factor in the lackluster downward trend in interest rates was one of the factors
credit growth in 2017 was the ongoing consolidation influencing public preferences for holding money in
of the banking system, which was caused in part by the more liquid form and leading to significant expansion
perception that credit risk had not eased significantly. As in cash held by the public. The faster growth in M0
a result, banks erred on the side of caution, a tendency also resulted from the rise in demand deposit balances
reflected in continued high lending standards, particularly held by banks at Bank Indonesia, in line with growth in
during the first half of the year. On the demand side, the depositor funds. In contrast, holdings of Bank Indonesia
restrained credit growth also represented the effect of Certificates (SBIs) and SDBIs, which are recorded in M0,
the gradual pace of economic recovery (see Chapter 8, were down in December 2017 compared to December
Macroprudential Policies). 2016.5 In analysis by influencing factors, the higher
M0 growth during 2017 was driven by: (i) expansion
in net foreign assets related to increased tax receipts
and the government share of foreign currency earnings
Chart
Grafik7.20.
7.20. Government Bonds (SBN) Yield by Tenor
from oil and natural gas; (ii) issuances of global bonds;
and (iii) proceeds from auctions of SBBIs. However, net
Percent bps
9 0 domestic assets recorded weaker growth due to the limited
expansion of government finances.
8 -50
7 -100
M1 growth slowed despite increased growth in cash
outside banks. This resulted in part from the limited 10.2%
6 -150 expansion in demand deposits held by the public in the
banking system in 2017, down from growth in 2016 that
5 -200
reached 24.5%. The limited growth resulted mainly from
4 -250
1 2 3 4 5 6 7 8 9 10 15 20 30
Tenor
Yield December 2016 Yield December 2017 5 The Bank Indonesia Certificate (SBI) and Bank Indonesia Certificate of Deposit (SDBI)
Changes in Yield (rhs) holdings recorded as components of M0 are SBIs and SDBIs used for compliance
with the secondary reserve requirement, which eased to IDR84.1 trillion in 2017 from
Source: Bloomberg
IDR87.8 trillion in 2016.

Grafik 7.21.
Chart 7.21. Pertumbuhan Komponen
Growth of M0 M0
Components Chart
Grafik7.23. Contribution
7.23. Kontribusi of Components
Komponen M2 to M2
Growth
30 18
25 16
20 14
15 12
10 10
5 8
0 6
-5 4
-10 2
-15 0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017 2015 2016 2017
Currency Banks Demand Deposit in Bank Indonesia M0 M1 Quasi Money M2
reduced growth in demand deposits held by corporates, In analysis by influencing factors, M2 growth was
in keeping with the ongoing consolidation process. In driven by the tapering growth of net domestic assets
response to these developments, M1 growth reached (Chart 7.25), which slowed to 4.7% in 2017 from
12.4% at the end of 2017, below the 17.3% level at the 8.7% in 2016. This was mainly due to the still-limited
end of 2016 (Chart 7.22). net government expenditure and slowing bank credit
expansion. In contrast, net foreign assets growth rose
Similarly, M2 slowed to 8.3% in December 2017 from to 18.7% in 2017 from 14.0% in 2016, bolstered by
the 10.1% recorded in December 2016 (Chart 7.22). increased international reserves.
M2 growth was influenced by the contributions from M1
and quasi-money, which expanded at only a gradual
rate (Chart 7.23). The most important contribution 7.5. Monetary Policy Coordination
to quasi-money during 2017 came from increases in
rupiah-denominated time deposits and savings deposits. Bank Indonesia coordinated with the Government to
In addition, growth in quasi-money was also spurred better support monetary policy aimed at safeguarding
by increased growth in foreign currency deposits macroeconomic stability. Such coordination was necessary
(Chart 7.24). to bolster the effectiveness of Bank Indonesia’s policy mix,
Chart
Grafik7.22. Growth of M2
7.22. Pertumbuhan Components
Komponen M2 Chart
7.24. Kontribusi of QuasiKuasi
Komponen Components
20 20
18
16 15
14
12 10
10
8 5
6
4 0
2
0 -5
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017 2015 2016 2017
Rupiah Time Deposit Forex Time Deposit Rupiah Saving

Quasi Money M1 M2
Forex Demand Deposit Forex Saving Quasi Money

Chart
7.25. Kontribusi of Factors
Faktor M2 affecting M2 expected to gain a long-term, joint vision and a carefully
designed work program for progressing towards a more
Percent, yoy robust financial market.
25
20
Coordination of Inflation Control

15
10
Bank Indonesia also worked to strengthen its coordination
5 in inflation control with both the national and regional
government. Such policy coordination forms part of Bank
0
Indonesia’s strategy to strengthen the effectiveness of its
-5
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 policies. The coordinating measures took into account the
2015 2016 2017
fact that the sources of inflationary pressure not only lie in
NFA NDA (NCG) NDA (Credit) M2 demand, but also in supply, as in the case of food price
shocks and increases in administered prices. To bolster
the effectiveness of inflation control, national and regional
government worked together to monitor and prepare
including the policy focus of keeping inflation within the for problems with inflation.7 This policy coordination is
target range. expected to support the achievement of inflation within the
target range and to bolster overall economic stability.
Coordination of Financial Market Development Coordination of inflation control was given a stronger
legal basis with the signing of Presidential Decree No.
For its part in coordinating the development and 23 of 2017 concerning the National Inflation Control
expansion of financial markets, Bank Indonesia Team.8 This decree created the legal framework for
encouraged hedging by state-owned enterprises. This coordination of inflation control through establishment of
is achieved by supporting an update of the hedging the Central Government Inflation Control Team (TPIP), the
standard operating procedures by state-owned enterprises. Regional Inflation Control Teams (TPIDs) at the provincial
The new guidelines covered the use of several new level and the Regional Inflation Control Teams (TPIDs) at
hedging instruments, including CSOs. The new standard the regency/municipality level.9 Intensified coordination
operating procedures have benefitted state-owned of inflation control was reflected in the increase in the
enterprises by giving them more cost-efficient hedging number of TPIDs to 527 at the end of 2017 (34 provinces
instruments with which to manage their foreign currency and 493 regencies/municipalities) from 507 at the end
holdings. Hedging by state-owned enterprises is expected of 2016 (Figure 7.1). Coordination by Bank Indonesia,
to grow and to promote exchange rate stability in the
long run.
7 Inflation control has been managed on a coordinated basis at the national level since
Alongside this, Bank Indonesia is currently collaborating the launch of the Inflation Targeting Framework in 2005 for setting and achieving the
inflation target. At the regional level, coordination of inflation control both with central
with Ministry of Finance and OJK on developing a authorities and with other regions began in 2008. This coordination is managed in the
national strategy for financial market development and Inflation Control Team (TPI) and National Working Group for Regional Inflation Control
Teams (TPIDs) at the national level, and the TPIDs at the regional level.
deepening (SN-PPPK) in an effort to create new sources
of economic financing.6 This strategy is needed, as 8 In line with this presidential decree, regulations were subsequently issued in Regulation
of the Coordinating Minister for the Economy No. 10 of 2017 concerning the
the powers of each authority overlap and initiatives Mechanism and Working Procedures for the Central Government Inflation Control
for financial market deepening have not so far been Team, the Provincial Inflation Control Teams and the Regency/Municipality Inflation
Control Teams, Decree of the Coordinating Minister for the Economy No. 148 of 2017
adequately integrated. Through the SN‑PPPK, Indonesia is
concerning Duties and Membership of the Working Groups and Secretariat of the
Central Government Inflation Control Team (TPIP), and Decree of the Minister of Home
Affairs No. 500.05-8135 of 2017 concerning Regional Inflation Control Teams.
6 Bank Indonesia is coordinator of the Coordinating Forum for Development Financing 9 TPIP consists of working groups and the secretariat. The working groups themselves were
via Financial Markets (FK-PPPK) for the 2017-2018 period. The FK-PPPK is the forum divided into two, namely the Central Government Working Group to carry forward the
consisting of Bank Indonesia, Financial Services Authority (OJK) and Ministry of Finance, duties of the previous Inflation Control Team and the Regional Government Working
which developed the national strategy for financial market development and deepening Group to carry forward the duties of the National Working Group for Regional Inflation
(SN-PPPK), among others. Control Teams.

Figure 7.1.
Gambar Number
7.1. Jumlah danand Distribution
sebaran of Regional
TPID (Posisi Inflation
Desember Control Teams (TPID) in 2017
2017)
34 TPID in Provinces
493 TPID in Cities and Districts
TPID = 100% 75% ≤ TPID < 100% 50% ≤ TPID < 75% TPID ≤ 50%
Source: Economy Ministry and Bank Indonesia
in conjunction with the central government and regional governments. National coordinating meetings of the
governments, also took place in the Government, Regional TPIDs are one of the key forums for building coordination
Government and Bank Indonesia Coordinating Meeting between central and regional government. These are
and the round table policy dialogue. This coordination presided over by the president of Indonesia and set
extended beyond inflation control to include the agenda the strategic direction of inflation control in support of
for structural reforms. achieving the national inflation target. The principal
areas of focus of the presidential instructions for the 2017
In 2017 policy coordination and synergy focused on National Coordinating Meeting for Inflation Control were:
efforts to achieve the inflation target and guide inflation (i) the importance of inflation control in safeguarding
expectations along a low, stable track. Early in the year, public purchasing power and supporting improved
the Government and Bank Indonesia committed to six economic growth; (ii) the reinforcing of supporting
strategic actions to keep inflation in 2017 within the infrastructure both to safeguard unimpeded distribution of
4.0±1% range.10 In addition to these firm commitments, food staples and to support supply management of these
Government and Bank Indonesia also agreed future items; (iii) stronger monitoring of prices and distribution
inflation targets in line with efforts to maintain low, stable of goods – including by optimizing the food staples
inflation (Figure 7.2). For 2019, the target is 3.5±1%, and information system to ensure all members of the public
for both 2020 and 2021 it stands at 3.0±1%.11 These can access it – to support rapid and appropriate inflation
lower inflation targets took into account the economic control policy responses; (iv) safeguard the availability of
outlook and competitiveness of the economy and, in food stocks in the regions in cooperation with the National
addition, were also set with the purpose of fostering Logistics Agency (known as Bulog), and cooperate in
expectations of low, stable inflation. trade among the regions; and (v) promote streamlining
of licensing processes to support investment growth in the
To support achievement of the inflation target, policy regions.
coordination and synergy did not take place only at
the ministry/agency level, but also involved regional To support achievement of the inflation target, policy
coordination focused on control of food prices and curbed
volatile food (VF) inflation to within a range of 4% to
10 The agreement was reached in a coordinating forum for heads of government agencies 5% in 2017. The effort to bring VF inflation to below the
and ministries participating in the Inflation Control Team and the National Working
Group (Pokjanas TPID) held in Jakarta on 25 January 2017.
historical average of about 9% over the preceding decade
demanded a common effort and shared commitment
11 In the memorandum of understanding between the Government and Bank Indonesia,
the inflation target is adopted in a Minister of Finance Regulation (PMK) for three years across government agencies. The coordination of
going forward. The inflation target for 2019 to 2021 has been determined on the basis
inflation control for food staples was directed mainly
of Minister of Finance Regulation Number 124/PMK.010/2017.

Gambar
Figure 7.2. Enam
7.2. Langkah Steps
Six Strategic Strategis Menjaga
to Control Inflasi 2017
Inflation in 2017
06 01
Strengthening Bank Indonesia's Policy Mix to Mantaining Volatile Food Inflation
ensure Macroeconomic Stability (VF) to be in the range 4-5%
Strengthening Coordination of Central Controlling the continued impact of

and Regional Governments with The administered prices policy
05 Implementation of National adjustments such as controlling 02
Coordination Meeting VIII TPID 2017 public transport tariff
in July 2017 (rakornas)
Strengthening Institutions of Regional Inflation Control Sequencing administered prices policy, including the
Team (TPID) and National working group for inflation implementation plan of converting some direct subsidies
control (Pokjanas) become National Inflation Control into cash transfers (such as fertilizer, rice
Team (TPIN) subsidy (raskin), and LPG 3 kg)
04 03
at increasing production, improving market structures, serve as a ‘home’ for regional food price data (Chart
improving distribution, enhancing market efficiency, 7.3).13 The National PIHPS Program was inaugurated on
strengthening regulation, managing inflation expectations, 12 June 2017 and can be accessed by the public.14
and educating about inflation. At the regional level, the
TPID work programs supporting these priorities include In addition to coordinating on food prices, Bank Indonesia
technological innovations in horticultural production in also coordinated with the Government on the management
Central Java, cooperation in marketing of food products of administered prices (AP), particularly in the aftermath of
using e-commerce in Jakarta, improvements to rural reforms to the energy subsidy. In 2015, the Government
infrastructure in Bali, and cooperation in trading of foods launched reforms affecting petroleum-based fuels,
between Jakarta and other regions.12 electricity billing rates and liquid petroleum gas (LPG). In
effect, prices for the three commodities would more closely
Bank Indonesia also facilitated the development of micro, reflect the component dynamics of each commodity,
small and medium enterprises (MSMEs), as one way such as oil prices. Bank Indonesia and the Government
to help to control VF inflation. This was carried out in coordinated on the timing of the implementation of
alignment with measures to improve the supply of food policies relating to administered prices in order to avoid
staples. Bank Indonesia also boosted the development excessive inflationary pressures. Coordination took place,
of MSME clusters for supply-side support of strategic for example, on the planned conversion of subsidies for
food commodities that influence VF inflation, in this fertilizers, rice for low-income citizens and 3kg bottled
case shallots, red chilli peppers, garlic, beef and rice. LPG into direct cash transfers. In addition, Bank Indonesia
This development was undertaken in a value chain and the Government also worked together to mitigate the
approach and encouraged groups of farmers to produce second-round effects of price increases; this was done to
a commodity, process it to add value and market the avoid triggering excessive inflation expectations.
end goods.
For Indonesia, widespread and easy public access

to information on food prices is key to improving
market efficiency, creating stability in food prices, and
13 Development of the national food price information centers (PIHPS) follows the instruction
consequently to controlling inflation. Bank Indonesia
given by President Joko Widodo at the Economic Action Synergy for the Common
joined with the Government to develop strategic food People event held in Brebes on 11 April 2016. At this event, he called for development
price information centers (PIHPS) on a national scale to of two systems – a food staples information system and a system to coordinate the
control of food prices on a national scale.
14 The National PIHPS contains data on 10 strategic food commodities that are the main
12 Jakarta cooperated in trade with other regions for delivery of certain commodities, contributors to volatile food inflation, along with 21 commodity variants. It can be
including shallots from Brebes regency, beef from East Nusa Tenggara and eggs from accessed via the hargapangan.id web page or by downloading the Android or iOS
Blitar regency. version of the National PIHPS app.

Figure
Gambar 7.3. ScopeIpsum
7.3. Lorem of National Strategic Food Price
Information Centres (PIHPS) in 2017
2016: 2017: 2017:

Traditional Modern
Market Market Wholesalers
Data in 34 Data in 21 Data in 34

Provinces, Provinces, Provinces,
90 cities, and 67 cities, and 63 cities, and
185 Markets 133 Markets 877 Markets

Box 7.1. The objectives of RR averaging were to improve bank
liquidity management, promote financial market
Implementation deepening and reduce interest rate volatility on the money
and Evaluation market. The introduction of RR averaging provided banks
with flexibility regarding the timeframe for compliance,
of the Minimum with the previous daily requirement extended to a two-
Reserve Requirement weekly period. Through this flexibility, banks are expected
to have greater opportunity to strengthen their liquidity
Averaging Policy management and make their placements in money
market instruments with longer tenors. In this way, banks
To improve the effectiveness of monetary policy, Bank are expected to operate more efficiently in liquidity
Indonesia has undertaken a three-pronged reformulation management and help support measures for financial
of the monetary policy operational framework, spanning market deepening.
2016, 2017 and 2018. First, Bank Indonesia aimed to
add strength to monetary policy signals by reformulating The implementation of RR averaging is also expected
the policy rate. Second, Bank Indonesia would reinforce to provide incentives for banks to scale back their
the management of bank liquidity through reserve precautionary reserves and reduce dependence on the
requirement (RR) averaging. Third, it planned to introduce money market for meeting liquidity requirements, thus
a broader diversity of instruments and transactions to easing pressure on the money market and making for
boost financial market deepening. greater stability in interbank rates.
On 19 August 2016, Bank Indonesia reformulated the Since its inception, banks have taken advantage of the
monetary policy operating framework by switching the RR averaging policy; the number of banks using it and
policy rate from the BI Rate to the BI7DRR. This change the volume of funds increased. By the end of 2017, RR
accompanied a strengthening of the monetary operation averaging was in use at 49 banks, or 48% of the total
strategy by safeguarding a symmetrical and narrower 102 banks. Over the six months from inception to the end
interest rate corridor on the interbank market. of the year, banks generally opted to use RR averaging
in the range of 0.6% to 0.90%, well within the permitted
The reformulation of the policy rate was taken further by maximum 1.5% RR averaging (Chart 1).
implementing the second pillar, namely the introduction of
the RR averaging policy on 1 July 2017. The RR averaging The launching of RR averaging led to improved efficiency
was launched in a cautious, phased process that took in the management of banking liquidity. Reflecting the
account of various challenges, including the surplus and higher efficiency was the decline in the average position
unevenly distributed liquidity in the banking system, the of excess reserves (ER), an indicator of precautionary
minimal availability of instruments on the money market reserves, at banks taking advantage of RR averaging.
and a lack of equitable access to interbank transactions. During the evaluation period, the average position of ER
Therefore, in the initial stage, the RR averaging applied at banks that used RR averaging fell by 60.1%, a steeper
only to the rupiah primary RR at conventional banks and drop when compared to the overall 50.1% decline in ER
was carried out with partial averaging. for the banking industry as a whole.1
The RR averaging policy did not change the level of the The positive impact of RR averaging also started to
rupiah primary RR that banks were required to meet, become visible in reduced volatility in interbank rates.
which remained at 6.5% of depositor funds. However, a From July to December 2017, volatility in overnight
change was made to how the requirement was to be met; interbank rates was down compared with volatility levels
in this case, from the former fixed level (6.5% of depositor before RR averaging was launched (Chart 2). The longer
funds) to be met on a daily basis to a portion (1.5% of period for meeting the RR enabled banks to hold back
depositor funds) that can be averaged over two weeks.
The remaining 5% of depositor funds must still be met on a
1 July to December 2017 period compared to January to June 2017.
daily basis.

Grafik1.
Chart
Grafik 1 Boks
1 Box 7. Pemanfaatan
Reserve
10.3. Dinamika (Utilisasi)
Requirement Averaging
Sektor GWM
Industri Rata-Rata
Utilization
Thailand Grafik3.
Chart
Grafik 2 Boks 7. Tenor
Interbank
1 Box 10.3. Instrumen
Money
Dinamika PUAB
Market
Sektor Instrument by
Industri Thailand
Tenor
Percentof World Export
Share Percentof World Export
Share
1.6
2,5 100
2,5
1.4 90
2,0 80
2,0
1.2
70
1.0
1,5 0.80 0.90 60
1,5
0.81 0.78
0.67 0.79
0.8 0.64 50
0.80 0.69 0.77 0.75
1,0
0.6 0.69 40
1,0
30
0.4
0,5 20
0,5
0.2 10
0 0
1 2 3 4 5 6 7 8 9 10 11 12
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
1-15 16-31 1-15 16-31 1-15 16-30 1-15 16-31 1-15 16-30 1-15 16-31
July July Agt Agt Sep Sep Oct Oct Nov Nov Dec Dec 2017
Overnight 2-4 Days 1 Week 2 Weeks 3 Weeks

Average
Tekstil UtilizationElektrik Reserve Requirement
Mesin Averaging
Otomotif Tekstil Elektrik Mesin Otomotif
1 Month 2 Months 3 Months >3 Months
Sumber: UN COMTRADE
Source: Bank Indonesia Sumber: UN COMTRADE
from borrowing on the money market at times when system. As structural improvements move ahead on the
interbank rates were high, and thus avoided stoking financial market, there is confidence that in the long run,
pressure for further increases in interbank rates. the implementation of RR averaging will encourage banks
to place more funds on the financial market and in longer
Looking to the future, more needs to be done to tenors.
strengthen the impact of RR averaging on financial market
deepening. The reason lies in the lack of substantial
change in the tenor of fund placements on the interbank
market, which are still dominated by the overnight tenor.
The proportion in the overnight tenor even increased
slightly after the launch of RR averaging, rising to 66%
in October 2017 from 64% in July 2017 (Chart 3). In
addition, banks scaled back their placements on the repo
market due to the abundance of liquidity in the banking
Grafik2.
Chart
Grafik 2 Boks
1 Box 7. Volatilitas
Volatility
10.3. PUAB
of Overnight
Dinamika O/N
Interbank
Sektor IndustriMoney
Thailand
Market Interest Rate
bps of World Export
Share
60
2,5
50
2,0
40
1,5
30
1,0
20
0,5
10
0
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
1-15 16-30 1-15 16-31 1-15 16-30 1-15 16-31 1-15 16-31 1-15 16-30 1-15 16-31 1-15 16-30 1-15 16-31
April April May May June June July July Agt Agt Sep Sep Oct Oct Nov Nov Dec Dec
Volatility of Overnight Interbank Money Market

Tekstil Elektrik Mesin Otomotif
Average Before Implementation
Average After Implementation
Sumber: UN COMTRADE

CHAPTER 8
Macroprudential Policy
Bank Indonesia continued to pursue its accommodative
macroprudential policy, which is aimed at supporting the
intermediation function of banks by maintaining financial
system stability. This policy was intended to both support the
financial cycle and also the ongoing economic recovery.

LAPORAN PEREKONOMIAN INDONESIA 2017 | 123
Macroprudential policy in 2017 was aimed at supporting 8.1. Loan/Financing to Value Ratio
the intermediation function of banks by continuing to Policy1
uphold financial system stability. By safeguarding this
stability, Bank Indonesia gives itself room to continue In 2017, Bank Indonesia continued with the
pursuing its accommodative macroprudential policy. accommodative LTV/FTV policy it began in 2015. In 2015
An accommodative macroprudential stance will reverse and 2016, Bank Indonesia increased the LTV and FTV
the downward direction of the financial cycle and ratios to a range of 75% to 90%, with higher ratios for
support the ongoing economic recovery process. In smaller properties and for first-time buyers.2 Loosening of
2017, Bank Indonesia continued its accommodative the LTV/FTV policy was intended to encourage lending,
policy stance towards the loan-to-value (LTV), financing- especially for property purchases. With this policy, banks
to-value (FTV) and loan-to-funding ratios (LFR), as it has have greater flexibility in providing loans by taking into
done since 2015. Efforts to support improvements in the account the economic cycle and conditions in the property
financial cycle were also strengthened by safeguarding market.
banks’ capacity to provide loans by reaffirming the
countercyclical capital buffer (CCB) at 0%. In addition, Bank Indonesia’s decision to loosen LTV/FTV had a
Bank Indonesia has also continued to encourage loan positive impact on the growth of home ownership loans
growth for the development of micro, small, and medium (KPR) in 2017. The LTV/FTV loosening policy – which was
enterprises (MSME), both from the side of loans supply also supported by cuts in policy interest rates and strong
by raising the minimum limit of the lending ratio for public demand for housing – had already given a boost
MSME, and from the angle of loan demand by raising to KPR growth. Growth in home ownership loans trended
the capacity of MSME players. From the perspective of upward in 2017 and reached 10.5%, higher than the
financial system stability risk management, Bank Indonesia growth pace over the last two years of approximately
consistently undertakes macroprudential surveillance and 7%. This encouraging performance was also supported
supervision and has established closer coordination with by manageable credit risk, as reflected in non-performing
related authorities, particularly around preventing and loans (NPLs) of only 2.6% (Chart 8.1).
handling a financial system crisis.
Bank Indonesia’s consistent accommodative Grafik 8.1.

Chart 8.1. Pertumbuhan
Growth ofdan RisikoLoan
Housing Kredit(KPR)
KPR and KPR
macroprudential policy and solid policy coordination Non-Performing Loan (NPL)
have already had positive results. Loan growth has begun Percent, yoy Percent
to increase, while the stability of the financial system 12 3.5
has been maintained, as reflected in the improving 10

3.0
performance of the banking system and capital markets.
8
However, the ongoing corporate consolidation stifled 2.5
demand for credit from corporates and prevented faster 6
2.0
levels of loan growth. In addition, the continued internal 4
consolidation within banks was another factor curbing 1.5

2
loan growth. Amid the limited improvement in loan growth
from banks, financing sourced from non-bank financial 0
1.0
institutions, the bond markets and the capital market 2015 2016 2017
increased to meet some of the financing needs of the Housing Loan Growth Housing Loan NPL (rhs)
economy.
1 The loan-to-value (LTV) / financing-to-value (FTV) policy was aimed at reducing

speculative behaviour in property investment financed by the banking sector. This policy
specifies the size of the down payment for a property loan. Nonetheless, in order to
continue meeting the people’s housing needs, this policy applied lower LTV/FTV to the
purchase of luxury homes and purchases of second homes. This was done to favour the
interests of home buyers who intended to use the property as their main residence.
2 The LTV or FTV ratios in 2015 ranged from 60% to 90%; in 2016, the LTV/FTV ratios
increased again to a range of 75% to 90%.

Grafik 8.2.
Chart 8.2. Pertumbuhan
Growth ofKPR per Tipe
Housing Loan by Type of Grafik 8.3.
Chart 8.3. Perkembangan LDR dan
Loan-to-Deposits LFR(LDR) and Loan-
Ratio
House to-Funding Ratio (LFR)
25 93
20 92
91
15
90
10
89
5
88
0
87
-5 86
--10 85
2015 2016 2017 2015 2016 2017
Landed House 22-70 Landed House > 70

LDR LFR
Flat/Apt 22-70 Flat/Apt > 70
The increase in KPR growth was seen in all types of encouraged banks to issue more securities.4 In 2017,
residential homes, flats and apartments. Loans for securities issued by banks reached IDR59.2 trillion,
residential homes of up to 70m2 in size – the dominant significantly higher than the previous year’s IDR40 trillion
property size for which KPR loans were taken out, (Chart 8.4). This was a positive development considering
accounting for 60% of the total – grew 15.2% in 2017. that the issuance of more-stable long-term securities is
At the same time, there was also a significant 23.4% KPR better aligned with the funding characteristics of banks in
growth in 2017 for flats and apartments of up to 70m2 in comparison with the characteristics of deposits. As such,
size (Chart 8.2). funding through the issuance of securities can support the
channeling of long-term loans and also support a bank’s
liquidity risk management. Furthermore, an increase in
8.2. Loan-to-Funding Ratio3 the amount of securities issued by banks can also support
efforts to deepen Indonesia’s financial markets.
In 2017, Bank Indonesia reaffirmed its policy for statutory
reserves (GWM) to be based on a loan-to-funding ratio
Grafik 8.4.
Chart 8.4. Perkembangan Kredit,
Credit, Deposits andDPK dan SSBIssued by
Securities
(LFR) in the range of 80% to 92%. This policy was
yang Diterbitkan Bank
Banks
consistent with efforts to encourage bank intermediation
Rp Trillion Rp Trillion
by continuing to maintain the liquidity of banks. However,
5,500 70
this statutory reserves policy was unable to significantly
push up LFR in the banking sector (Chart 8.3). 5,000 60
4,500 50
However, the LFR-based statutory reserves policy was
able to improve the structure of bank financing. The 4,000 40
change from loan-to-deposits ratio (LDR) to LFR in 2015

3,500 30
3,000 20
2015 2016 2017
Credit Bank Deposits Banking Securities (rhs)

3 Statutory reserves LFR are the minimum funds in rupiah that must be maintained by
banks in the form of an account balance in Bank Indonesia. It must amount to a certain Source: Bank Indonesia
percentage of deposits; this is calculated based on the difference between a bank’s
LFR and the LFR target. This policy is aimed at maintaining bank liquidity and reducing 4 The criteria for securities issued by banks to be calculated in the LFR, i.e. issuances in the
the build-up of systemic risk by controlling the intermediation function of banks, in form of medium term notes (MTN), floating rate notes and debts other than subordinated
accordance with their capacity and the economic growth target. This policy is intended debts. These three types of securities must be offered through a public offering and have
to encourage the creation of a balanced and quality intermediation function by a rating from a ratings agency at least equivalent to investment grade. These securities
continuing to safeguard the liquidity of banks. This policy only applies to conventional must be owned by non-bank investors and administered by an agency authorized to
commercial banks. provide depository and securities transaction settlement services.

Grafik 8.5.
Chart 8.5. Kesenjangan Kredit
Credit to GDP Gapterhadap PDB
Indicator Grafik 8.6.
Chart 8.6. Siklus Keuangan
Financial Indonesia
Cycle
Percent Over GDP Index

10 0.10
0.08
8
0.06
Very Excessive Credit Risk
6 0.04
Excessive Credit Risk 0.02
4
0
2 -0.02
0 -0.04
Not Excessive Credit Risk
-0.06
-2
-0.08
-4 -0.10
2002
1993
1994
1995
1996
1997
1998
1999
2000
2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Crisis Period Credit Gap Upper Limit Lower Limit Crisis Period Peaks & Troughs Financial Cycle
8.3. Countercyclical Capital Buffer financial system stability, strengthening of the payments
(CCB) Policy5 system and improvement in rupiah money management.
As such, MSME development policy had four goals:
In 2017, Bank Indonesia reaffirmed the CCB additional (i) creating MSME that can help to control the volatile
capital at 0%, as part of its effort to encourage loan foods (VF) element of inflation, can produce export
growth and support economic growth. Bank Indonesia, as commodities in order to boost foreign exchange, and
Indonesia’s macroprudential authority, wanted to stimulate develop a strong MSME economic sector with potential
economic recovery by improving the financial cycle while, for local expansion; (ii) creating high-quality MSME and
at the same time, preventing an increase in potential risks offering greater financial access to MSME; (iii) improving
to the financial system. Holding the CCB at 0% in 2017 is financing, marketing and the use of electronic financial
still seen to be consistent with these efforts. transactions by MSME; and (iv) developing MSME to
play a larger role in the future. Efforts to reach these four
In 2017, the movements of several indicators necessitated goals were taken through four strategic pillars, namely:
a CCB of 0%. The credit-to-GDP gap indicator was at a (i) strengthening MSME that support rupiah stability; (ii)
low level throughout the year, as it trended downwards strengthening of high-quality MSME and ensuring the
(Chart 8.5). As such, Bank Indonesia wanted to continuity of their business operations; (iii) facilitating the
create space to spur lending. In addition, Indonesia’s electronic transactions of MSME; and (iv) strengthening
financial cycle remains in a contractionary phase (Chart institutional cooperation.
8.6), suggesting the financial sector needs further
encouragement to provide more financing and thereby Efforts to improve MSME financing and financial access
support the ongoing economic recovery. were made by strengthening policy instruments to
encourage the channeling of loans to MSME. In 2018,
commercial banks must channel a minimum of 20% of
8.4. Supporting the Development their loans to MSME. This requirement is being phased in
of Micro, Small, and Medium incrementally; last year, the third year of increases in the
Enterprises ratio, banks were required to channel a minimum of 15%
of total loans to MSME.6 Bank Indonesia has monitored
Bank Indonesia’s policy of developing micro, small and the implementation of these rules and has put in place
medium enterprises (MSME) was advanced in support of policy incentives and disincentives to encourage banks
its main policies, namely inflation control, maintenance of
6 Bank Indonesia Regulation (PBI) No.14/22/PBI/2012 as amended by PBI No.17/12/

5 The countercyclical capital buffer (CCB) is additional capital, which functions as a buffer PBI/2015 concerning the Channeling of Loans or Financing by Commercial Banks and
to anticipate losses if there is loan growth and/or excessive bank financing that may Technical Assistance in the framework of the Development of Micro, Small, and Medium
potentially disrupt the stability of the financial system. Enterprises.

to meet the MSME loans target ratio. Banks that meet Grafik 8.7.
Chart 8.7. Pencapaian TargetRatio
MSMEs Credit RasioTarget
KreditAchievement
UMKM
the target more quickly have the upper limit of the LFR Perbankan sebesar 15%
loosened to 94% from 92%. By contrast, banks unable to Number of Banks
meet the target suffer a reduction in the demand deposits 80
interest paid on rupiah statutory reserves. 70
60 21
22 23
19
17 22
To help banks achieve the MSME loans targets, Bank 50
Indonesia has implemented facilitation programs in 40
cooperation with other agencies and institutions. One 30

51
45 46 47 48
42
form of facilitation is the use of the small and medium 20
enterprises credit rating in cooperation with Indonesia’s 10
Credit Guarantee General Company (Perum Jamkrindo). 0

IV IV I II III IV
2015 2016 2017
Perum Jamkrindo scored over 3,000 MSME sourced
from a Bank Indonesia database. These scores can then MSMEs Credit Ratio _> 15%, NPL<5% MSMEs Credit Ratio >15%,
_ NPL >
_ 5%
be used by banks – especially regional development

banks – that need access to potential borrowers. Bank
Indonesia also cooperates with the Commodity Futures
Trading Supervisory Agency (Bappebti) to explain and was conducted in several regions, with banks, ministries,
implement warehouse receipt systems in the regions, agencies and MSME associations and communities
whereby financing can be leveraged against stored participating.
commodities. This is intended to drive increased use of
warehouse receipt systems, and also increase the MSME Efforts to improve MSME access to finance were also
financing by regional development banks that have not yet taken by raising the capacity of MSME, in order to boost
reached their MSME loans/financing targets. Facilitation their supply-side role particularly of food commodities
was also carried out by Bank Indonesia in collaboration and help to control inflation. Clusters of MSME were
with the Creative Economy Agency (Bekraf), including developed, with each cluster focused on a particular food
through the activities of the Bekraf Financial Club (BFC), security commodity – or other commodity – that contributes
business matching and discussions on financing schemes significantly to inflation. By the end of 2017, 207 clusters
for the creative economy. Further, Bank Indonesia also of agricultural commodities had already been developed
strengthened the capacity of banking sector staff in by Bank Indonesia across the country. Results show that
a number of regions through MSME business profile Bank Indonesia’s policy to develop a comprehensive
training. cluster program from upstream to downstream had a
positive impact on farmers. The program improved their
The MSME loans targets and the facilitation undertaken by
Bank Indonesia to encourage the channeling of loans to
MSME have had a positive impact. In 2017, the number Grafik 8.8. Perkembangan Pangsa Kredit UMKM
Chart 8.8. MSMEs Credit Share
of banks that reached an MSME loans ratio of 15%
of total loans and with NPL below 5% increased each
quarter (Chart 8.7). Consequently, the proportion of loans
made annually to MSME has increased over the past three 19.7%
19.4%
years (Chart 8.8). 19.3%
80.7%
To support MSME’s access to financing, Bank Indonesia 80.6%
also developed the Financial Information Recording 80.3%
Application (APIK). This user-friendly app can be accessed

2015
via smartphones and makes it easier for micro and small
2016
enterprises to prepare simple financial statements in
2017
order to access financing from financial institutions. APIK
can also be used by banks in credit proposal analysis. MSMEs Credit Non-MSMEs Credit
In 2017, a trial to expand the implementation of APIK

performance and average incomes, while also giving them 8.5. Macroprudential Policy
better access to marketing and financing. At the present Coordination
time, the cluster business model is directed downstream.
Farmers do not only produce commodities, but are also Bank Indonesia has coordinated with other authorities to
motivated to further process these, adding value and strengthen the effectiveness of macroprudential policy in
creating marketable products. Still in its infancy, this maintaining financial system stability. The coordination
program to introduce a downstream business model is on subjects including macro-microprudential policy and
more directed toward small scale industries or groups. MSME development was conducted either bilaterally
Furthermore, Bank Indonesia is also encouraging the or in one coordinating pool and was done through the
development of leading regional MSME through local Financial System Stability Committee (KSSK).
economic development in order to create new centers
of economic activity. The local economic development
program is focused on five themes in accordance with the Coordination of Financial System Stability
characteristics and potential of a region, namely: border
regions and underdeveloped regions, empowerment of To maintain financial system stability, Bank Indonesia
women, fishermen, creative industry, export commodities worked together with other institutions, most notably the
and import substitution. This program began in 2016 Ministry of Finance, the Financial Services Authority (OJK),
and is already underway in Maluku, West Papua, West and the Deposits Insurance Agency (LPS). Coordination
Sulawesi, Aceh, Bali, West Nusa Tenggara, and Central between these four institutions takes place through the
Sulawesi. Financial System Stability Committee (KSSK) forum, as
mandated in the Law concerning the Prevention and
To widen the market reach of MSME, Bank Indonesia has Handling of Financial System Crises (PPKSK). The role of
facilitated wider market access for MSME both online KSSK is to: (i) coordinate the monitoring and maintenance
and offline. Offline marketing is realized by holding of financial system stability; (ii) handle financial system
exhibitions to showcase MSME products more widely crises; and (iii) handle systemic bank problems, when the
on a national scale. In online marketing, Bank Indonesia banking system is both normal or in crisis. The members
has encouraged MSME to broaden their reach by using of KSSK are the Bank Indonesia Governor, the Minister of
information technology. This is in line with government Finance, OJK’s Chairman of the Board of Commissioners
policies on MSME digitalization, and both government and LPS’s Chairman of the Board of Commissioners.
and Bank Indonesia policies are aligned with the national
roadmap on e-commerce.7 In regards to funding aspect on handling bank problems
during a financial system crisis, the PPKSK law states that
Bank Indonesia has begun a pilot project to widen Bank Indonesia can purchase government securities (SBN)
market access for MSME by building collaboration with owned by LPS. Such purchases can be made following a
marketplaces and national online stores to promote their decision of the KSSK and are intended to avoid volatility
products. This project involved 50 MSME in the creative in the government securities market. Such volatility could
sectors, assisted by the representative offices of Bank occur if LPS sells in large quantities and directly to the
Indonesia in DKI Jakarta, Banten, and West Java. The market. The terms and mechanism of the SBN sales are
project piloted a relaxation for MSMEs of the requirements set out in the Cooperation Agreement between Bank
for marketing their products. It also brought in education Indonesia and LPS No.18/3/PKS/DpG/2016 concerning
and mentoring for MSME, and increased the opportunities the Sale of SBN by LPS to Bank Indonesia. In relation to
for MSME to access financing from financial institutions bank resolution, Bank Indonesia also supported LPS’ Bank
and financial technology (fintech) companies. Going Restructuring Program.
forward, an e-commerce business model for MSME will
be prepared from the results of the pilot project, in order Throughout 2017, KSSK meetings were conducted on
to encourage the creation of an ecosystem that supports a quarterly basis in January, April, July, and October.
MSME digitalization. In general, the KSSK concluded that the stability of the
financial system in 2017 was normal, underpinned
by sound economic fundamentals and positive market
7 Presidential Decree No. 74 of 2017 concerning the Road Map of the Electronic-Based
National Trading System (e-Commerce Roadmap) 2017-2019. perceptions of the outlook for Indonesia’s economy.

This was reflected in the improving performance of the formulate a common stance on global financial sector
banking sector and the non-bank financial industry, the reform.
stable rupiah exchange rate, and the improving market
performance of SBN and government debt securities Financial sector authorities also coordinated to monitor
(SUN). In addition, KSSK found that deposits insurance new risks emerging in the financial system, including
was adequate and financial system infrastructure remained from fintech innovation, misconduct or a decline in
sound. correspondent banking activity.
Since 2012, KSSK has conducted annual simulations on The IMF and the World Bank believe that coordinating
the prevention and handling of financial system crises in efforts to maintain the stability of the financial system in
order to assess how members are implementing relevant Indonesia have successfully helped to reform Indonesia’s
policies. Simulations for the prevention and handling of financial sector. Reforms were also supported by
financial system crises were last conducted on 2 October supervision and a crisis management framework, as well
2017 to: (i) test the handling of bank liquidity and as the development and integrity of a stronger financial
solvency (resolution) issues; (ii) test the implementation sector since the last Financial Sector Assessment Program
of Law PPKSK by each KSSK member institution; (iii) test (FSAP) in 2010. In 2017, a second FSAP assessment was
the effectiveness of the decision-making process in KSSK carried out on Indonesia in order to meet its commitment
meetings; and (iv) test the effectiveness of coordination as a member of the G20 and Financial Stability Board to
among KSSK members. ‘lead by example’.
Simulations to prevent and handle financial system crises The FSAP 2017 assessment shows Indonesia’s
involved the most senior leaders (known as a full-dress macroeconomic performance has strengthened on the
crisis simulation) from the four KSSK member institutions. back of a stable financial system, despite global and
In the 2017 simulation, Bank Indonesia was tested on, domestic vulnerabilities. Systemic risk in the domestic
among others, provisions on crisis management protocol, financial system was considered low and the banking
short-term liquidity loans and the sale of SBN by LPS system resilient in the face of possible severe shocks,
to Bank Indonesia in order to support the funding of supported by strong capital and solid profitability. In
bank resolution efforts. The simulation results received a addition, corporate sector vulnerabilities were considered
positive response from the monitoring team, which was to be under control, although there was an increased risk
drawn from the World Bank, the International Monetary of debt in a number of economic sectors and an increased
Fund (IMF), and the Australia-Indonesia Partnership for funding risk from overseas. Authorities are required to
Economic Governance. continue monitoring systemic risks and be aware of the
potential for financial distress.
As part of efforts to strengthen coordination between
authorities in the financial sector, Bank Indonesia
established a cross-authority coordinating forum on Coordination of Macro-Microprudential Policy
global financial sector reform in 2016. Members are
the Ministry of Finance, Bank Indonesia, OJK, and Coordination of macro-microprudential policy to create
LPS. The forums aims to facilitate the exchange of a stable financial system occurred bilaterally between
information and encourage discussion. Discussion topics Bank Indonesia and OJK, based on mutual decisions and
have included development issues and the direction of memoranda of understanding.
international recommendations, both microprudential
or macroprudential, and forums have also followed up In line with Bank Indonesia’s policy of maintaining
on recommendations made by the Financial Stability macroeconomic stability, OJK also laid out a series
Board. The main achievement of this forum in 2017 is of policies to support financial system stability. OJK’s
greater awareness of international recommendations in policies were intended to ensure that all activities in the
the financial sector and the status of the implementation financial services sector are orderly, fair, transparent and
of these recommendations in Indonesia. In addition, accountable, and to ensure sustainable and stable growth
the forum has also promoted efforts improve the of the financial system. In 2017, OJK issued a number of
implementation of financial reforms in Indonesia and rulings (POJK) to strengthen the financial services sector.

Among others, it revoked the regulation that relaxed loan addition to management of the capturing report system,
restructuring as set forth in POJK No.11/POJK/03/2015 which monitors the financial and management reports of
concerning the Ruling on Prudence in the Framework of financial institutions. The exchange of such data and/or
National Economic Stimulus for Commercial Banks. This information was done in order to monitor the stability of
decision was taken in view of the improving banking the financial system as mandated by the PPKSK law.
conditions, along with the internal consolidation of the
banking system.
Coordination of MSMEs Development
Bank Indonesia and OJK continue to coordinate intensively
given the connection between the duties and authority To improve the effectiveness of policies to develop
of each institution. In 2017, Bank Indonesia and OJK MSME, Bank Indonesia strengthened coordination and
compiled a guide to cooperation between the two cooperation with various parties. In 2017, Bank Indonesia
organizations, an important step to facilitate and optimize signed a memorandum of understanding with the Ministry
cooperation and coordination between the two institutions. of Cooperatives and SMEs on joint work to empower
This document contains procedures and a coordinating cooperatives and SMEs. One form of cooperation was
mechanism for the two institutions and acts as guidance through joint assessment activities to evaluate MSME,
for the work units at Bank Indonesia and OJK. based on Law No. 20 of 2008 concerning MSME. This
is a necessary first step before empowerment programs
One aspect of the cooperation outlined in the document can be developed. The evaluation mapped the potential
concerns the preparation of policies and regulations and problems of MSME and also aimed to evaluate and
that will be issued by either Bank Indonesia or OJK. formulate MSME criteria that are in line with the latest
Through this cooperation, these two institutions have economic developments. In other cooperation, Bank
agreed to share opinions and hold discussions. This type Indonesia also worked with the Ministry of Industry and
of coordination is intended to result in harmonious and the Creative Economy Agency. This cooperation was
complementary regulations in the financial sector that designed to empower MSME in order to: help control
also support effective implementation of policies by the inflation; improve the access and coverage of MSME
appropriate authority. financing; develop and empower a sharia economy;
conduct research, education and facilitation; and
For example, the OJK coordinates with Bank Indonesia exchange data and information. Bank Indonesia also
when issuing policies for financial institutions, particularly cooperated with the Ministry of Industry to formulate
those related to crisis-handling. Such coordination took new supporting policies and to increase growth of small
place during the development of the POJK concerning the and medium industries and entrepreneurs. This work
Implementation of the Status and Follow-up of Commercial is undertaken with an eye to more even distribution of
Bank Supervision, the POJK concerning Intermediary welfare, given that most MSME are in the lower-income
Banks, and the Regulation concerning the Recovery band of the population. Empowering and boosting growth
Plan for Systemic Banks8, 9, 10. These policies were of MSME will boost lower-income groups.
intended to provide clarity on the implementation of crisis
management policies in the financial sector.
8.6. Developments in Financial
Bank Indonesia and OJK also cooperated on data and System Stability
information exchange on the results of the supervision of
financial services institutions and macro-surveillance, in Although the stability of the financial system was generally
well maintained in 2017, there were still challenges in
promoting banking intermediation. Stability of the financial
8 POJK No.15/POJK.03/2017 concerning the Determination of the Status and Follow-up
of Commercial Bank Supervision contains rules for handling bank problems facing system was underpinned by the good resilience of banks
systemic banks or other banks. and sound performance of the financial markets. The
9 POJK No. 16/POJK.03/2017 concerning Intermediary Banks contains rules concerning improving banking resilience can be seen in the healthy
the procedure for the establishment of an intermediary bank, which can only be founded
capital adequacy ratio (CAR), the strong ratio of liquidity
and owned by LPS as an option to handle bank solvency problems.
to deposits and increasing profitability. Nonetheless,
10 POJK No. 14/POJK.03/2017 concerning the Recovery Plan for Systemic Banks
contains rules regarding the obligation for systemic banks to prepare a recovery plan to
banking intermediation is not yet optimal, though it is
prevent and overcome financial problems.

Grafik 8.9.
Chart 8.9. Indeks Stabilitas
Financial Sistem
System Keuangan
Stability Index Grafik 8.10.
Chart 8.12. Pertumbuhan DPK Per
Growth of Bank Jenis Simpanan
Deposits
Index Percent, yoy

3.0 30
25
2.5
20
2.0
15
1.5
10
1.0
5
0.5 0
0 -5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2015 2016 2017
Normal Alert Cautious Demand Deposit Saving Deposit

Crisis Financial System Stability Index (FSSI) Time Deposit Total Bank Deposit
better than in 2016, and this partly reflects the continued the supply side, banks were more cautious in channeling
consolidation of banks and corporations. Meanwhile, the loans as part of consolidation efforts to overcome credit
performance of the financial markets improved, with both risk. This is reflected in the tight lending standards in
the stock and bonds markets trending higher. All in all, the place since 2016, especially in investment loans and
stability of the financial system was reflected in Indonesia’s working capital loans (Chart 8.11). On the demand side,
performance in Bank Indonesia’s Financial System Stability bank loans grew at a subdued pace due to the corporate
Index, which remains at a normal level and has improved consolidation process, which is still not complete. The
compared to 2016 (Chart 8.9). ongoing consolidation also explains why some corporates
tended to delay business expansion, as evidenced by
an increase in loans that have been approved by banks,
Banking sector performance but not yet disbursed, particularly working capital loans
(Chart 8.12).
In general, the performance of the banking sector
continued to improve in 2017, as the banking and By economic sector, loan growth remains uneven. Loan
corporate sectors consolidated further. While the growth in the trade and business services sector slowed
banking consolidation contributed toward greater due to weak public consumption. Construction loan
banking resilience, consolidation of the banking and
corporate sectors resulted in below-optimal lending.
Overall, the latest developments in 2017 indicate nascent Grafik 8.11.
8.13. Indeks Lending Standard
Chart Lending Standard Index
improvements in banking performance and the potential
for continued economic recovery going forward. Index
More
Tight 35
The constrained banking intermediation function reflected

25
on the moderate growth of deposits and loans. On the
funding side, deposits grew quite briskly by 9.4% (Chart 15
8.10). Growth in deposits was supported by higher Unchanged
salaries and a higher allocation of this income to savings. 5
Loan growth, however, is still not particularly strong,

-5
though it has begun to improve. In 2017, bank loans grew More
Loose
8.2%, slightly higher than the 2016 figure of 7.9%. -15
Investment Working Consumption
Total Credit Capital Credit Credit
2015 Q-IV 2016 Q-IV 2017 Q-I

The unfinished consolidation within the banking and
2017 Q-II 2017 Q-III 2017 Q-IV
corporate sectors affected loan supply and demand. On

Grafik 8.12.
Chart 8.14. Pangsa Undisbursed
Undisbursed Loan Loan
Ratioterhadap Grafik 8.14.
Chart 8.16. Pertumbuhan Kredit
Credit Growth by Berdasarkan
Type of Use
Undisbursed Loan dan Kredit Jenis Penggunaan
Percent Percent
34 16
32 14
30 12
28 10
26 8
24 6
22 4
20 2
Working Capital Undisbursed
Total Undisbursed Loan Ratio Loan Ratio 2015 2016 2017
2015 2016 2017 Working Capital Credit Investment Credit

Consumption Credit Total
growth slowed, but remained fairly high nonetheless, By region, overall loan growth rose in Java, Sumatra,
supported by infrastructure development. Higher credit Sulawesi, and Kalimantan (Chart 8.15). In Java,
growth in 2017 was seen in the industrial sector, however, consumption loan growth and working capital loan
in line with the sector’s better corporate performance growth, especially in the industrial sector, boosted overall
(Chart 8.13). loan growth. Loan growth in other regions slowed,
however, because consumption and investment both
By use, the highest loan growth was seen in consumption remained weak.
loans (Chart 8.14), as low credit risk encouraged
banks to channel consumption loans with looser lending The internal consolidation process still taking place within
standards. Working capital loan growth also began to banks supported banking resilience, as seen in credit risk,
increase in the second half of 2017 in line with better which was under control. The NPL ratio reached 2.6%
corporate performance, especially in the industrial sector. by the end of 2017, lower compared with its level the
Nonetheless, investment loans with long tenors showed previous year (Chart 8.16). By use, the better corporate
slowing growth; these were affected by the confidence of performance led to a decline in NPLs in working capital
domestic players, which has not yet completely recovered. loans and investment loans (Chart 8.17). By economic
sector, the decline in NPLs was seen in the industry and
Grafik 8.13.
Credit Growth LimaMajor
in Five Sektor Grafik 8.15.
Credit Growth by Menurut
Region Wilayah
Ekonomi Terbesar
Economic Sectors
Percent Percent, yoy
25 14
12
20
10
15
8
10
6
5
4
0 2
Total Trade Industry Business Agriculture Construction
Service Sumatra Java Kalimantan Balinusra Sulawesi Mapua
2015 2016 2017 2015 2016 2017

Grafik 8.18. Pertumbuhan
Chart 8.16. NPL and
Growth of NPL dan NPL
RasioRatio
NPL Grafik 8.18.
Chart 8.20. NPL
NPLMenurut Wilayah
by Region
Percent, yoy Percent Percent

35 3.4 5
30 3.2
25 3.0
20 4
2.8
15
2.6
10
2.4
5 3
2.2
0
-5 2.0
-10 1.8 2
2015 2016 2017 Sumatra Java Kalimantan Balinusra Sulawesi Mapua
NPL Growth NPL Ratio (rhs) 2015 2016 2017
transport sectors, which experienced better corporate assets to deposits (LA/deposits) and the ratio of liquid
performance in 2017. Geographically, credit risk declined assets to non-core deposits. Banking sector LA/deposits
in Java, Sumatra and Kalimantan (Chart 8.18). The rose to 21.5%, while liquid assets to non-core deposits
decline in credit risk in Java was supported by better rose to 102.1%, far above the minimal liquidity threshold
2017 corporate performance and high consumption for each indicator of 8.5% and 50% respectively (Chart
loans. The improving performance of the plantation and 8.19).
mining sectors – due to increases in the prices of crude
palm oil (CPO) and coal – led to a decline in NPLs in The internal consolidation undertaken by banks also
Sumatra and Kalimantan. However, credit risk in Bali and helped to improve efficiency and profitability in the sector.
Nusa Tenggara (Balinusra), Maluku and Papua (Mapua) The improved efficiency is reflected in the decline in the
increased given the relatively weak economies in those ratio of operating expenses to operating income, which
regions. was in line with the fall in operating expenses (Chart
8.20). In turn, the improved efficiency boosted banks’
The improved banking resilience was also visible in the profitability, as seen in the increase in the return on assets
banking liquidity conditions. The resilience of banking (ROA) accompanied by a decline in the net interest margin
liquidity was reflected in the high level of the ratio of liquid (Chart 8.21). In part at least, this development reflects the
Grafik 8.17.
Chart 8.19. NPL
NPLPer
byJenis
TypePenggunaan
of Use Grafik 8.19.
Chart 8.21. Ketahanan LikuiditasRatio
Banking Liquidity Perbankan
Percent Percent Percent

4.0 25 120
3.5
110
3.0 20
2.5 100
2.0 15
90
1.5
1.0 10 80
2015 2016 2017 2015 2016 2017
Liquid Assets/Deposits (LA/D)

Working Capital Credit Investment Credit Consumption Credit
Liquid Assets/Non Core Deposits (LA/NCD) (rhs)

Grafik 8.20.
Chart 8.22. Efisiensi
Banking Perbankan
Efficiency Grafik 8.22.
Chart 8.24. Perkembangan CAR Ratio (CAR)
Capital Adequacy
Rp Trillion Percent Rp Trillion Percent

800 84 5,500 24.0
5,000 23.5
750 4,500 23.0
82 4,000 22.5
700
3,500 22.0
3,000 21.5
650 80
2,500 21.0
2,000 20.5
600
78 1,500 20.0
550 1,000 19.5

500 19.0
500 76 0 18.5
2015 2016 2017 2015 2016 2017
Operational Cost Operational Revenue

Capital Risk-Weighted Assets CAR (Rhs)
Operating Expenses to Operating Income/BOPO (rhs)
improvement in credit risk, as reflected in the decline in the IDR942.4 trillion or 19.7% of total national banking loans.
formation of provisions for impairment losses. The increase in loans made under People’s Business Credit
(KUR) – a loan for MSMEs with a proper business plan,
Banking consolidation also supported capital resilience. but who may otherwise be perceived as unbankable –
With credit growth still not optimal, capital resilience and the decline in lending rates were the main factors
strengthened. CAR within the banking sector rose in this uptick in MSME lending. MSME lending was also
to 23.0% (Chart 8.22), lifted in part by the higher lifted, however, by the increase in the number of MSME
profitability of banks amid the weak loan growth. and the increase in those with financial access, which rose
to 24.6% in 2017, up from 23.6% in 2016.
Development of MSMEs Loan By use, MSME loan growth was mainly driven by working
capital loans, which grew 11.9%, up from 9.2% in 2016.
Growth in MSME loans in 2017 was higher than growth Investment loans grew only 4.9%, however, lower than
in non-MSME loans. The growth in MSME loans in 2017 the 2016 growth of 6.3%. Regionally, MSME loans were
reached 10.0%, versus growth in non-MSME loans of still dominated by the islands of Java and Sumatra, with
8.0% (Chart 8.23). As a result, MSME loans reached 58.8% of realized MSME loans going to MSME in Java
Grafik 8.21.
Chart 8.23. Profitabilitas
Banking Profitability Grafik 8.23.
MSMEs CreditKredit UMKM
Percent Percent Rp Trillion Percent

2.75 5.75 500 16
450
14
400
12
350
2.50 5.50
10
300
250 8
200
6
2.25 5.25
150
4
100
2
50
2.00 5.00 0 0
2015 2016 2017 2015 2016 2017
Micro Enterprise Credit Small Enterprise Credit Medium Enterprise Credit

ROA NIM (rhs)
MSMEs Credit Growth (rhs) Non-MSMEs Credit Growth (rhs)

and 19.2% to MSME in Sumatra. Meanwhile, the share of Grafik 8.25.
Chart 8.27. NPL Gross
Gross NPLKredit UMKMCredit
in MSMEs Berdasarkan Sek
by Sector
loans made to MSME in Sulawesi, Kalimantan, Balinusra,
and Mapua was relatively low; in Sulawesi it reached Percent
7.2%, in Kalimantan 6.9%, in Balinusra 5.7%, and in 12
Mapua 2.1%. 10
8
Looking at the five largest sectors, the highest growth
of MSME loans was recorded in the community service 6
sector at 18.7%, followed by construction at 17.8% and 4
agriculture at 17.7%. The loans growth in these three

2
sectors showed a fairly large increase compared to
growth in 2016 (Chart 8.24). By contrast, however, loan 0
2015 2016 2017
growth in the trade sector only reached 6.8%, down from
Agriculture Manufacturing Construction
9.4% in 2016. This was in line with government policy, Trade Community Services
which pushed for at least 40% of KUR to be channeled
to productive sectors. The hotels sector also experienced
lower MSME loan growth of 7.3% in 2017, down from
18.6% in 2016. Although credit risk declined, it still warrants attention.
The level of MSME credit risk at the beginning of 2017
By size of business, the highest MSME loans growth was was increasing, before trending downward from February
in loans to micro and small businesses. Loans to micro 2017. The NPL rate among MSME edged down to 4.1%
businesses grew by 13.2% and to small business by in 2017 from 4.2% in 2016. By economic sector, the
10.7%. The micro business group also dominated the improving performance of MSME loans in the five largest
number of accounts; 85.9% of the total of 14.2 million MSME loan sectors was mainly seen in agriculture and
MSME loan accounts were held by micro businesses. This community services. The NPL ratio of these two sectors
was also reflected in the realization of KUR, which was improved to 3.2% and 3.1% (Chart 8.25). Meanwhile,
dominated by micro KUR; micro KUR loans accounted for by size of business, the improvement in the overall NPL
a 67.4% share of the total realized KUR.11 Meanwhile, ratio for MSME was supported by a decline in the NPL of
medium-sized business loans grew by 8.0%, up from just micro business loans to 2.0% and small business loans to
5.7% in 2016. 4.1% (Chart 8.26). The credit risk level of medium-sized
Grafik 8.24.
MSMEs Credit UMKM
Growth bySektoral
Sector Grafik 8.26.
Chart 8.28. NPL Gross
Gross NPLKredit UMKMCredit by Scale of
in MSMEs
Berdasarkan Skala Usaha
Business
40 7
30 6
5
20
4
10
3
0
2
-10
1
-20 0
2015 2016 2017 2015 2016 2017
Agriculture Manufacturing Construction NPL Credit of Micro Enterprise Small Enterprise Credit
Trade Community Services NPL Credit of Medium Enterprise NPL of MSMEs Credit NPL Total Credit
11 Performance Progress Report on KUR up to 31 December 2017, Coordinating Ministry

for Economic Affairs.

businesses was the highest, with NPL reaching 5.1%. The Grafik 8.28.
Chart 8.30. Sumber
SourcePendanaan
of FundingPP
of Financing
low level of the NPL ratio for micro business loans was in Company
line with the low NPL ratio for KUR, which was just 0.3%. Percent
12% 14% 14%

In 2017, steps were taken by commercial banks to
18%
19% 19%
achieve their target of extending to MSMEs at least 15%
of their total loans by the end of 2017.12 At the end of 21%
31% 23%
2017, 51 banks already met the MSME requirements
and had sound overall asset quality with NPLs less than
5%. Efforts to speed up the time taken to meet this target 40% 44% 46%
encountered obstacles, however, including the limited

capacity of banks to channel MSME loans – they have
2015 2016 Sep - 2017
traditionally focused on larger corporates and different
Domestic Loan Foreign Loan Securities Issued
sectors – and limitations of the office network and human Capital and Subordinated Loan
resources. In addition, competition from non-KUR banks
Source: OJK, Processing
in obtaining MSME debtors has become increasingly
fierce due to the low KUR interest rate and the limited
ability to obtain potential debtors. The competition is motor vehicles and trade. This increase in financing was
also increasingly stiff given the emergence of fintech also accompanied by better risk mitigation, as reflected in
companies, which are able to provide financing of up to the drop in non-performing finance (Chart 8.27).
two billion rupiah.13
The improving performance of PP was supported by
greater efficiency and strengthening of funding. In 2017,
Performance of Non-Bank Financial Institutions the funding strategy of PP involved a change in the source
of funding; the reliance on funding from foreign loans was
The performance of financing companies (PP) improved reduced and the portion of domestic funding increased.
in 2017 and financing risk was manageable. Growth in The proportion of funding from abroad declined to 21.4%
financing by PP reached 7.1% in 2017, up from 6.7% in 2017 from 22.9% in 2016 (Chart 8.28). This change
in the previous year, mainly underpinned by financing of in the funding structure is intended to improve the strength
and efficiency of funding, as the lower reliance on foreign
funding mitigates exchange rate risk and reduces hedging
Grafik 8.27.
Chart 8.29. Pembiayaan, Pendanaan
Financing, Funding, anddan
NPFNPF
of PP costs (Chart 8.29).
Financing Companies
Percent Percent
10 4.0
8 3.5
Grafik 8.29.
Chart 8.31. Hedging
Hedgingdan Premi
and Swap Swap
Premium PP of
6
3.0 Financing Company
4 Rp Trillion Rp Trillion
2.5
2 140 0.7
2.0
0 120 0.6
1.5 100 0.5

-2
-4 80 0.4
1.0
2015 2016 2017 60 0.3
Financing Growth Funding Growth

40 0.2
NPF Ratio (rhs)
20 0.1
Source: OJK, calculated
0 0
12 BI Regulation No.14/22/PBI/2012 as amended by BI Regulation No.17/12/
2015 2016 2017
PBI/2015 concerning the Provision of Credit or Financing by Commercial Banks and
Technical Assistance in the Development of Micro, Small and Medium Enterprises. Natural Hedge Non Natural Hedge Premi Swap (rhs)
13 Regulation of the Financial Services Authority Number 77/POJK.01/2016 concerning

Source: OJK
Borrowing-Lending Services Based on Information Technology.

Grafik 8.30.
Chart 8.32. Efisiensi danand
Efficiency Profitabilitas PP of Financing
Profitability Grafik 8.32.
Chart 8.34. Rasio
RatioPremi terhadaptoKlaim
of Premium GrossBruto
Claim
Company
Percent Percent Percent Percent
15 160 35
86
14
13 155
85 30
12
150
11
84 25
10
145
9
83 20
8
140
7
82 15
6 135
5
81 10
4 130
3
80
2 125 5
2015 2016 2017 2015 2016 2017
ROA ROE Premium/Gross Claim Growth of Gross Premium (rhs)

Operating Expenses to Operating Income/BOPO (rhs) Growth of Gross Claim (rhs)
Source: OJK Source: OJK
The increase in financing and the efficiency measures The insurance industry must, however, give attention to
undertaken helped to boost the profitability of PP, with the adequacy of premiums to cover claims. The ratio of
both return on assets and return on equity improving premiums to gross claims declined to 145.3% in 2017
versus 2016. In 2017, return on assets increased to 4.0% from 158.0% in 2016 (Chart 8.32), due to the high level
from 3.9% in 2016 and return on equity rose to 12.2% of claims submitted compared to premiums obtained in
from 12.0% (Chart 8.30). social insurance and compulsory insurance.
The insurance industry performed better in 2017, with

assets and investments both growing. Insurance assets Performance of the Financial Markets
grew by 19.9% in 2017 and investments by 24.6%,
higher than 2016 growth (Chart 8.31). The better An interesting development in a period marked by sub-
performance was mainly seen in life insurance; life optimal bank lending is the increase in other sources
insurance assets grew at a fairly brisk 29.8%, mainly due of financing; these can substitute for bank lending and
to business expansion and increased public awareness of help to cover the economy’s financing needs. In 2017,
the benefits of life insurance. financing of the economy through the financial markets,
including the stock and bond markets, continued to
Grafik 8.31.
Chart 8.33. Pertumbuhan Aset dan Investasi
Growth of Insurance Assets Table 8.1. Non-Bank Financing
Asuransi and Investment
Rp Trillion
Percent, yoy
30 2014 2015 2016 2017
25 Financial Market Financing 109,1 136,9 234,4 309,8
o/w Financial Sector Issuers 52,2 52,9 126,6 131,5

20
Stock 47,6 53,5 79,2 97,8
15
10
Bond 46,5 63,3 116,2 165,2
5 o/w Financial Sector Issuers 30,3 35,1 86,5 90,2
0 MTN and Promissory Notes

14,9 20,1 39,0 46,8
+ NCD
2016 2017
Asset Investment
Source: KSEI
Source: OJK

Grafik 8.33.
Chart 8.35. Pangsa Pembiayaan
Net Domestic Neto Dalam
Financing Negeri
Composition Grafik 8.35.
Chart 8.37. Yield Obligasi
Corporate Korporasi
Bond Yield
Percent Percent
100 14
90
13
80
70
12
60
50 11
40
10
30
20
9
10
0 8
2014 2015 2016 2017 2014 2015 2016 2017
Bank Nonbank
Yield 1-5 years Yield 6-10 years
Source: Bank Indonesia and KSEI

Notes: Net Financing, nonbank : bonds, MTN, and NCD Source: CEIC
increase. Total financing through initial public offerings, lower cost of obtaining financing via financial markets in
rights issues, corporate bonds, medium term notes (MTN), comparison to bank loans was one of the main factors
promissory notes, and negotiable certificates of deposit behind the increase. In aggregate terms, interest rates on
(NCD) continued to grow briskly, posting growth of 32.2% non-bank corporate bonds were lower in comparison to
in 2017. The increase in financing was particularly the interest rates on working capital loans and investment
seen in the issuance of corporate bonds, which jumped loans (Chart 8.34). From the investor side, the issuance of
42.2% (Table 8.1). From the issuer side, non-financial securities by corporations presents an attractive investment
corporations dominated the issuance of securities, alternative, amid a downward trend in deposit rates.
especially of bonds. In turn, this development further
increased the role of the financial markets in financing the The increase in financing through the issuance of
national economy (Chart 8.33). corporate bonds was also accompanied by better
performance and improved structure of the bond market.
To a certain extent, the increase in financing from the The corporate bonds yield for all tenors declined on
financial markets was affected by economic conditions, a yearly comparison (Chart 8.35), while volatility of
as well as sentiment among issuers and investors. The corporate bond yields also fell (Chart 8.36). Positive
Grafik 8.34.
Chart 8.36. Suku Bunga
Interest Bank
Rate anddan Obligasi
Bond Yield Grafik 8.36.
Chart 8.38. Volatilitas
VolatilityYield Obligasi Korporasi
of Corporate Bond Yield
Korporasi
Percent Percent
14 25
13
12
20
11
15
10
9
10
8
7 5
6
5 0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2014 2015 2016 2017
Interest Rate of Working Capital Credit Deposit Interest Rate

Tenor 1-5 years Tenor 6-10 years Average 1 year
Interest Rate of Investment Credit Non-Finance Bond Coupon
Source: Bank Indonesia, KSEI Source: CEIC

Grafik 8.37.
Chart 8.39. Yield SBN
Government Bond (SBN) Yield Grafik 8.39.
Chart 8.41. Perkembangan dan Price
Composite Stock Volatilitas
IndexIHSG
(JCI)
Percent
Index Percent
10 6,500 35
9 30
6,000
25
8
5,500
20
7
5,000 15
6
10
4,500
5
5
Tenor
4 4,000 0
1 2 3 4 5 6 7 8 9 10 11 12 13 15 16 18 20 30
2014 2015 2016 2017
2015 2016 2017 Composite Stock Price Index (JCI) Volatility (rhs)
Source: Bloomberg Source: Bloomberg
developments were also seen in the composition of economic outlook. The better performance was reflected
corporate bond holdings – these are still mostly held by in the increase in the Jakarta Composite Index (IHSG) and
domestic investors, thus reducing the risk of a potential lower volatility in the stock market (Chart 8.39). The IHSG
reversal of foreign capital. reached 6,356 by the end of 2017, up approximately
20.0% on a yearly comparison. Trading activity in the
Also encouraging was the solid performance of the stock market also increased in 2017, marked by a
government bonds market supported by positive investor 20% increase in the frequency of trading. The positive
sentiment toward Indonesia’s economic outlook. The developments in the stock market were mainly driven by
returns on SBN government securities trended lower in line the greater role played by domestic participants, with
with the continued strong demand for government bonds. domestic ownership of total stock market capitalization
The returns on SBN of all tenors declined (Chart 8.37), as rising to 54%. By sector, the strengthening in the IHSG
did the volatility of SBN yields (Chart 8.38). was mainly seen in the finance (JAKFIN), infrastructure
(JAKINFR) and consumer goods sectors (JAKCONS)
Similarly, the performance of the stock market also (Chart 8.40).
improved compared to 2016, underpinned by a positive
Grafik 8.38.
Chart 8.40. Volatilitas
VolatilityYield SBN
of Government Bond (SBN) Grafik 8.42. Perkembangan
Chart 8.40. Indeks Sektoral
JCI Sectoral Index
Yield
Percent
35
JAKTRAD
30
JAKMIND
25 JAKBIND
20 JAKINFR
JAKAGRI
15
JAKPROP
10
JAKCONS
5 JAKMINE
JAKFIN Index
2014 2015 2016 2017 -20 -10 0 10 20 30 40 50 60 70 80
1-5 years 6-10 years

2016 2017
Yield 11-30 years Average 1 year
Source: Bloomberg Source: Bloomberg

Performance of Sharia Finance Grafik 8.41.
Chart 8.43. Perkembangan Aset,Loans,
Assets, Disbursed Pembiayaan YangParty
and Third
Disalurkan, Dana Pihak
Funds Ketiga
In general, sharia finance in 2017 continued to perform Rp Trillion Percent, yoy
better. Developments in sharia banking remained solid 450 30
on the back of better profitability, efficiency and capital 400

25
350
conditions. Nonetheless, the intermediation function was
300 20
not optimal given that the consolidation process is not yet
250
completed. Meanwhile, the performance of sukuk – sharia- 200
15
compliant bonds – as an alternative source of economic 150 10
financing continued to improve. 100

5
50
There were positive developments regarding sharia 0

II III IV I II III IV I II III IV
0
2015 2016 2017

banking institutions, especially in terms of the number of Total Assets Total Third Party Funds Total Financing Disbursed
sharia business units. At the end of 2017, there were 13 Asset Growth (rhs) Growth of Third Party Fund (rhs)
Growth of Financing Disbursed (rhs)
sharia commercial banks (BUS), although the number of
Source: Bank Indonesia and OJK
BUS offices declined to 1,850 in 2017 from 1,869 in the
previous year. This decline reflects internal consolidation,
ongoing for the past three years. Meanwhile, the number Simultaneously with the internal consolidation, sharia
of sharia business units (UUS) at conventional commercial banks were able to maintain profitability, improve
banks rose slightly to 339 at the end of 2017 from 322 at efficiency and maintain adequate capital. Sharia banks
the end of 2016. also made adjustments by increasing placements in
sharia financial instruments (Chart 8.43), though these
The positive developments in sharia banking – the did not have a significant impact on profitability. This is
increases in BUS and UUS – were reflected in the amount reflected in the ROA of 0.6% in 2017, unchanged from
of total assets. The total assets of sharia banking at the 2016. Although profitability was unchanged, efficiency
end of 2017 increased by 19.0% yoy to IDR424.1 trillion. did improve, as seen in the ratio of operating expenses to
Nonetheless, this was a smaller increase compared to operating income, which dropped to 94.9% in 2017 from
the previous year’s growth of 20.3%, which was lifted 96.2% in 2016. In terms of capital, the capital adequacy
by the conversion of BPD Aceh, a regional bank, from a of sharia banks improved, as reflected in the CAR increase
conventional to a sharia bank. The growth in 2017 can be to 17.9% in 2017 from 16.6% in 2016.
considered quite positive given that global sharia banking
assets – based on the IFSB Islamic Financial Services Positive developments were also seen in the sharia
Industry Report 2017 – were generally stagnant. Going financial market, as reflected in an increase in sharia
forward, further growth is expected in sharia banking in
Indonesia, given the sharia-specific economic development
efforts and more comprehensive and integrated sharia
Grafik 8.42.
Chart 8.44. Perkembangan PYD
Sharia Banking dan NPF Financing
Disbursed Perbankanand
finance, as well as expected higher economic growth. Syariah NPF
Rp Trillion Percent
The internal consolidation process had an impact on 300 6
the intermediation function of sharia banking. On one

250 5
hand, the deposits of sharia banks in 2017 rose by
19.8% to IDR334.7 trillion, only slightly lower than the 200 4
20.8% growth in 2016. On the other hand, the growth 150 3
in disbursed financing slowed to 15.2% and reached

100 2
IDR286.8 trillion, versus growth in 2016 of 16.4% (Chart
8.41). The ongoing consolidation process was also 50 1
affected by the high levels of credit risk. The low quality 0

II III IV I II III IV I II III IV I II III IV
0
of financing has not yet improved; this is reflected in the 2014 2015 2016 2017
non-performing finance ratio of 4.3% in 2017, relatively Disbursed Financing NPF (rhs)
unchanged from the 2016 level of 4.2% (Chart 8.42).

Grafik 8.43.
Chart 8.45. Perkembangan Paksa
Sharia Banking Penempatan
Placement pada
in Sharia Bank Indonesia and the National Zakat Agency (BAZNAS)
SSB Securities and the Indonesia Waqf Board (BWI).
Percent
12
Corporate Performance15
10
8
The better performance of the financial system reflects the
6 generally improving performance of the corporate sector
4
compared with 2016, albeit with uneven performance
across the sectors. Significantly better performance was
2
seen in natural resource commodity based companies,
0
II III IV I II III IV I II III IV I II III IV both mining, particularly coal, and the plantation
2014 2015 2016 2017
subsector, notably CPO, due to an increase in global
demand and higher commodity prices. Meanwhile, the
non-commodity corporate performance remained sluggish,
in part reflecting the as-yet incomplete consolidation in the
corporate sector.
bonds or sukuk in 2017 as an alternative form of
financing. In 2017, there were 37 series of issuance Improving corporate performance in the mining and
of new corporate sukuk with a total value of IDR5.96 plantation sectors was reflected in brisker sales growth,
trillion. This compares to the issuance of 14 series with the assets turnover ratio and the inventory turnover
a total value of IDR4.3 trillion in 2016. As a result, the ratio (Chart 8.44). The increase in coal prices lifted
total issuances of corporate sukuk up to and including sales in 2017 following negative sales growth in 2016,
2017 was 137 series, with the total amount outstanding and significantly boosted producers’ profitability. The
reaching IDR15.7 trillion. In addition, the portion of increase in CPO prices also supported the productivity
corporate sukuk increased to 4.0% out of the total and profitability of plantation companies, although
corporate bonds in 2017, up from 3.8% in 2016. better performance did not occur in the non-plantation
agriculture subsector, however, where sales were
Developments in government sukuk were more lethargic. As a result, the profitability of companies in the
pronounced. In 2017, issuances of government overall agriculture sector declined, especially in the non-
sharia securities (SBSN) reached IDR192.4 trillion, up plantation subsector. Against this backdrop, profitability
from IDR179.9 trillion in 2016. As a result, the total growth in the agriculture sector was sluggish overall.
amount outstanding of government sukuk reached
IDR551.5 trillion, lifting the share of government sukuk of Similarly, the performance of companies in the
total government securities to 17%. On the global sharia miscellaneous industries sector, along with the trade,
financial markets, the portion of Indonesia government services and investment sectors, began to improve,
sukuk to total sovereign sukuk in 2017 was the highest at especially for export-oriented companies (Table 8.2).
19%, followed by Saudi Arabia at 13% and the United The continued recovery of the economies of developed
Arab Emirates at 11.9%. countries, particularly the United States and European
countries, underpinned higher exports of some
This sound progress is also seen in the sharia social manufactured products.
finance sector, as one of the instruments of funds
distribution. In 2017, the amount of zakat collected grew Unlike the mining and plantation sectors, which sell mostly
12% to IDR4.6 trillion, higher than the 11.3% growth to the export market, the performance of companies in
in 2016.14 Zakat’s potential as a source of economic domestic-orientated sectors was generally not strong.
financing in the future remains high. In part, this is Weak household consumption led to tepid performance
supported by the zakat and waqf database, of which in the consumer goods sector, while profitability of
construction has begun following cooperation between
15 Financial reports of 350 non-financial corporations in the Indonesia Stock Exchange,

14 Statistics from the National Zakat Agency (BAZNAS) 2017. Bloomberg. Compiled by Bank Indonesia.

Grafik8.44.
Chart 8.10. Pertumbuhan Penjualan,
Sales Growth, Rasio Asset
Asset Turnover dan
Ratio, Inventory
and Turnover
Inventory Turnover Ratio
Percent, yoy Sales Growth Time Asset Turnover Ratio Time Inventory Turnover Ratio
30 0.9 12
20 11
0.8
10
10
0.7 9
0
8
0.6
-10
7
0.5
-20
6
-30 0.4 5
I II III IV I II III IV I II III I II III IV I II III IV I II III I II III IV I II III IV I II III
2015 2016 2017 2015 2016 2017 2015 2016 2017
Total Commodity Non-Commodity
Source: Bloomberg
companies in the infrastructure, utilities, transportation, real estate (Chart 8.45). Other sectors generally still
property, and real estate sectors was also sluggish, though tended to prioritize consolidation as a way to improve
sales in each did increase. Margins were pressured by stiff performance.
competition in these sectors.
In general, the increase in corporate debt has been
Amid the improving corporate performance, corporate backed by sufficient ability to repay it, as seen in the
debt and leverage increased, although the amount varied stable interest coverage ratio, especially in the non-
from sector to sector. The largest increase in debt was commodity corporate sector. Meanwhile, the interest
mainly seen among non-commodity companies in the coverage ratio of the commodity sector improved in line
miscellaneous industries sector, as well as property and with its higher profitability.
Table 8.2. Corporate Performance by Sector
Inventory
ROA ROE DER Current Ratio Sales Growth Asset Turnover
Turnover
No. Sector
Sep Sep Sep Sep Sep Sep Sep Sep Jun Jun Sep Sep Sep Sep
2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
1 Agriculture 2.37% 0.95% 4.95% 1.91% 0.98 1.04 1.11 0.93 -14.46% 18.16% 0.56 0.64 6.92 8.08
Basic and
2 Chemical 4.33% 4.05% 8.59% 7.81% 0.94 0.91 1.43 1.54 0.34% 13.46% 0.67 0.73 5.00 5.43
Industry
Consumer
3 13.58% 12.63% 24.90% 21.49% 0.71 0.69 2.00 1.92 8.89% 3.41% 1.31 1.30 4,97 5.05
Goods Industry
Infrastructure,
4 Utilities and 5.24% 4.17% 13.38% 9.99% 1.39 1.40 1.00 1.04 -0.21% 6.91% 0.51 0.53 63.19 62.36
Transportation
5 Basic Industry 4.23% 4.73% 9.42% 10.37% 1.17 1.21 1.24 1.11 -5.31% 6.84% 0.73 0.76 7.54 7.99
6 Mining 1.40% 6.00% 2.64% 11.07% 0.88 0.82 1.77 1.83 -15.25% 24.69% 0.42 0.53 11.23 15.04
Property and
7 5.06% 4.78% 10.31% 9.98% 1.03 1.14 1.57 1.51 5.51% 28.37% 0.33 0.35 2.19 2.53
Real Estate
Trade, Services
8 3.47% 3.94% 6.59% 7.43% 0.89 0.88 1.47 1.55 -3.29% 7.57% 0.97 0.99 7.78 7.78
and Investment
Agregate 4.99% 5.17% 10.38% 10.46% 1.02 1.03 1.42 1.42 -1.43% 10.39% 0.67 0.70 6.47 6.82

Grafik 8.45.
Chart 8.11. Debt to Equity
Debt-to- Ratio
Equity (DER)
Ratio danand
(DER) Interest Coverage
Interest RatioRatio
Coverage (ICR) (ICR)
Time DER ICR (Rhs) Time

1.25 7
1.20
6
1.15
1.10 5
1.05
4
1.00
0.95 3
0.90 2
0.85
1
0.80
0.75 0
I II III IV I II III IV I II III I II III IV I II III
2015 2016 2017 2012 2013 2014 2015 2016 2017
Aggregate Commodities Non-Commodities
Source: Bloomberg, processed

Box 8.1. identification of risks. It supports the intermediation
function, the creation of an efficient financial system, and
Strengthening better public access to the financial system. All financial
Bank Indonesia’s systems are subject to macroprudential supervision, but
there is a particular focus on the banking system with the
Supervisory Function aim of mitigating systemic risk originating from banks’
business activities.2 Offsite supervision is undertaken
through assessment tools such as solvency and liquidity
stress tests, bank industry ratings, as well as monitoring
B
the compliance of banks with Bank Indonesia regulations.
ank Indonesia has a supervisory role to ensure the
effectiveness of its policies as the central bank.1
The macroprudential supervision theme in 2017 was
It undertakes supervision of business people, the
liquidity and the implementation of the loan-to-value
general public and systems that are subject to its policies.
(LTV) policy. The results of thematic liquidity supervision
This supervision is not intended to restrict movement, but
on a sample of banks concluded that banks have
to provide guidance for economic actors so that economic
already responded well to movements in the BI 7-Day
growth takes place appropriately. This role is now more
(Reverse) Repo Rate (BI7DRR) policy rate. The response
strategic following the transfer of the supervisory function
was reflected in the decline in the deposit rates and
of the banking sector to OJK. Bank Indonesia now
lending rates of those banks. Nonetheless, the results
supervises macroprudential and monetary issues as well
of the supervision also show that the decline in interest
as payment systems.
rates did not necessarily result in an increase in bank
lending; demand for loans was low and banks became
Supervision is risk-based in nature and monitors the
increasingly selective in channeling loans. For LTV policy,
compliance of those subject to supervision by Bank
the results of the supervision show that the banks have
Indonesia. Supervision is based on a strong framework
already responded to the LTV policy relaxation, so that a
of surveillance or offsite supervision combined with
further slowdown in property lending in 2017 had been
examination or onsite supervision. Through surveillance,
successfully averted.
Bank Indonesia monitors, identifies, and analyzes risks
that could affect financial system stability. The results of
Monetary supervision was intended to prevent and
the surveillance determine the focus of any follow-up
mitigate monetary risk, including exchange rate risk
surveillance or supervisory action. Onsite supervision
and liquidity risk. The main approach used in monetary
is generally thematic and is used to confirm offsite
supervision was the compliance approach. In 2017,
surveillance results and ensure regulatory compliance of
monetary supervision was focused on banking institutions
those subject to Bank Indonesia supervision. The results of
as the dominant entities in the financial system, as well
the supervision, whether surveillance or examination, help
as supporting money market institutions, such as money
to evaluate policies.
market brokers. Supervision of exchange rate risk was
achieved through monitoring foreign loans, the position
Bank Indonesia’s supervisory function now covers
of net reserves, and the indicators of crisis management
macroprudential supervision, monetary supervision, and
protocol regarding the exchange rate, among others.
the monitoring of payments systems.
Meanwhile, supervision of liquidity risk was party
conducted by monitoring transactions in the interbank
Macroprudential supervision is designed to maintain
money market and GWM compliance.
the health of the financial system through the early
2 Supervision is carried out on systemic banks and other banks. A systemic bank is a
1 The role of Bank Indonesia as the monetary authority and payments system authority bank that can trigger operational or financial failure of some or all other banks or the
is set out in Law No. 24 of 1999 concerning Foreign Exchange Movements and the financial services sector if it itself experiences difficulties or failure. This potential impact
Exchange Rate System, Law No. 7 of 2011 concerning Currencies, Law No. 3 of 2011 on other banks may be due to the size of the assets, capital, liabilities and network of
concerning Fund Transfers and Law No. 9 of 2016 concerning the Prevention and the systemic bank, the complexity of transactions it carries out or its linkages to other
Handling of Financial System Crises. The role of Bank Indonesia as the macroprudential financial sectors. The principles of supervision are based on BI Regulation No.16/11/
authority is set out in Law No.21 of 2011 concerning the Financial Services Authority. PBI/2014 concerning Macroprudential Regulation and Supervision.

In 2017, supervision was conducted on policies related to Bank Indonesia inspected progress on the preparedness
swap hedging, underlying foreign exchange transactions of infrastructure to implement national standards on ATM
against the rupiah, the implementation of GWM by banks, card chip technology and/or debit card chips and digital
money market brokerage transactions, and the foreign financial services (LKD). Meanwhile, consumer protection
currency foreign loans of banks. The supervision exercise was conducted in response to a number of cases reported
found that banks and money market supporting institutions by the general public related to cash swipe transactions
have generally complied with regulations. It also shows and the imposition of surcharges on using card payment
that money market instruments now provide banks with devices. In relation to the National Standard Indonesian
greater flexibility to meet their liquidity needs, meaning Chip Card Specifications (NSICCS), Bank Indonesia
pressures on liquidity can be controlled. The assessment of targets complete implementation by the end of December
the foreign loans of banks shows that banks have already 2021 (Figure 1).
applied the principle of prudence by hedging, whether
natural hedging or by using instruments, thereby reducing Based on the supervision conducted in 2017, the host
rupiah exchange rate volatility. and back-end system, the electronic data capture (EDC)
terminals, and the new ATM machines are already ready
Monitoring the payments system supports its reliability to operate NSICCS. In addition, the LKD assessment found
and security and enhances consumer protection. Payments the information system infrastructure and human resources
system monitoring covers the implementation of high value of banks are generally ready to support the Government’s
and retail value transactions payments systems, as well non-cash social assistance program.
as money services activities. High value transactions are
those handled by Bank Indonesia using Bank Indonesia The monitoring of the payments system is also intended
systems such as the BI Real Time Gross Settlement System to protect consumers. In 2017, Bank Indonesia received
(BI–RTGS) and Bank Indonesia’s National Clearing System consumer complaints concerning the payments system,
(SKNBI). By comparison, the retail value payments system dominated by complaints related to credit cards, ATM or
transactions are those handled by the industry and include debit cards, and fund transfers. Bank Indonesia followed
card payment devices, electronic money and money up on these complaints through educational activities,
transfer services. Furthermore, money services activities consultation, and facilitation. Offences considered to
refers to the supporting activities of the payments system, have violated Bank Indonesia regulations, such as double
and includes the activities of non-bank money changers swiping, the imposition of surcharges and breaches of
(KUPVA BB), currency management and bringing foreign credit card billing ethics, have already been followed up
banknotes into Indonesia. by Bank Indonesia through coaching, either directly or
cooperating with associations, and sanctions.
The monitoring of payments systems in 2017 was focused
on infrastructure readiness within the payments system.
Figure 1. Stages of NSICCS Implementation
End State:
Stages of Cards Migration (min) The ATM/Debit Cards
and Terminal have used
Upgrade host and back 10% cards 30% cards 50% cards 80% cards
the NSICCS Chip and
end system done the 6 digit PIN
New ATM/EDC terminal
are required to process
NSICCS
1 Jan 2018 1 Jan 2020 31 Dec 2021
30 June 2017 1 Jan 2019 1 Jan 2021
Chip Migration Chip

CHAPTER 9
Payment System and Currency
Management Policy
Bank Indonesia’s 2017 policy in the field of payment system
and currency management aimed to ensure a secure,
efficient, seamless and reliable payment system as access
expands, while also protecting consumers.

Bank Indonesia’s payment system and currency circulation also increased, and discoveries of counterfeit
management (SP–PUR) policy was aimed at ensuring a money declined.
secure, efficient, seamless and reliable payment system
as access expands, while also protecting consumers.
The policy was guided by Bank Indonesia’s 2017–2024 9.1. Non-cash Payment System
SP–PUR blueprint and faced two major challenges. First, Policy
domestic non-cash payment systems were inefficient and,
second, the availability of currency fit for circulation was Bank Indonesia aims to provide optimal support for the
not evenly distributed across Indonesia. Bank Indonesia’s creation of a national payment system that is secure,
SP–PUR policy sought to overcome these two challenges in efficient, inclusive, competitive and innovative, and has
2017. the ability to grow. In this regard, payment system policy
in 2017 focused on three simultaneous strategies; first,
SP–PUR policy was divided into non-cash payment systems encouraging the interconnection and interoperability of
and currency management. On the non-cash payment domestic retail payment methods as part of the NPG;
system side, Bank Indonesia has three strategies: (i) second, expanding electronification programs; and third,
encouraging the interconnection and interoperability of responding to the acceleration of the digital economy,
domestic retail payment instruments – these include debit especially financial technology (fintech), in a balanced
and credit cards – and channels – for example, automated manner. These three policy strategies were fully supported
teller machines (ATM), electronic data capturing by Bank Indonesia’s supervisory function in the field of
machines (EDC) and online – as part of the National payment systems.
Payment Gateway (NPG); (ii) expanding electronification
programs; and (iii) providing a balanced response to This policy direction strengthened the development of non-
developments in the digital economy. These three policy cash payment systems, but challenges persist nonetheless.
strategies were supported by the implementation of Bank The national payment system, for example, still has to
Indonesia’s supervisory function in payment systems. deal with low efficiency in the payment system industry,
Meanwhile, on the currency management side, Bank particularly in the area of non-cash retail payment systems,
Indonesia committed to three strategy pillars: (i) the and this slows public acceptance of non-cash transactions.
provision of good-quality and trusted currency; (ii) the In addition, the rapid development of digital technology
secure and optimal distribution and handling of currency; poses new challenges. In the face of these issues, all
and (iii) the provision of first-rate cash services. The parties must commit to support stronger payment system
implementation of this policy was supported by integrated policy.
information systems and strong collaboration with relevant
parties.
National Payment Gateway (NPG)
Supported by this policy direction, the performance of
the non-cash and cash payment systems both improved in Amid formidable challenges, the industry around non-cash
2017. The non-cash payment system – the Bank Indonesia retail payments has developed rapidly, and there is a
Real Time Gross Settlement (BI–RTGS), Bank Indonesia growing number of payment system industry participants
National Clearing System (SKNBI) and Bank Indonesia and instruments. As it develops, however, this domestic
Scripless Securities Settlement System (BI–SSSS) systems – industry still faces the challenge of fragmentation, whereby
ran smoothly and reliably, with an increase in transactions each non-cash issuer has its own payment platform,
compared to 2016. This enhanced performance was which is closed to other issuers. This is an unwelcome
also seen in non-cash retail transactions through ATM/ situation, both for issuers and the public. It means that
debit cards, electronic money, and credit cards. A better issuers must maintain their own infrastructure, such as
performance was also seen in terms of cash payments, ATM and EDC machines, so as to limit their capacity for
with greater availability of good-quality currency fit for expansion and to reduce potential transaction uncertainty
circulation. Currency in circulation (UYD) increased as and inconvenience. It also means the public must maintain
the economy improved and was distributed more widely multiple cards or accounts to ensure they can carry
across Indonesia. The destruction of currency unfit for out all the transactions they want, and also face costly
administration fees. In addition, no domestic arrangement

exists to facilitate transactions between issuers within Figure 9.1. National Payment Gateway (NPG) Logo
Indonesia, meaning costly international arrangements
must be used. These factors leads to inefficiencies and
limit the acceptance of non-cash instruments by both user
and merchant. Further, these challenges have become
increasingly complex as digital innovation in the financial
sector continues to grow swiftly.
To address these challenges and strengthen the payment

system, Bank Indonesia introduced the NPG. It was
Safe, Reliable,
launched on 4 December 2017 and was accompanied
and Trustworthy
by a new logo (Figure 9.1). The NPG concept had been
designed in 1995, as outlined in the 1995 Payment
System blueprint, and was then expanded in a 2004
blueprint. It is an institutional system intended to integrate
various payment instruments and channels.1 It streamlines
the transaction process and allows payments made via
a variety of instruments – for example ATM/debit cards 5. To ensure the availability and integrity of transaction
from different issuers, electronic money or credit card – data under the national payment system.
to be funneled through the same ATM or EDC machines
or online. To support the effectiveness of the transaction 6. To establish a fair price for the scheme, and ensure that
process, all domestic transactions must be completed it creates incentives appropriately and equitably for
within Indonesia through the NPG.2 In order to realize both consumer and industry, promoting competition,
the ultimate goal of strengthening the payment system, the innovation and growth without burdening consumers,
NPG has six main objectives: and to expand the acceptance of non-cash instruments.
1. To create an interconnected payment system with In practice, the NPG is operated by agencies whose
interoperability, which is able to process domestic retail task it is to ensure interconnection and interoperability
payment transactions domestically, and in a secure, between payment instruments and channels. This requires
seamless and efficient manner; transactions to be standardized – both in the context
of payment instruments, such as ATM/debit cards, and
2. To build a payment system infrastructure that can be payment channels, such as ATM and EDC machines –
shared by industry participants or optimizes the use of as well as the parties operating them. In addition, the
payment networks and machines and terminals; transaction interconnection and interoperability process
requires that transactions from different issuers can be
3. To establish a competitive, thriving and innovative integrated (Figure 9.2).
domestic retail payment platform, capable of being
operated and controlled by domestic financial industry The NPG consists of interrelated agencies: a standards
players; agency, switching agencies and a services agency
(Diagram 9.1). The standards agency prepares, develops
4. To improve non-cash transactions for the public, so and controls NPG transaction standardization, with
the industry can grow in a healthy, innovative and standards developed and agreed on by the industry.
competitive manner unimpeded by economic rent; These standards are adopted by Bank Indonesia and
fully applied to protect the public interest. Switching
agencies are in charge of processing payment transaction
data domestically so that transaction integration can
1 Bank Indonesia Regulation No.19/8/PBI/2017 on the National Payment Gateway

and Board of Governors Regulation No.19/10/PADG/2017 on the National Payment
Gateway.
2 Domestic transactions are defined as transactions that take place in Indonesia using
instruments issued by domestic issuers.

Figure 9.2.
Gambar Interconnection
9.2. Interkoneksi and Interoperability
dan Interoperabilitas agencies are designated as non-profit organizations
in order to safeguard the principles of fair business
competition. The Indonesian Payment System Association
Interconnection
Interconnection describes Not interconnect Mutual Interconnection
acts as the standards agency, while the services agency
inter-system/technical/
interconnected infrastructure, Switch A Switch A will be comprised of a consortium of industry players.
able to talk to each other,
and process each other. Several Indonesian switching companies have been
Switch R Switch Aj Switch R Switch Aj chosen to take on NPG switching.
Interoperability
Interoperability describes the Not interoperable Mutual Interoperability The NPG is being implemented gradually. In its early
conditions of instruments that
can be received/ processed CRED
IT CARD stages, the NPG has been applied to the ATM/debit and
in various channels/payment B
CRED
IT CARD
A A B
devices (ATM, EDC, chip-based electronic money systems, the scope of which
Payment Gateway)
EDC Bank B
is particularly widespread. Bank Indonesia established the
National Standard for Indonesian Chip Card Specification
EDC Bank B
Card can only be The payment channel can
processed with the accept various cards
same payment channel (NSICCS) as the national standard for ATM/debit cards.
In addition, chip-based electronic money interconnection
was achieved through a multi-applet security access
module (SAM) convergence strategy, which essentially
take place.3 The services agency provides operational integrates multi-issuer platforms into a single electronic
services, ensures transaction security and customer money reader/EDC. Implementing these two strategies,
protection, handles disputes and facilitates wider ATM/debit cards and electronic money cards from various
acceptance of non-cash instruments. issuers can be used to perform transactions at a single
ATM or EDC terminal, thereby enhancing the objective of
Bank Indonesia has set criteria for parties to fulfill if they greater efficiency. The next stage of NPG development
are to undertake any of the functions of the NPG. First, will be to standardize electronic billing and invoicing
they must have the ability to conduct domestic transaction presentment and payment, credit cards, e-commerce,
processing and, second, 80% of the agency must be payment hubs and other retail payment services.
owned domestically. These requirements are in place to
protect the durability, growth and competitiveness of NPG Under the NPG, attempts are also being made to set
institutions. Opportunities remain open to others who wish up a pricing scheme that governs the amount and/or
to work with NPG switching agencies, as long as they price that an operator can charge a merchant. This aims
intend to invest in Indonesia. The standards and services to protect the public from excessive charges and avoid
Diagram
Gambar 9.1. NPG Ecosystem
9.1. Ekosistem GPN diinIndonesia
Indonesia
NATIONAL PAYMENT GATEWAY (NPG)

SOURCE OF BENEFICIARY
FUND ACCOUNT Standard Switching Services ACCOUNT
SYSTEM SYSTEM
PROPRIETARY SHARED DELIVERY CHANNEL NPG Operator

DELIVERY CHANNEL
ATM PAYMENT a. Standard Institution
Phone : EDC AGENT
MACHIINE GATEWAY b. Switching Institution
SMS, USSD, STK c. Services Institution
Internet Banking :
Direct, Merchant Page INSTRUMENT
ATM CARD DEBIT CARD CREDIT CARD CHIP-BASED

MOBILE (Mobile Banking) E-MONEY Have been done in 2017
Parties who connected with NPG:

a. Publisher
b. Acquirer
c. Provider of Payment Gateway
d. Other parties set by Bank Indonesia

3 Switching infrastructure is a centre and/or link for forwarding payment transaction data
over a network. It forwards data relating to card-based payment instruments, electronic
money and funds transfers (Article 1, Item 5 of Bank Indonesia Regulation (PBI) No.
18/40/PBI/2016 concerning Payment Transaction Processing Operations).

Table 9.1. GPN Pricing Scheme
Debit Card Electronic Money
Pricing Scheme Before GPN After GPN Price Scheme Before GPN After GPN
MDR On-Us 0% up to1.8% 0.15% Terminal Usage 0.35% or infrastructure

None
Fee (TUF) sharing scheme B2B
MDR Off-Us 2% up to 3% 1%
Top Up:
Merchant Code
On Us Off Us On Us Off Us For transactions above
Category (MCC):
a. On-Us Free Rp200,000 max
a. Social Rp750
0% up to 1.5% 0% up to 1.8% 0% 0%
Assistance G2P
b. Off-Us Mitra Rp1.000 up to Rp5.000 Max Rp1.500
b. P2G 0% up to 1.5% 0% up to 1.8% 0% 0%
c. Off-Us Rp5.000 up to Rp6.500 Max Rp1.500
0% up to 0.5% up to
c. Gas Station 0.15% 0.5%
3.25% 3.25%
0% up to 0.9% up to
d. Education 0.15% 0.75%
3.25% 3.25%
where it is currently still limited,5 and relatively low
Notes: Sharing infrastructure: Investment cost as a replacement of Infrastructure cost incurred in
in comparison to other countries. This is partly due
accordance with the agreement among publishers
to inefficiencies in non-cash retail payments, but also
because cash is more familiar and many people are
unaware of the benefits of non-cash transactions.
economic rent. The pricing scheme is also expected to
create incentives appropriately and equitably. In this To deal with these challenges and strengthen the
regard, Bank Indonesia has set a merchant discount rate electronification program, Bank Indonesia has focused on
and terminal usage fee per transaction, which can be social assistance and transport, both significant sectors.
evaluated and amended (Table 9.1).4 The electronification program will improve distributions
of social assistance money and, since the Government
Overall, the NPG is an important breakthrough in is electronifying its own payments, will improve the
promoting efficiency in retail payments. It allows for management of state finances and provide greater
payment channels to be connected and used by all transparency. Electronification in the transport sector is a
service providers, meaning the payment system is more way to help the public become more accustomed to non-
efficient and infrastructure is better utilized. This will cash payments.
allow operators to expand their service coverage and
innovations, while merchants will incur lower transaction Social assistance payments have been switched to a
costs. In addition, management of the payment system non-cash electronic transaction using a system of banking
sector will improve, as all domestic transactions will be agents.6 This switch is intended to make the distribution
processed domestically using rupiah at affordable prices of social assistance more streamlined, to make it more
and with data well protected. This is an important step effective in its goal of alleviating poverty and to expand
in maintaining security of payment transactions and acceptance of non-cash transactions. The distribution of
consumer protection. non-cash social assistance represents a major step towards
more widespread acceptance of non-cash transactions, as
almost 30 million families across Indonesia receive social
Electronification Program assistance and subsidies – a substantial number. Bank
Indonesia is playing an active role in facilitating the non-
Bank Indonesia continued to encourage electronification cash social assistance distribution program, particularly
in payment systems under the auspices of the National
Non-Cash Movement (GNNT). This seeks to boost the
popularity of non-cash transactions among the public,
5 Bank Indonesia launched the National Non-Cash Movement (GNNT) on 14 August
2014. This movement principally promotes two programs, public education and
electronification.
4 The merchant discount rate is a tariff imposed on merchants by banks, whereas the
terminal usage fee is a fee imposed by issuers on infrastructure providers for the use of a 6 Presidential Regulation No. 63 of 2017 concerning the Distribution of Non-Cash Social
terminal. Aid.

when it comes to preparing business models for these The toll road electronification program was incorporated
payments. into the NPG, supported by a system that wraps a
number of electronic money issuer platforms into one
The distribution of non-cash social assistance has the single reader or EDC terminal. This means that people
potential to expand public access to finance and help only need one card to access all toll roads in Indonesia.
Indonesia achieve the targets set out in the National Bank Indonesia, together with toll road authorities and
Strategy for Financial Inclusion, a 2016 initiative to industry, took numerous significant steps to ensure smooth
increase the number of citizens with bank accounts, interconnection. A balanced tariff scheme was arranged
particularly those living in remote areas. The banking according to best practice to ensure the charges are set at
agent system was optimized by deploying digital financial the right level for customers, while remaining profitable for
services (LKD) agents. They facilitate non-cash transactions business. This tariff scheme ensures the sustainability of the
for recipients of social assistance, and work in synergy business model. Large-scale publicity campaigns helped
with agents from the Branchless Banking program (known ensure the efficiency of toll road electronification, as did
as Laku Pandai) and in collaboration with banks from the expansion of infrastructure to make it more convenient
the Association of State-Owned Banks (HIMBARA). As of for people to top up their card balances electronically.
December 2017, 204,960 LKD agents were operating
across 495 regencies or cities in 33 provinces. In this
way, the distribution of non-cash social assistance will Regulating Financial Technology
contribute to the achievement of the financial inclusion
targets, with 75% of the adult population expected to The development of digital technology has brought with
enjoy formal financial access by 2019. it many changes, including in economic and financial
activities. It has resulted in new business models known
The social assistance electronification program was as financial technology (fintech) and e-commerce,
focused on the Family Hope Program, which awards accompanied by the emergence of new players or
conditional cash transfers, and Non-Cash Food Assistance start-ups. The development of innovative fintech and
(BPNT). These non-cash social assistance programs were e-commerce business models has penetrated into almost
only implemented in 2017, but have already reached all types of financial services. These business models can
many beneficiaries. Six million families have received generally be divided into four categories: (i) lending and
non-cash assistance under the Family Hope Program, capital raising; (ii) payments, clearing and settlement; (iii)
while BPNT has reached 1.2 million families. These figures investment and risk management; and (iv) market support.
equate to opening up financial access for 24% of families By the end of 2017, 184 fintech and e-commerce players
with the lowest level of welfare. were operating in Indonesia, the majority in payments,
clearing and settlement (Chart 9.1).
The 2017 electronification program also focused on
transport. Bank Indonesia linked with government
programs to improve transaction efficiency in the public
Graph9.1.
Chart 9.1. Number and Composition of Financial
transportation sector, with a major development being
Technology Participants
a switch from cash to non-cash payments on toll roads.
Here, Bank Indonesia coordinated with the Ministry of
Transportation, the Ministry of Public Works and Housing, 13%
as well as toll road authorities, to initiate a 100% non-
cash program on toll road sections throughout Indonesia. 32%
The program was launched on 31 October 2017 (Box

9.1 Non-Cash Movement and Toll Road Electronification)
42%
and reduced queues by cutting transaction times at toll
13%
booths from an average of 10 seconds to 3 seconds. Non-
cash toll payments are more practical, faster and more
convenient and are expected to lower the need for coins
in transactions in Indonesia by up to 45%. Lending and Capital Raising Investment and Risk Management
Payment System, Clearing, and Settlement Market Support

Fintech and e-commerce innovations offer various the financial system and its risk profiles. Ever-evolving
benefits to consumers, including the ability to perform technological innovations give consumers greater room
transactions with almost no territorial restrictions. Fintech to control how they conduct economic transactions, but
and e-commerce can encourage financial inclusion by also have the potential to disrupt the intermediary function
providing easy, fast and inexpensive access to financial of the banking industry, which is currently well regulated
services. Furthermore, fintech business models tend to and systematic. These threatened disruptions could affect
promote the decentralization of financial services and aspects of risk management and consumer protection.
disperse risk which, in conventional business models, is Financial innovation can lead to risks, including excessive
centralized with a single point of failure. Consequently, risk-taking and moral hazard, along with lax risk
fintech and e-commerce business models are deemed management. Other risks that could arise include the
more secure than conventional models. potential for money laundering and terrorism financing,
most notably in anonymous virtual currency-based
The swift development of fintech is supported by rapid transactions. The risk of cyber-attacks also exists, and the
digital penetration in Indonesia. Total fintech transactions dangers are not only limited to fraud, but extend to threats
in Indonesia in 2017 are predicted to amount to USD18.6 to privacy and data protection. In addition, there is a risk
billion, up 24.6% from 2016. This is consistent with the of contagion and increased volatility of capital flows as
escalation in the number of fintech players, which now interconnectedness increases among players.
number 184 – an increase of more than 65% from the
end of 2016. Meanwhile, total e-commerce transactions Bank Indonesia has responded to the development of
are expected to amount to USD6.96 billion in 2017, up fintech and e-commerce in a cautious and balanced
23% from 2016. This positive performance is due to the manner. In 2017, Bank Indonesia strengthened the
rapid penetration of digital technology in Indonesia as functions of the Bank Indonesia Fintech Office and
the middle class grows. There are 88.1 million internet introduced a regulatory sandbox.8 This sandbox is a
users in Indonesia – 34% of the total population – and testing ground for fintech, a program under which fintech
of these, 64.1 million are active users. Growth of mobile companies can test their innovations while supervised by
phone and internet users is expected to reach 8% per year Bank Indonesia. Bank Indonesia’s Fintech Office regulates,
by 2022, by which time it will encompass 113.5 million among other things, the criteria and procedures for fintech
people. The rapid development of fintech has proved very registration. In addition, Bank Indonesia also formulated
attractive to investors, especially foreign investors, who the rules of play in the sandbox.9 These rules are expected
are aggressively putting money into various Indonesian to ensure compliance with prudential principles, fair
digital platforms. This trend is expected to continue given business competition, risk control and consumer protection.
the positive outlook in the Indonesian market.
Bank Indonesia has banned the use of virtual currency for
In addition to the impact from the electronification of social fintech and e-commerce operators and payment system
assistance distribution and toll road payments, the rise in service providers. This policy was intended to maintain
electronic money transactions in 2017 was also boosted the sovereignty of the rupiah as legal tender in all regions
by this growing number of fintech and e-commerce of Indonesia in accordance with Law No. 7 of 2011
transactions. Electronic money instruments often serve as on Currency. The policy also aims to maintain financial
the basis for fintech and e-commerce payments. One clear system stability, prevent money laundering and terrorism
indication of this was the escalating value and volume financing, and protect consumers.
of proprietary channel transactions conducted through
mobile and internet banking – increases of 33.7% yoy Bank Indonesia also continued to work with the Financial
and 16.1% yoy respectively.7 Services Authority, the Ministry of Communications
and Information Technology, the Indonesian Police, the
The rapid development of fintech and e-commerce needs Ministry of Trade and the Ministry of Finance on policy
to be watched closely because it involves risks. The digital responses to the development of digital technology. Good
revolution has the potential to change the structure of
8 Bank Indonesia Regulation Number 19/12/PBI/2017 concerning the Operation

of Financial Technology.
7 Besides contributions from transactions related to the use of server-based electronic
money, proprietary channel transaction data also contains transactions derived from 9 Board of Governors Regulation No. 19/14/PADG/2017 concerning the Financial
electronic non-cash credit transfers. Technology Regulatory Sandbox.

inter-authority policy synergy plays an important role in In another step taken to strengthen payment systems, Bank
building a robust national financial industry. Indonesia moved to optimize the use of the bulk payment
feature in the second generation of the Indonesian
clearing system. This feature improves the efficiency
Other Policies for Strengthening Payment Systems of regular payments and billing services, including
salary payments, aid distribution, and the realization of
Bank Indonesia pursued several other policies in the field Regional Revenue and Expenditure Budgets (APBD). Bank
of payment systems. These policies were related to credit Indonesia has been educating banks, corporations and
cards, payment integrity, SKNBI infrastructure and central the public on regular billing services and also established
bank money. In addition to supporting payment systems, a development program that was able to increase bulk
these policies were also expected to encourage economic payment transactions by an average monthly 30.7%. In
recovery. 2017, 157,758 SKNBI bulk payment service transactions
were made with a total value of IDR1,599 billion.
With regard to credit cards, Bank Indonesia lowered the
maximum limit for credit card interest rates with effect Bank Indonesia also expanded the implementation of
from June 2017.10 This stipulated a reduction to 2.25% Central Bank Money (CeBM),12 in 2017, Bank Indonesia
per month or 26.95% per year, from 2.95% per month began implementing phrase three. Prior to phase three,
or 35.40% per year. This policy is expected to cause CeBM was only used for the settlement of government
a decline in credit card interest rates, in line with other securities (SBN), non-SBN by custodian banks and SBN
rate reductions. In addition, Bank Indonesia also made settlements by securities companies. With phase three,
it mandatory for credit card issuers to deliver a formal fund settlements by securities companies were extended
closing statement to customers who are closing their credit to include non-SBN transactions, a policy implemented
card accounts. This policy also came into effect in June to minimize settlement risks. By the end of 2017, five
2017 and was intended to strengthen consumer protection securities companies had implemented CeBM for fund
and boost public confidence in credit cards. settlements of non-SBN transactions in the capital market.
In order to strengthen the integrity of payment transactions,

Bank Indonesia issued new rules to prevent money Strengthening of Payment System Supervision
laundering and terrorism financing. This step was taken
because money laundering and terrorism financing are Bank Indonesia’s payment system policy has been fortified
becoming increasingly complex as new information by good supervision. In 2017, supervision was focused
technology changes the risk landscape.11 These new on strengthening consumer protection and tackling illegal
provisions regulate all unlicensed, non-bank foreign practices, part of Bank Indonesia’s anti-money laundering
exchange business activities (KUPVA BB) operators, and terrorism financing prevention commitment. The
non-bank fund transfer operators and payment system supervision was intended to ensure compliance with Bank
service providers (PJSP) other than banks, including fintech Indonesia regulations; parties subject to these regulations
operators. The subjects of these regulations are required include payment system service providers (PJSP).
to adopt a risk-based approach, and identify the risks
associated with service users, countries or geographic Consumer protection efforts were focused on implementing
areas, products or services, and transaction channels or a ban on the double swiping of non-cash cards, a practice
networks. This policy is expected to improve the integrity previously common in Indonesia. The first swipe was
of national payment transactions, while also bolstering to the bank’s EDC and the second to the retailer’s own
consumer protection. computer. Bank Indonesia now prohibits the second swipe.
PJSP are now not allowed to obtain or use customer data
other than for payment transaction processing purposes,
10 Bank Indonesia Circular Letter (SEBI) No.18/33/DKSP of 2 December, 2016
and are prohibited from acquiring customer data in the
concerning the Fourth Amendment to SEBI No.11/10/DASP of 13 April, 2009 on the
Operation of Card-Based Payment Instrument (APMK) Activities.
11 Bank Indonesia Regulation No. 19/10/PBI/2017 concerning the Application of Anti-

Money Laundering and Terrorism Financing Prevention Measures for Payment System
Service Providers Besides Banks and Non-Bank Foreign Exchange Business Activities
(KUPVA) Operators (PBI APU-PPT). 12 The use of CeBM refers to the transaction settlement process at Bank Indonesia.

payment process.13 The aim of this double-swipe ban is to terrorism financing prevention principles effectively. This
protect the public from the risk of theft and misuse of their is reflected, among other things, by the availability of
data and information contained in payment instruments. sectoral risk assessments, the application of risk-based
This policy move reinforces previous consumer protection assessments and the adoption of measures aimed at
measures, such as the ban on credit card surcharges and controlling unlicensed KUPVA BB operators.
the ban on credit card cash withdrawals at merchants.
These improvements to consumer protection met with 9.2. Currency Management Policy
a positive response from business, which developed a
method that does away with the need for the transaction Bank Indonesia’s currency management policy in 2017
authorization on a cash register to involve a second remained directed at optimizing the role of cash in
swipe. This technical innovation has mitigated the risk of supporting the Indonesian economy. Bank Indonesia
customer data being improperly acquired without making aimed to meet public demand for cash in sufficient
the payment process any longer. Both Bank Indonesia quantities and in appropriate denominations, in a timely
and PJSP have informed the public of the ban on double manner. It also aimed to ensure the money was in a
swiping, and hope that increased awareness will help condition fit for circulation.
people reduce risks when making payments.
Policy implementation falls under three pillars: (i) making
Bank Indonesia took a firm stand in supervising and available good-quality and trusted currency; (ii) the secure
combating illegal financial transactions, particularly and optimal distribution and handling of currency; and (iii)
money laundering and terrorism financing. Its supervision first-rate cash services. Bank Indonesia wanted to ensure
and control was directed towards compliance on the part an even distribution of currency across Indonesia, with
of KUPVA BB operators, which tend to be used for these availability measured in terms of sufficiency of quantity,
activities. Action was conducted in cooperation with appropriateness of denominations, suitability of quality
the Indonesian National Police, the National Narcotics and security from counterfeiting.
Agency, the Financial Transaction Reporting and Analysis
Center and other relevant central and regional agencies.
Bank Indonesia identified 783 unlicensed KUPVA BBs First Pillar: Availability of good-quality and trusted
operating across Java, Sumatra, Balinusra, Kalimantan, currency
Sulawesi and Papua. By the end of 2017, 91% of these
operators had been disciplined. Demand for rupiah currency rose in line with the
continuing expansion of the national economy and it
Bank Indonesia also continued to raise public awareness was required in all areas of Indonesia. To ensure the
on the use of licensed fund transfer and foreign exchange availability of good-quality and trusted currency, Bank
services. A significant change made by Bank Indonesia in Indonesia pursued three main strategies: (i) maintaining
this regard was to customize a logo for licensed KUPVA the sufficiency of currency and expanding the circulation
BB operators to make it easier for people to recognize of 2016 emission year (EY) rupiah, (ii) a ‘clean money’
them. policy to improve the quality of currency in circulation,
and (iii) preventing and combating the circulation of
International assessors have responded favorably to Bank counterfeit rupiah, including through public awareness
Indonesia’s efforts to counter money laundering and work.
terrorism financing. In 2017, Indonesia, as a member of
Financial Action Task Force-style regional bodies, including To ensure sufficient currency and to expand the circulation
the Asia/Pacific Group on Money Laundering, underwent of 2016 EY rupiah, Bank Indonesia strengthened currency
periodic mutual evaluations by the Financial Action Task planning by focusing on macroeconomic assumptions,
Force-Asia Pacific Group on Money Laundering. Indonesia on the amount of currency unfit for circulation, and the
was found to have applied anti-money laundering and management of currency supply. Bank Indonesia then
printed currency in accordance with this. As mandated by
the Currency Law, Bank Indonesia appointed Perum Peruri,
13 Bank Indonesia Regulation Number 18/40/PBI/2016 concerning Payment Transaction
the Indonesian State Mint, as its currency printer.
Processing Operations.

Thereafter, Bank Indonesia, both at its headquarters and at handling. Bank Indonesia also worked with transport
all regional representative offices, consistently maintained agencies, including PT. Kereta Api Indonesia (KAI), PT.
sufficient cash to meet demand from banks and the public. Pelayaran Nasional Indonesia (Pelni) and other private
As in previous years, Bank Indonesia’s cash adequacy entities, to streamline distribution.
levels were aligned with the national iron stock (ISN) and
minimum cash (KM) indicators.14 Over the course of 2017, The circulation of 2016 EY currency was further expanded
Bank Indonesia was able to maintain the sufficiency of in 2017.16 Since the release of the new currency at the
cash nationally at an average of 3.5 months of outflow. end of 2016, Bank Indonesia has distributed IDR199.7
trillion of 2016 EY currency, consisting of 5.6 billion
Sufficient currency was available in 2017 to satisfy banknotes with a value of IDR199.1 trillion, and 642.9
demand from banks and the public, with enough to cover million coins with a value of IDR0.6 trillion. Bank
the significant rise in withdrawals over religious holidays Indonesia also made successful efforts to increase public
and New Year. Currency withdrawals over the 2017 understanding of the new 2016 emission year currency,
Ramadhan and Idul Fitri period totaled IDR163.2 trillion, with a survey conducted across 82 cities/regencies
up 11.7% yoy. Meanwhile, over the Christmas and 2017 showing that 95.1% of respondents knew about 2016 EY
end-of-year period, currency withdrawals rose 14.1% yoy currency.17
to IDR91.7 trillion. Bank Indonesia successfully met the
seasonal spike in demand for currency across the whole of Bank Indonesia took several steps under its clean money
Indonesia. policy, the second strategy under the availability pillar.
The clean money policy is intended to improve the quality
To maintain the sufficiency of currency and expand of currency in circulation, by sorting and destruction of
the circulation of 2016 EY rupiah, Bank Indonesia currency deemed unfit for circulation. Bank Indonesia’s
also cooperated with banks and other institutions on consistent efforts to improve the quality of circulating
distribution and circulation. Banks continued to improve currency continues to show positive results. A survey
their supply of currency fit for circulation, with these efforts conducted in 82 cities/regencies showed improving
underscored by cooperation in currency management quality – as reflected by improvements in soil levels – of
activities through the optimization of interbank currency both large and small denomination currency in the second
transactions and the dropshot mechanism.15 In addition, half of 2017 compared with the same period of 2016
cooperation also extended the reach of new currency (Table 9.2).18 This positive development demonstrates
exchange activities to various communities. This was done Bank Indonesia’s commitment to providing currency fit for
to ensure that the need for currency was met, especially circulation (ULE) to the public – that is, authentic rupiah
in remote areas, in terms of amounts, denominations and currency that meets Bank Indonesia’s quality standards.
quality. Due to this collaboration with Bank Indonesia, The provision of good-quality currency is important in
banks have been able to improve the efficiency of their maintaining the integrity of the rupiah as a symbol of
cash management, especially in terms of currency storage, Indonesian state sovereignty, and is also more convenient
transportation and handling. Bank Indonesia consistently in transactions.
seeks to ensure banks and currency handling service
providers follow its established standards on currency
16 Bank Indonesia issued simultaneously 11 (eleven) 2016 emission year (EY) rupiah
14 The national iron stock (ISN) is a standby inventory in anticipation of an unexpected
currency denominations, as launched by the President of the Republic of Indonesia on
increase in demand for currency due to an unseen event, such as a natural disaster, a
19 December 2016.
rush on banks or other circumstances. The ISN is set at 20% of projected currency in
circulation (UYD) in the current period. Meanwhile, minimum cash (KM) refers to the 17 Survey on the fitness level of currency in circulation in 2017 with a total of 4100
minimum reserves maintained by cash work units at Bank Indonesia headquarters and respondents.
all regional representative offices (KPwBI) to meet the demand for cash of each region in
18 Soil level indicates the physical condition of currency. The soil levels used by Bank
a monthly period. KM is set at an average of 1.5 months of outflow.
Indonesia range from 1 to 16. Soil level 1 is money that is completely unfit for
15 Interbank currency transactions cover the demand, supply and exchange of currency fit circulation, while soil level 16 is perfectly printed new money from Perum Peruri, the
for circulation (ULE), in order to meet the demand for sufficient amounts of money and/ Indonesian state mint. For 2017, Bank Indonesia set a minimum soil level of 8 as the
or types of denominations. Dropshot is a payment policy of currency fit for circulation standard for large currency banknotes to be considered fit for circulation, meaning
(ULE) by which Bank Indonesia applies payments of ULE from un-itemized bank deposits banknotes with a soil level of 1 to 7 were considered unfit for circulation. A minimum
to the same bank or to another bank located in the same area. The cash is not counted soil level of 6 was set for small denominations to be considered fit for circulation,
in detail or sorted by Bank Indonesia, but is directly exchanged, still wrapped in meaning any of this money with a soil level of 1 to 5 was considered unfit for
transparent plastic and sealed with the bank's label. circulation.

Table 9.2. Result of Survey on Quality of Currency Fit Indonesia also created a rupiah mini-site on the website
for Circulation (ULE) containing a wealth of information on cikur and an
interactive game about rupiah currency. In addition, Bank
2016 2017
Denomination Indonesia targeted those in education by incorporating
Second Second
First Half First Half cikur materials into curriculum at school and college.
Half Half
Large Denomination
Money (UPB) (≥ 10 11 9 12
Rp20,000)
With regard to prevention, Bank Indonesia strengthened
Small Denomination the rupiah’s security elements, making it more difficult
Money (UPK) (≤ 6 8 7 9 to forge, but still easily recognized by the public. The
Rp10,000)
repressive strategy, meanwhile, involved intensive
cooperation with all members of the Coordinating Agency
for the Eradication of Counterfeit Money (Botasupal).
Botasupal consists of the State Intelligence Agency, the
In line with its clean money policy, Bank Indonesia national police, the attorney general’s office, the Ministry
processed and sorted rupiah currency coming from of Finance and Bank Indonesia. Repressive efforts, backed
banks and the public in order to ensure the authenticity, up by severe criminal sanctions, were expected to provide
accuracy and fitness of all banknotes and coins in a deterrent effect against potential counterfeiters. Bank
circulation. Money is sorted mechanically into currency fit Indonesia, as the institution authorized to determine the
for circulation (ULE), currency unfit for circulation (UTLE) authenticity of rupiah currency, supported law enforcers
and currency of questionable authenticity. Currency sorted with expert advice on the currency’s characteristics,
and found to be fit for circulation will be redistributed to assisted in laboratory examinations of currency forming
banks and the public, while currency found to be unfit for evidence in criminal cases, and shared information on the
circulation will be destroyed in line with Bank Indonesia discovery of counterfeits.
regulations. Any currency of questionable authenticity is
processed in accordance with the applicable provisions.
Second Pillar: Secure and Optimal Distribution
Bank Indonesia also takes pre-emptive, preventative and and Handling of Currency
repressive steps to prevent and combat the circulation
of counterfeit rupiah, the third goal under its availability To achieve the secure and optimal distribution and
pillar. These actions are important as the circulation of handling of currency, Bank Indonesia in 2017 focused
counterfeit currency directly harms the public, and has the on expanding the currency distribution network and
potential to disrupt national economic stability and lower regulating currency handling activities by Currency
public confidence in the rupiah. Handling Services Providers (PJPUR).
The pre-emptive strategy involved communicating Currency distribution takes place using land and sea
and disseminating information to the public about the transport, setting out from Bank Indonesia’s headquarters
characteristics of genuine rupiah banknotes – cikur and moving to 12 Bank Indonesia regional offices (KPwBI)
in Indonesian – and how to take care of money. By that function as cash depots, and four further KPwBI.
increasing public understanding of the features of Subsequently, other KPwBI that function as cash depots
genuine rupiah currency, Bank Indonesia aimed to limit distribute to another layer of subordinate KPwBI (Figure
the opportunity for the circulation of counterfeits. In 9.3). Bank Indonesia uses trucks, trains, freight vessels,
2017 Bank Indonesia carried out 175 outreach events, passenger ships and sometimes planes to distribute
targeting the general public, students and academics, law currency, and coordinates with Indonesia’s national police
enforcement officials, religious leaders and banks. on security.
Information on cikur was also spread through mass media, To improve effectivity and efficiency of currency
both electronic and print, in order to reach a wider distribution, Bank Indonesia reformed the currency
audience. In 2017, Bank Indonesia made public service distribution system through its multi-year Centralized Cash
announcements in strategic locations on rupiah currency Network Planning (CCNP) program. These reforms are
management, cikur and care of rupiah currency. Bank ongoing and the ultimate target is a currency distribution

Figure
Gambar 9.3. Rupiah
9.10. Jalur Distribution
distribusi uangChannel inBank
rupiah di Bank Indonesia
Indonesia
KPwBI Aceh
KPwBI Lhokseumawe KPwBI

Kalimantan Utara
KPwBI North Sumatra
KPwBI
KPwBI Pematang Siantar North Sulawesi
KPwBI Riau KPwBI
KPwBI Sibolga
KPwBI KPwBI Gorontalo
Riau Islands East Kalimantan KPwBI
KPwBI
KPwBI West Papua
KPwBI Central Sulawesi KPwBI
West Kalimantan KPwBI Balikpapan
West Sumatra KPwBI Jambi North Maluku KPwBI Papua
KPwBI KPwBI
KPwBI Central Kalimantan West Sulawesi
Bangka Belitung KPwBI
KPwBI Bengkulu
Southeast Sulawesi KPwBI Maluku
KPwBI KPwBI Kalimantan Selatan KPwBI
South Sumatra KPwBI Lampung Sulawesi Selatan
Headquarters KPw KPwBI Central Java
KPwBI Banten of Tegal KPwBI East Java
KPwBI West Java KPwBI
KPwBI Jember
West Nusa Tenggara
KPwBI Tasikmalaya
KPwBI Cirebon
KPwBI Solo
KPwBI Purwokerto KPwBI Bali
KPwBI DI Yogyakarta KPwBI
KPwBI Kediri East Nusa Tenggara
KPwBI Malang
network that covers all cities and regencies in Indonesia. the cash exchange and mobile cash services provided
Under CCNP, Bank Indonesia accelerated the opening of by managing and participating banks in their respective
cash custodians.19 Cash custodians is done in cooperation regions. It also provided financial assistance for custodian
with commercial banks-in this context known as managing managing banks, helping to alleviate the opening and
banks-entrusted with the supply of cash to other banks, management expenses via a cost-sharing mechanism.
known as participating banks. Costs were incurred for improving treasuries, strengthening
security, new equipment, renovating service counters and
The reach of Bank Indonesia’s cash services grew in cash areas, among others.
line with the increase in the number of cash custodians.
In 2017, it opened 53 new cash custodians, 16 in With regard to regulating currency handling services
Sumatra, 10 in Java, 3 in Bali and Nusa Tenggara, 7 in providers, Bank Indonesia also elicited the participation
Kalimantan, and 17 in Sulawesi and Mapua. By the end of banks and security service companies (BUJP) whose
of 2017, 114 cash custodians were in place, meaning job it is to handle rupiah currency. Originally, the
Bank Indonesia’s cash services now extend to 100% of security companies only safeguarded the transportation
Indonesia’s 515 cities and regencies, up from 82.9% in of currency; now, however, they have expanded into
2016. currency handling services. Therefore, Bank Indonesia
issued new regulations on currency handling services.20
Bank Indonesia also continued to cooperate with banks These aim to maintain standards, while also encouraging
from HIMBARA, along with regional banks, in the opening the development of a healthy and responsible currency
of cash custodians. Of the 114 cash custodians, 51 were handling services industry. The types of currency handling
opened up in conjunction with 3 HIMBARA banks and services that are regulated include (i) the distribution of
63 in conjunction with 18 regional banks. By the end of rupiah currency; (ii) the processing of rupiah currency;
2017, 867 bank branches were involved in the scheme (iii) the deposit of rupiah currency in the treasury; and/
– 114 as cash custodian managing banks and 753 as or (iv) the filling, removing and/or monitoring of currency
participating banks. The number of participating banks sufficiency in commercial currency withdrawal and deposit
has increased significantly from 509 in 2016 (Table 9.3). machines, including ATMs, cash deposit machines and
cash recycling machines.
Bank Indonesia also developed and improved the
business models of cash custodians by improving their
service level agreements (SLA), and also by expanding
20 Bank Indonesia Regulation Number 18/15/PBI/2016 concerning Rupiah Currency

Handling Services Providers of 24 August 2016 (PBI PJPUR) and implementing
19 This is done in order to meet the currency needs of communities in a particular area or provisions of Circular Letter Number 18/25/DPU of 2 November 2016 concerning
region. Rupiah Currency Handling Services Providers.

Table 9.3. Commercial Banks as Bank Indonesia Cash Custodian Administrators
Amount of
No. The Managing Bank Location and Number of Participating Banks
Deposit
91 participants, consist of :
1 Bank Mandiri 11 Rantau Prapat (13), Tanjung Pinang (12), Tanjung Pandan (9), Singaraja (8), Sorong (12), Gorontalo
(15), Timika (8), Biak (4), Toli-Toli (3), Tahuna (3), Langkat (4).
Gunung Sitoli (4), Muara Bungo (17), Padang Sidempuan (11), Sungai Penuh (5), Balige (3),
2 Bank Negara Indonesia 21 Tanjung Balai Karimun (8), Tebing Tinggi (8), Bukittinggi (4), Rengat (5), Pamekasan (2), Kebumen
(6), Cilacap (12), Luwuk (7), Baubau (7), Tobelo (2), Parigi Moutong (5), Bitung (7), Meulaboh (6),
Kuala Tungkal (8), Sumenep (7), Sorong Selatan (3).
3 Bank Rakyat Indonesia 19 Lubuk Linggau (11), Dumai (14), Blangpidie (7), Kotabumi (3), Liwa (5), Baturaja (12), Manna (3),
Kabanjahe (8), Takengon (4), Kudus (16), Pekalongan (22), Tual (3), Kolaka (6), Poso (5), Serui (4),
Muna (3), Waingapu (2), Sampit (6), Kisaran (8).
4 Bank Aceh Syariah 1 Subulussalam (2).
Bank Sumatera Selatan 26 participants, consist of :

5 2
- Bangka Belitung Prabumulih (21), Musi Banyuasin (5).
Bank Riau - Kepulauan 13 participants, consist of :
6 3
Riau Natuna (5), Kepulauan Meranti (4), Pasir Pengaraian (4).
7 Bank Bengkulu 1 Mukomuko (3).
8 Bank Jambi 1 Sarolangun (6).
Bank Jawa Barat - 42 participants, consist of :

9 3
Banten Sukabumi (21), Subang (17), Pangandaran (4).
10 Bank Jawa Timur 5
Probolinggo (11), Banyuwangi (12), Bojonegoro (5), Madiun (15), Ponorogo (2).
Bank Sulawesi Selatan - 48 participants, consist of :
11 6
Sulawesi Barat Palopo (12), Parepare (6), Bulukumba (8), Polewali Mandar (5), Bone (14), Pasangkayu (3).
Bank Sulawesi Utara - 12 participants, consist of :
12 4
Gorontalo Kotamobagu (5), Pohuwatu (3), Melonguane (1), Kepulauan Sitaro (3).
13 Bank Sulawesi Tengah 1 Morowali (4)
Bank Maluku - Maluku 10 participants, consist of :

14 3
Utara Labuha (5), Namlea (3), Saumlaki (2).
15 Bank Papua 5
Merauke (7), Fakfak (4), Bintuni (3), Wamena (3), Nabire (6).
BPD Nusa Tenggara 22 participants, consist of :
16 7
Timur Maumere (3), Atambua (3), Ruteng (4), Ende (6), Lembata (2), Waikabubak (2), Alor (2).
Bank Nusa Tenggara 14 participants, consist of :
17 2
Barat Bima (5), Sumbawa (9).
18 Bank Kalimantan Barat 4
Sintang (13), Ketapang (11), Singkawang (9), Putussibau (3).
19 Bank Kalimantan Tengah 6
Muara Teweh (5), Pangkalan Bun (9), Buntok (4), Lamandau (3), Murung Raya (3), Kuala Kapuas (3).
20 Bank Kalimantan Timur 6
Sangatta (2), Tanjung Selor (4), Tanjung Redeb (9), Melak (4), Tana Paser (5), Malinau (3).
Bank Kalimantan 23 participants, consist of :
21 3
Selatan Batu Licin (13), Tabalong (6), Kandangan (4).
Total 114 753 participants

Any security company that performs currency handling to Papua, particularly in disadvantaged 3T areas, on 16
services must be licensed by Bank Indonesia and must also and 17 June 2017. The amount of currency exchanged by
obtain Bank Indonesia approval to open a branch office. the public was approximately IDR150 billion over these
By the end of 2017, Bank Indonesia had issued licenses two days. They also received information on cikur, the
to 26 security companies engaged in currency handling in characteristics of genuine bank notes, and how to take
Indonesia. care of rupiah currency.
Bank Indonesia also initiated a cash service program

Third Pillar: First-Rate Cash Services called BI-Jangkau in order to expand its cash services,
especially in disadvantaged 3T areas, accelerating
In 2017, Bank Indonesia continued to improve its cash distribution of currency fit for circulation and reducing the
services for the public. These cash services included prevalence of unfit currency. This program is conducted
currency exchange at Bank Indonesia offices and at through cooperation with banks, pawnshops or other
mobile cash services, either carried out independently parties with a widespread office network that can reach
or in cooperation with other parties. This mobile cash 3T areas.
service strategy is focused on busy locations that have
high currency demand and turnover, including markets,
shopping centers, rest area, and routes used during the 9.3. Payment System Performance
Idul Fitri exodus (mudik).
Mobile cash services continued to be optimized, Performance of Payment Systems Operated by

especially for areas not previously covered by Bank Bank Indonesia
Indonesia’s cash services or without access to banks.
These services allow both individuals and wholesale The payment systems operated by Bank Indonesia, in the
customers (banks) to exchange currency fit for circulation form of BI–RTGS, SKNBI and BI–SSSS, all ran smoothly
and also unfit currency. In 2017 Bank Indonesia increased and reliably over 2017. All financial transactions through
the frequency of mobile cash services to reach remote, Bank Indonesia’s payment systems were settled, thereby
outlying and underdeveloped areas (3T) of Indonesia. supporting economic activity and maintaining financial
These mobile cash services were carried out either system stability. The availability level of the systems stood
through the Bank Indonesia office network or through at 100% with no unsettled transactions.
cooperation with banks or other institutions, including the
Ministry of Transportation, the Indonesian Navy, and the In 2017, the value and volume of transactions conducted
Water and Air Police. The improvement of mobile cash through BI–RTGS, a large value payment system,
services is expected to meet the demand for currency increased. Average daily transaction value rose by
throughout Indonesia, while also replacing unfit currency 9.3% to IDR493.3 trillion and volume rose 38.3% to
with that fit for circulation, thereby improving the quality 42,582 transactions (Chart 9.2). All transactions were
of rupiah currency in circulation. Over the course of conducted securely and smoothly, and BI–RTGS proved
2017, Bank Indonesia’s work with the Navy and the consistently available and able to settle all large value
Water and Air Police successfully brought 16 rounds of transactions in Indonesia. On the liquidity side, BI–RTGS
mobile cash service activities to more than 79 remote and system participants also had sufficient daily funds to
underdeveloped islands across Indonesia. maintain the smooth operation of transactions, and all
transactions were settled without the use of the Intraday
In addition, services aimed at meeting increasing public Liquidity Facility. Efficiency was also evident in transaction
demand for money ahead of the 2017 Idul Fitri holiday throughput in zone III, which was relatively stable and in
were also improved, with Bank Indonesia and HIMBARA line with guidelines for a maximum of 40% of transactions
banks setting up temporary currency exchange posts.21 to be conducted in this period.21 The distribution of BI–
Under the program, 1,136 posts were set up from Aceh RTGS transactions across the three zones reduces the
risk of settlement failure that could arise if there is an
accumulation of transactions at the end of the day.
21 This program was known as Rupiah for the State – 1000 Points of Synergy for Bank
Indonesia and State-Owned Banks to Serve the State.

Grafik 9.2.
Chart 9.2. Perkembangan Transaksi BI-RTGS
BI-RTGS Transaction the stabilization phase in the implementation of the BI–
RTGS Generation II system. While the value of SKNBI
Rp trillion Thousand transactions fell, the average daily volume of SKNBI
700 60 transactions increased by 7.8% from the previous year to
541.487 (Chart 9.4).
600 50
500 40
Performance of Payment Systems Operated by the

400 30
Industry
300 20
The performance of non-cash retail transactions operated

200
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
10
by the payment system industry improved in 2017.
2015 2016 2017
The increase was seen in various types of transaction
Daily Average Value Daily Average Volume (Rhs) instruments, such as ATM/debit cards, electronic money
and credit cards. The ATM/debit cards, the most-used
method for non-cash retail transactions at 95.1%,
continued to grow, albeit more slowly than in 2016.
Meanwhile, there was an increase in transactions and Meanwhile, use of electronic money rose – consistent with
administration of securities through BI–SSSS in 2017. its increasing public acceptance and driven by the toll
The average daily value of transactions in 2017 grew by road electronification program. Credit card use also grew
6.6% to IDR225.8 trillion, while volumes grew 8.8% to in 2017 after declining in the previous period.
1,269 transactions (Chart 9.3).
Growth in the use of ATM/debit cards was slightly lower
The value of transactions through the national clearing in 2017 versus 2016 due to relatively weak household
system, SKNBI, declined, in line with the policy consumption, though the number of ATM/debit cards in
implemented in July 2016 of capping transactions at circulation increased by 20.8% to 164.5 million from
IDR500 million. Prior to July 2016 there was no upper 136.2 million in 2016. The average daily value of ATM/
limit. The average daily value of SKNBI transactions in debit card transactions in 2017 increased by 10.5% to
2017 decreased by 14.1% from the previous year’s IDR17 trillion, while volumes rose 9.8% to 15.6 million
figure to IDR14.43 trillion. This move was followed by transactions (Chart 9.5). In comparison, in 2016 average
a reduction of the lower limit of transactions through daily value rose 13.3% and volume 14.6%.
BI–RTGS to IDR100 million per transaction from IDR500
million per transaction. These steps were taken after
Chart
Grafik9.3. BI SSSS System
9.3. Perkembangan Transactions
Transaksi BI-SSSS Chart
Grafik9.4. SKNBI SystemTransaksi
SKNBI
Rp trillion Thousand Rp trillion Thousand

330 2,0 22 700
1,8
280 20 650
1,6
230 18 600
1,4
180 1,2 16 550
1,0
130 14 500
0,8
80 12 450
0,6
30 0,4 0 400
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2015 2016 2017 2015 2016 2017
Daily Average Value Daily Average Volume (Rhs) Daily Average Value Daily Average Volume (Rhs)

Chart
Grafik9.5. ATM/Debit Transactions
9.5. Perkembangan Transaksi RRH ATM/Debit while volumes rose 7.6% to 896,900 transactions
(Chart 9.7). This growth in 2017 was supported by an
Rp trillion Million interest rate reduction policy, and by consumer protection
19 18 measures that came into effect in June 2017 and boosted
18 17
public confidence in credit cards.
16
17
16
15
Payments and transfers between individuals through
15
14
delivery channels – phone banking, mobile banking,
13
including SMS banking, and internet banking – increased
14
12
in 2017 as online transactions became increasingly
13 11
popular. Delivery channel transactions grew by 18.7% in
12
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
10
2017, driven by mobile and internet banking. The value
2015 2016 2017
of mobile transactions rose 41.3% in 2017 and internet
Daily Average Value Daily Average Volume (Rhs) banking 16.7%, underpinned by growing internet access
and technological innovation (Chart 9.8).
The performance of electronic money improved 9.4. Currency Management

significantly in 2017. The number of electronic money Performance
instruments circulating in society rose by 75.8% to 90
million from 51.2 million in 2016, while the value of The rupiah currency was well managed in 2017, as
average daily transactions rose 74.7% to IDR33.9 billion, evidenced by the availability of sufficient currency to
and volume grew 42.4% to 2.6 million transactions (Chart meet the public’s needs. Bank Indonesia always maintains
9.6). The increased use of electronic money was driven an adequate availability of currency fit for circulation,
by Indonesia’s electronification program, that successfully in terms of both value and denomination, throughout
added 1.1 million electronic money cards under non-cash Indonesia to support public transactions. In 2017, the
social assistance electronification and 3.5 million cards availability of good-quality currency fit for circulation
under the toll road payment program. increased, due to more extensive distribution of currency,
a rise in the destruction of money unfit for circulation and
Credit card performance improved in 2017 after negative a decline in the prevalence of counterfeit money.
growth in 2016. The value of average daily credit card
transactions in 2017 rose by 6.2% to IDR815.5 billion,
Chart
Grafik9.6. Electronic Money
Transaksi RRH Uang Elektronik Chart
Grafik9.7. Credit Card Transactions
9.7. Perkembangan Transaksi RRH Kartu Kredit
Rp trillion Million Rp trillion Thousand

70 6 0.90 1,000
60 5 950
0.85
50 900
4
0.80
40 850
3
30 800
0.75
2
20 750
0.70
10 1 700
0 0 0.65 650
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 1011
12
2015 2016 2017 2015 2016 2017
Daily Average Value Daily Average Volume (Rhs) Daily Average Value Daily Average Volume (Rhs)

Grafik 9.8.
Chart 7.16. Lorem Ipsum
Growth of Delivery Channel Use Grafik 9.10.
Chart 9.13. Rasio
RatioUYD terhadap
of UYD PDB
to GDP danHousehold
and Konsumsi
Rumah Tangga
Consumption
Percent, yoy Percent, yoy Percent
120 60 10
100 50 9
40
80 8
30
7
60 20
6
40 10
0 5
20
-10 4
0
-20 3
-20 -30 2
-40 -40
1
1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
0
2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017
SMS / Mobile Banking Internet Banking

UYD/Nominal GDP UYD/Household Consumption
Phone Banking (right scale)
Currency in Circulation of UYD to GDP, which in recent years has been relatively
stable. The prominent role of currency in the economy is
Currency in circulation (UYD) increased in 2017 in line also seen in the ratio of UYD to household consumption.
with growing domestic economic activity. The value of In 2017, the ratio of UYD to household consumption stood
UYD in 2017 grew 13.4% to IDR694,8 trillion, with at 9.1%, higher than the 2016 position of 8.7% (Chart
demand for both currency from the outside bank and for 9.11).
cash in vault increasing (Chart 9.9). This was consistent
with the growing domestic economy. The highest position By denomination, the IDR100,000 note dominated. The
of UYD in 2017 occurred at the end of Ramadhan, number of IDR100,000 banknotes as a proportion of total
in accordance with the usual seasonal pattern, when UYD continues to trend upwards, increasing to 65.4% in
IDR721.4 trillion was in circulation across Indonesia, up 2017 from 52.4% in 2010 (Chart 9.12). This has been
8.5% from the corresponding Ramadhan period in 2016 driven by the preference of both banks and the public
(Chart 9.10). for the more practical larger denominations. In addition,
larger denominations are the banknotes ordinarily
The role of currency as a payment instrument for economic dispensed by ATM and ATM/debit machines.
activities remains important. This is reflected in the ratio
Grafik 9.9.
Chart 9.11. Posisi UYD Akhir
End-of-Year Tahun of Currency in
Position Grafik 9.11.
Daily UYD UYD Harian
Circulation (UYD)
Rp trillion Percent, yoy Rp trillion
700 30 750
700
600 25
650
500
20 600
400 550
15
300 500
10 450
200
400
100 5
350
0 0 Working Days
300
1
9
17
25
33
41
49
57
65
73
81
89
97
105
113
121
129
137
145
153
161
169
177
185
193
201
209
217
225
233
241
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Currency Outside Bank Cash in Vault

2015 2016 2017
UYD Changes (rhs)

Grafik 9.12.
Chart 9.15. Pangsa UYDinBerdasarkan
Currency Denominasi
Circulation by Denomination Grafik 9.14.
Chart 9.17. Pola Musiman
Seasonal AliranofUang
pattern Kartal
Outflow andmelalui
Inflow
Bank Indonesia
Percent Rp trillion Percent, yoy
100 200 400
90 350
150
80 300
70 100 250
60 200
50
50 150
0
40 100
-50 50
30
0
20 -100
-50
10
-150 -100
0 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112
2010 2011 2012 2013 2014 2015 2016 2017 2015 2016 2017
Outflow Inflow
≤ Rp10,000 Rp20,000 Rp50,000 Rp100,000
Outflow Growth (Rhs) Inflow Growth (Rhs)
Currency Flow through Bank Indonesia (Outflow followed by inflow over the subsequent few months (Chart
and Inflow) 9.14).
The flow of currency through Bank Indonesia in 2017 In terms of usage, most of the currency flow through Bank
increased in line with the increase in UYD. This currency Indonesia consisted of bank withdrawals and deposits. In
flow consists of money going out to banks and society 2017, bank withdrawals made up 82.8% of total outflow,
(outflow) and money coming into Bank Indonesia (inflow). while bank deposits accounted for 91.9% of total inflow.
During 2017, total outflow amounted to IDR684.9 trillion, These proportions of bank withdrawals and deposits to
a rise of 12.2% compared to 2016. Meanwhile, total total outflow and inflow respectively are fairly similar to
inflow stood at IDR603.6 trillion, up 3.3% from 2016. those of 2016. Apart from withdrawals and deposits,
This meant that Bank Indonesia in 2017 maintained a other outflow and inflow components included currency-
net outflow of IDR81.3 trillion, higher than the net outflow based activities, including supplying cash custodians,
in 2016 of IDR25.8 trillion (Chart 9.13). The rise in mobile cash services and exchange money at Bank
both outflow and inflow in 2017 was consistent with Indonesia counters.
the seasonal patterns of previous years. High outflow
can occur during religious festival periods and holidays, Currency withdrawals through cash custodians also
increased significantly, reflecting the growing number
of such services, which support smooth and efficient
Grafik 9.13.
9.16. Aliran Uang Kartal melalui BankBank
Indonesia economic transactions. By the end of 2017, the number
Chart Outflow and Inflow through
Indonesia of cash custodian managing banks stood at 114, spread
Rp trillion Percent, yoy
across Indonesia, compared to 62 in 2016. This result
1,000 45 increased significantly to 72.2% in 2017 in the value of
800 40 cash withdrawals from cash custodians to IDR117.7 trillion
600 35
(Chart 9.15).
400 30
200 25
On the back of the policy to provide more mobile cash
0 20
services throughout Indonesia, including to 3T areas,
-200 15
-400 10
the value of currency exchanges increased in 2017. The
-600 5 value of currency exchanges, through both mobile cash
-800 0 services and onsite exchange at Bank Indonesia offices,
2010 2011 2012 2013 2014 2015 2016 2017
rose 16.1% to IDR6.1 trillion in 2017 (Chart 9.16). This
Inflow Outflow Netflow
Inflow Growth (Rhs) Outflow Growth (Rhs)
growth of mobile cash was in line with Bank Indonesia’s

Grafik 9.15.
Chart 9.18. Jumlah
Number danofPenarikan Uang Kartal
Cash Custodian and Rupiah Table 9.4. Outflow and Inflow by Region
melalui Kas
Withdrawal Titipan
Rp trillion
Outflow Inflow
117.7
114 Area
2016 2017 2016 2017
Java 361.2 410.5 377.3 389.8

68.4
62
Sumatra 122.0 133.6 97.8 103.7
45.7
30
35 36.1 Bali Nusra 31.9 34.2 31.0 30.8
Kalimantan 42.2 50.4 32.8 35.1
Sulampua 53.1 56.3 45.7 44.1

Cash Custodian Banks Total Withdrawal Through
Cash Custodian Banks National 610.4 684.9 584.6 603.6
(Rp trillion)
2014 2015 2016 2017
efforts to strengthen currency distribution and cash services growing amount of currency processed by Bank Indonesia.
up to the sub-district and village levels. In 2017, 7.7 billion banknotes worth IDR254.1 trillion
were destroyed, higher than the 6.9 billion banknotes
In spatial terms, Java continued to dominate both outflow worth IDR210.5 trillion destroyed in 2016 (Chart 9.17).
and inflow through Bank Indonesia in 2017. (Table 9.4).
The next highest share was taken by Sumatra, followed Bank Indonesia also destroyed 90 million coins unfit for
by Sulawesi and Mapua. Java remains the center of circulation worth IDR29.1 billion in 2017, in contrast to
Indonesia’s economy even though regional economic 2016 when no coins were destroyed. This was largely
centers outside of Java are developing. due to an increased amount of currency processing and a
greater inflow to Bank Indonesia, which rose in part due
to the reforms in currency distribution and cash services.
Destruction of Currency Unfit for Circulation
The destruction of currency unfit for circulation (UTLE) Declining Counterfeit Currency
increased in line with the expansion of currency
distribution networks and cash services, as well as the
Grafik 9.16.
Chart 9.19. Jumlah
Rupiah Nominal Penukaran
Withdrawal Uang
through Chart 9.17.
Grafik Destruction
9.1. Lorem Ipsum of Currency Unfit for
melalui Kas
Mobile CashKeliling Circulation
Rp billion Million bilyet
3,000 2,500
2,500 2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
Q-I Q-II Q-III Q-IV 2015 2016 2017
2015 2016 2017

Grafik 9.1. Lorem
Chart 9.18. Ipsumof Counterfeit Money by Police
Finding Counterfeiting activity declined in 2017. The amount
and Bank of counterfeit rupiah banknotes discovered in 2017
Banknotes Banknotes per one million currency in circulation fell to 164,903 from 211,661 in 2016. Banks and the
350,000
21
25 public reported 157,474 of these counterfeit notes,
300,000 20
while the remaining 7,429 were discovered during the
20
250,000 course of police investigations (Chart 9.18). In terms of
13
200,000
15 denomination, most of the counterfeits were IDR100,000
11 9
150,000
10
9 and IDR50,000 banknotes, at 80,680 or 48.9%, and
8 10
100,000
77,002 or 46.7%, respectively. These seizures indicate
5 a drop in the ratio of counterfeit currency to nine notes
50,000
per one million notes in circulation, from 13 in 2016,
0 0
and reflect Bank Indonesia’s increased efforts to combat
2010 2011 2012 2013 2014 2015 2016 2017
counterfeiting.
Police Investigation Bank Reports

Box 9.1. The use of electronic money for toll road payments
provides many benefits, both to road users and other
National Non- concerned parties. Non-cash transactions give road users
cash Movement a sense of security, because the amount paid is accurate

and in line with the relevant toll fee. The transaction
and Toll Road process is also much faster, because it does not involve
Electronification the extra time required to count money and provide

change. For toll road operators, the electronification
of payments improves operational cost efficiency by
reducing cash handling. Non-cash transactions also
As technological developments continued to gather pace, reduce risks, including fraud arising from manual cash
non-cash transactions emerged as an alternative payment handling performed by a person, as well as miscalculation
method. The widespread use of non-cash transactions of money received or change given, the receiving of
promotes economic efficiency by making transactions counterfeit money and security risks when making bank
faster, more convenient and more secure, while money is deposits.
saved on printing, currency distribution and cash handling
costs. With this background, Bank Indonesia launched The use of electronic money in toll road transactions
the National Non-Cash Movement (GNNT) on 14 August began in 2012, but is still not yet optimal. This is in
2014 in a bid to encourage the public, businesses and part because banks considered these electronic money
government agencies to switch to electronic payment transactions to be unprofitable and therefore only a limited
methods. number have pursued them. In addition, the operational
costs of electronic money were borne fully by the issuing
The early stages of GNNT implementation were slowed bank. To overcome this problem, Bank Indonesia and
by a lack of public acceptance and a lack of infrastructure the Ministry of Public Works and Housing initiated the
readiness, with cash transactions still dominating in toll road electronification strategy, which originally had
Indonesia. A McKinsey survey revealed cash is still used a target of 100% non-cash payments for toll roads by
in 99.4% of transactions in Indonesia, with non-cash October 2017. To achieve this target, it was decided that
instruments used in just 0.6%.1 Promoting the use of non- toll road users would have a large selection of issuers
cash payments needs to start with encouraging greater to choose from, making it easier to obtain and top up
acceptance and behavior change on the part of the public electronic money.
(demand side), but this demand must be backed up by
adequate infrastructure (supply side). The combination of To improve efficiency, a single machine (multi-applet
public acceptance and infrastructure availability is key to SAM) was developed that would accept various cards. In
the success of Bank Indonesia’s non-cash program. addition to improving efficiency, the multi-applet SAM has
also led to a convergence in the standards of electronic
The experience of other countries shows that non-cash money readers both in and outside the transportation
payment transaction campaigns are more effective sector. This approach is expected to gradually boost
when they commence in mass sectors, such as transport. public acceptance of non-cash payments instruments.
Consequently, Bank Indonesia encouraged the use of
electronic money in toll road transactions. Electronic By the end of 2017, 98% of all existing toll road segments
money has advantages over other instruments, such as had switched to non-cash transactions (Figure 1). This
ATM/debit cards, because it is available in small sums, is figure was slightly below the target of 100%, because the
distributable en masse and has lower operating costs. In culture of using non-cash instruments is still in its infancy
addition, within certain balance limits, electronic money is – especially for users of public transport and trucks – and
easy to obtain and does not require the formal procedures the number of electronic money top-up facilities is still
needed, for example, when opening a bank account. limited, discouraging people from switching.
1 McKinsey and Company, Asia Pacific Payments Trends, Global Payment Summit 2013.

Figure
Gambar 1.BoksNon-Cash
9.1 Payment Performance Level
Electronification 98% 99,7% 96% 72% 100%

69% Medan-Kualanamu-Tebing Tinggi (new segment) Performance National Jabodetabek Java non Jabodetabek Outside of All non-cash toll gates
Java in Indonesia
83% Belawan - Medan Tj. Morawa 100%
SAM multi-applet has
100% Medan Binjai been implemented
100% Palembang - Indralaya (new segment)
100% Tangerang - Merak
48% Makassar Section IV
100% Pd.Aren - Serpong 94% Kanci - Pejagan
48% Ujung Pandang Section I, II
100% Pd.Aren - Ulujami 98% Semarang A, B, C
98% Semarang - Solo I, II

100% Bogor Ring Road 100% Nusa Dua-Ngurah Rai Tj. Benoa
95% Pejangan - Pemalang 95% Surabaya - Mojokerto
93% Purbaleunyi
100% Simpang Susun Waru Juanda
100% Cinere - Jagorawi 95% Gempol - Pandaan
93% Palimanan - Kanci
100% Surabaya - Gempol 66% Surabaya - Madura
93% Cikampek - Palimanan 95% Gempol - Pasuruan
100% Surabaya - Gresik 57% Kertosono - Mojokerto
Penetration above 75% Penetration below 75%
Source : On toll road regulators data, calculated

Notes : Data as of 8 December 2017
The ultimate goal of toll road electronification is in 2018 To support the realization of multi-lane free flow, an
to achieve free-flowing traffic – known as multi-lane free electronic toll collection consortium will be established
flow– at toll points, supported by contactless technology. to set up both front- and back-end infrastructure. This
Such a system means toll road users would not need will be linked to the NPG in order to bring about the
to slow or stop in order to pay, but their tolls would be interconnection and interoperability of the toll road
automatically charged to a payment instrument they had payment system. The consortium will also work with
previously registered. Toll roads will be equipped with relevant agencies to implement law enforcement in toll
cameras to detect a vehicle’s point of entry and exit so the payments.
fee can be calculated accurately.

CHAPTER 10
Outlook, Challenges,
and Policy Direction
The Indonesian economy is on an upward trajectory.
Nonetheless, consistent and anticipatory macroeconomic
policies are still needed to safeguard the economy and ensure
it develops in a stronger, more balanced and sustainable
manner.

The outlook for the Indonesian economy in 2018, authorities. Together, they strive to optimize monetary,
2019 and the years beyond is one of improvement, fiscal, macroprudential, microprudential, payment system
characterized by rising economic growth, controlled and currency management (SP–PUR) policy mixes, while
inflation and sustained external balance. The positive also pursuing structural reforms. Consistent structural
momentum, both globally and domestically in 2017, reform is essential in addressing the medium-term
provides a basis for a continuation of the economic challenge to increase productivity and economic capacity.
recovery. Bank Indonesia predicts economic growth in
2018 in a range of 5.1% to 5.5% and in 2019 in a range
of 5.2% to 5.6%. Alongside this, inflation is expected to 10.1. Economic Outlook
remain low – within the 2018 and 2019 inflation target
range of 3.5±1% – influenced by inflation expectations The outlook for an improving domestic economy is
and controlled domestic demand. Indonesia is also inextricably linked to forecasts of global economic
expected to post a surplus in its balance of payments recovery. The improvement of the global economy in 2017
(BOP) in 2018 and 2019, driven by an increase in is expected to continue in 2018 and 2019, as growth
foreign capital inflows and a current account deficit below drivers shift to developing countries. Global economic
2.5% of GDP. In the medium term, the domestic economy growth in 2018 is forecast by the International Monetary
is expected to continue to grow, supported by structural Fund (IMF) to increase to 3.9% from 3.7% in 2017 (Table
reforms and sustained macroeconomic and financial 10.1). This increase in growth in 2018 and 2019 is
system stability. expected to be driven mainly by developing countries,
amid the ongoing and gradual process of rebalancing
Amid the continuing economic recovery, however, the Chinese economy. China’s economy is predicted to
challenges are emerging that may disrupt this economic continue to grow strongly – buoyed by consumption and
outlook. These include short-term global challenges exports – although growth has decelerated in recent years.
related to the normalization of monetary policy in India’s economic growth is also expected to increase
some developed countries, the potential for continued significantly as the effect of the country’s demonetization
geopolitical turmoil and an increase in protectionist policy fade and a new tax system is applied. In developed
trade policies. Mitigating such global risks becomes countries, the highest growth in 2017 was seen in the
ever harder as the global economy in the medium United States, where fiscal stimulus via tax reforms has
term is characterized by declining productivity, due to pushed up growth. This fiscal stimulus is particularly
limited investment and aging populations, particularly relevant for investment, given the decrease in corporate
in developed countries. Other challenges also exist, tax rates. In 2019, global economic growth is forecast
including the need to minimize domestic risks arising by the IMF to remain stable at 3.9%, mostly supported by
from ongoing economic consolidation, the limited developing countries. Growth in advanced economies is
room for fiscal stimulus, and reduced foreign capital expected to slow slightly.
inflows due to the ongoing normalization in developed
countries. Maintaining macroeconomic stability in the
face of escalating oil and food commodity prices and the Table 10.1. Global GDP Outlook
concomitant risk of rising inflation is also a challenge.
Percent
In the medium term, domestic structural challenges may Projection
hamper economic recovery; such challenges include the Country / Country Group 2017
2018 2019
need to boost economic competitiveness, to strengthen World GDP 3.7 3.9 3.9
industrial capacity and capability, to create an inclusive
Developed Countries 2.3 2.3 2.2
economy, provide sustainable sources of financing and to
United States 2.3 2.7 2.5
develop digital technology.
Japan 1.8 1.2 0.9
Europe 2.5 2.2 2.0

Policies are put in place to safeguard the economy
and build a stronger structure, underpinned by robust Developing Countries 4.7 4.9 5.0
stability. These policies aim to create strong, balanced China 6.9 6.6 6.4
and sustainable growth and are the result of cooperation India 6.7 7.4 7.8
between Bank Indonesia, the Government and related Source: IMF and WEO
Information: Data updated on January 2018

Continuing global economic recovery will contribute Table 10.2. GDP Outlook by Expenditure 2018‑2019
positively to global trade volumes – which are expected
Percent
to climb further – and global commodity prices. The IMF
Component 2017 2018* 2019*
forecasts global trade volumes to grow 4.6% in 2018 and
Gross Domestic Product 5.07 5.1 - 5.5 5.2 - 5.6
4.4% in 2019. This strong growth forecast is based on the
Private Consumption 4.98 4.9 - 5.3 4.9 - 5.3
expectation of strong 2018 and 2019 intraregional trade
Government Consumption 2.14 3.7 - 4.1 3.8 - 4.2
in Asia, which itself is underpinned by the expectations
of ongoing strong economic growth in China and a Gross Fixed Capital 6.15 6.5 - 6.9 6.5 - 6.9
recovery in demand from the United States and Canada. Goods and Services Export 9.09 6.3 - 6.7 6.0 - 6.4
Commodity prices are also forecast to grow in 2018 and Goods and Service Import 8.06 7.2 - 7.6 6.6 - 7.0
2019, although at a slower pace than in 2017. Consistent Source: BPS and Bank Indonesia
*Forecast by BI
with rising global commodity prices, Indonesia’s export
commodity price index (IHKEI) is also expected to maintain
positive growth in 2018. Bank Indonesia forecasts the quality expenditure by government. The role of fiscal
IHKEI to increase by 2.8% in 2018. stimulus is also predicted to be substantial, not only
from the perspective of investment, but also from that of
The improved global economic outlook is expected to consumption, buoyed by a better tax outlook. Private
have a positive effect on the stability of world financial consumption, a major contributor to the Indonesian
markets, though it is worth noting the risks springing economy, is expected to rise as increased tax revenues
from the monetary policy normalization currently taking allow the Government to expand social security programs.
place in some developed countries. This normalization This, and other factors, will underpin purchasing power.
is the factor with the most potential to affect global Exports, however, are forecast to slow slightly, while still
financial markets in 2018, as US policy rate increases showing growth as commodity price forecasts remain high
and a balance sheet reduction are likely to continue. and global demand strong.
Meanwhile, the European Central Bank (ECB) is expected
to maintain an accommodative monetary policy in Investment performance is expected to maintain an
2018, though a slowing pace of asset purchases is a upward trend in 2018 and 2019, supported by
concern. Developments in the monetary policy direction government capital expenditure and ongoing expansion
of developed countries could affect the flow of foreign of the private sector. Investment growth in both 2018
capital, and may reduce capital inflows to developing and 2019 is expected to increase by between 6.5% and
countries. 6.9%, underpinned by construction and non-construction
investment (Table 10.2). Construction investment is forecast
to rise as strategic infrastructure projects – including those
Short-Term Economic Outlook connected to the 2018 Asian Games – are completed and
inject further momentum into the economy (Figure 10.1).
Economic Growth Outlook Non-construction investment – in particular machinery and
equipment – is also expected to continue growing into
The improved outlook for the global economy and 2019, in line with the expected expansion of the private
several positive domestic developments are expected sector, especially manufacturing, transport, services and
to boost Indonesia’s economic recovery in 2018 and other related industries.
2019. Economic growth in 2018 is predicted to increase
to between 5.1% and 5.5%, and in 2019 to a range An improved investment outlook is also the result of the
of 5.2% to 5.6% (Table 10.2). This improved outlook Government’s consistent track record in enhancing the
is primarily driven by the enhanced role of domestic investment climate, which increases the confidence and
demand. interest of business players when it comes to investing.
Indonesia’s Government is committed to regulating at
Domestic demand mainly comes from strong investment, both the central and regional level to make it easier for
both construction and non-construction investment. business actors to invest. Such regulatory commitments
Improved investment is underpinned by greater could, for example, include integrating licensing systems
business confidence in the private sector, and by and improving the ease of doing business. To date, efforts

Figure
Gambar 10.1. National
10.3. Lorem Strategic Projects
Ipsum
Project Program
Road Railway Port Airport Industry

Zone Electricity
74 23 10 8 30
Projects
House
Projects
Border
Projects
Water and
Projects
Dam
Projects
Irrigation
1
Project
Sanitation
3
Projects
3
Projects
9
Projects
54
Projects
7
Projects Medium-small
Plane
1
Technology Smelter Oil Fishery Sea
Refinery Wall
4
Projects
6
Projects
12 Projects
1
Project
1
Project
Project
Source: KPPIP
to improve the business climate have shown positive results revenue from exports and sustained low-level inflation. The
and this trend is expected to continue in the coming years. outlook for household consumption is also supported by
The success of these efforts is reflected in Indonesia’s fiscal stimulus from the Government through various fiscal
improved ranking in the World Bank survey on the ease of spending instruments.
doing business; Indonesia rose to 72 in 2018 from 91 in
2017 (Chart 10.1). Government stimulus in 2018 is expected to boost
household consumption. The government stimulus will
In the short-term, private consumption is expected to rise involve, among other items, spending on local and
slightly from 2017.1 Bank Indonesia forecasts private general elections in 2018 and 2019, subsidies and social
consumption growth in 2018 and 2019 to be between assistance. Government spending on subsidies and social
4.9% and 5.3% (Table 10.2). This estimate is tied to assistance will increase overall (Chart 10.2). The level of
expectations that household consumption will improve, electricity and energy subsidies in the 2018 State Budget
buoyed by sustained purchasing power, potentially greater (APBN) is relatively unchanged from 2017; however,
the 2018 State Budget directs the subsidies to needier
sectors of the population than received them in previous
Chart
Grafik10.1. Indonesia’s
10.2. Peringkat Ease‘Ease of Doing
of Doing Business’
Business Indone
years. This will help to ensure that consumption levels
Ranking
Ranking
60
70
72 Chart
Grafik10.2. Allocation
10.1. Program of Subsidies
Pengentasan and Social
Kemiskinan
80 Assistance in State Budget
90 91
100 8.7
Others 8.5
110 109 8.8
114 Scholarship 10.5
115
120 121 120 Family Hope 11.4
123 122
Program 17.3
130 129 129 128
13.0
Interest Subsidies 18.0
135
140 19.8
RASTRA 20.8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 25.5
BPJS 25.5
Fertilizer and 32.4
Seed Subsidies 28.5
59.8*
Village Funds 60.0
Source: World Bank
97.6*
Energy Subsidies 94.6
Rp trillion
2017 2018
1 Private consumption is a combination of household consumption and the consumption
of non-profit institutions serving households (NPISH). In this composite, household Source: Ministry of Finance, calculated
consumption accounts for about 98% of total private consumption. Note: *Realization

are maintained. In addition, the Family Hope Program, commodity prices will also positively affect other sectors in
a conditional cash transfer program, is being extended Indonesia, particularly agriculture, mining and quarrying.
from six million families in 2017 to 10 million families
by 2018.2 This commitment to expanding the number of The anticipated positive performance of the construction
beneficiaries, coupled with improved coordination and sector is consistent with ongoing infrastructure projects,
integration with other social assistance programs, will also particularly related to connectivity, energy and housing.
lift household consumption. The construction sector is forecast to grow between 7.2%
and 7.6% in 2018, rising slightly to a 7.3% to 7.7%
The improved outlook for private consumption is also range in 2019, up from actual growth of 6.8% in 2017
boosted by an upbeat forecast for consumption by non- (Table 10.3). Government spending on infrastructure is set
profit institutions serving households (NPISH). This figure is to increase to IDR410.4 trillion in 2018 from IDR388.3
expected to be lifted by spending on political campaigns trillion in 2017. The money is allocated, among other
ahead of local and general elections. High NPISH items, to the construction of 832 km of new roads, 15
spending also has a knock-on effect on rising household new dams, 92 new retention basins, new bridges with
consumption. a combined length of 15,373 meters, seaports in 17
locations, 947 km of irrigation networks, eight new
The export performance is expected to remain positive in airports, 639 km of railway lines, electricity projects to
2018 and 2019, buoyed by high commodity prices and reach an electrification ratio of 95.15%, and 13,405
strong global demand. Exports are forecast to grow fairly basic apartments.
well; growth by value is expected in a range of 6.3% to
6.7% in 2018 and 6.0% to 6.4% in 2019, slightly lower Manufacturing industry performance is also expected
than the realized 2017 figure. This dip must be seen in the to improve in 2018 and 2019, with growth forecast
context of the slight slowdown in growth in China, one of in a range of 4.5% to 4.9% in 2018 and a range of
Indonesia’s main export destinations, as it experiences a 4.6% to 5.0% in 2019, up from actual growth of 4.3%
gradual economic rebalancing. in 2017 (Table 10.3). This positive outlook is backed
up by government efforts on structural reforms in the
The reasonable outlook for exports is also supported by real sector aimed at increasing economic value-added
government efforts to improve market competitiveness and and employment. In this regard, industrial sector policy
diversification for non-oil and gas export products through
structural reforms. The role of non-oil and gas exports from
the manufacturing industry is projected to grow as the Table 10.3. GDP Outlook by Industrial Origin
construction of smelters is completed. This positive export 2018‑2019
Percent
outlook is also boosted by improvements to export and Industrial Origin 2017 2018* 2019*
import logistics, including ports, airports, access roads Gross Domestic Bruto 5.07 5.1 - 5.5 5.2 - 5.6
and railways. Improvements here will help cut logistics Agriculture 3.81 2.8 - 3.2 3.0 - 3.4
costs and ultimately lift export growth. Mining and Quarrying 0.69 2.1 - 2.5 1.9 - 2.3
Manufacturing 4.27 4.5 - 4.9 4.6 - 5.0
Improvements in domestic demand and in exports will Electricity, Gas & Water** 1.76 2.3 - 2.7 2.3 - 2.7
also lift imports. Bank Indonesia forecasts imports to grow Construction 6.79 7.2 - 7.6 7.3 - 7.7
between 7.2% and 7.6% in 2018 and between 6.6% to Trade, Hotel &
4.64 4.7 - 5.1 4.8 - 5.2
Restaurant***
7.0% in 2019 (Table 10.2), due to growth in imports of
Transporation &
9.22 9.1 - 9.5 9.1 - 9.5
consumer goods, capital goods for investment and export Communication****
purposes and raw materials for domestic production Finance, Rental &
5.44 5.5 - 5.9 5.6 - 6.0
Services*****
activities.
Services****** 4.34 4.3 - 4.7 4.3 - 4.7
Source: BPS-Statistics Indonesia, Bank Indonesia
By sector, economic growth in 2018 and 2019 will mainly Note: *Forecast by BI.
** Consists of 2 industrial origins: (i) Electricity and Gas; (ii) Water
be underpinned by construction, manufacturing, trade, *** Consists of 2 industrial origins: (i) Wholesale and Retail Trade, Car and Motorcycle Repara-
tion (ii) Provision of Accomodation and Food and Beverage
hotels and restaurants. At the same time, persistently high **** Consists of 2 industrial origins: (i) Transportation and Storage (ii) Information and
Communication
***** Consists of 3 industrial origins: (i) Financial Services (ii) Real Estate; (iii) Business
Activities
****** Consists of 4 industrial origins: (i) Government Administration, Defence, and
Compulsory Social Security (ii) Education Services; (iii) Health Services and Other Activites; (iv)
2 Data from the Ministry of Social Affairs. Other Services

involves, among other things, (i) developing natural Chart
Grafik10.3. Tourism
10.3. Daya Competitiveness
Saing Pariwisata
resource-based industries, especially in agriculture,
minerals, oil, gas and coal with the aim of deepening Policy
and Regulation Security
industrial structures and upgrading industrial products; Culture Resources and Safety
(ii) enhancing industry capability and competitiveness by 5.1

Natural Resources 4.5 Sanity and Health
improving human resource competence and technological 4.7
3.3 4.3
expertise; (iii) opening new industrial estates and special Tourism
Infrastructure
Human Resources
4.6 and Labor Market
economic zones, especially outside Java, and developing Land Transportation
3.1
3.2 3.8
3.2 Information Technology
connectivity-supporting infrastructure, such as roads, Infrastructure and Port
3.8 and Communication
Infrastructure
bridges, ports and airports, and competitively priced Air Transportation 4.3 5.6
Travel Priority
energy for industry; and (iv) enhancing export access with Infrastructure and Tourism
Environmental
major trading partner countries and non-traditional export Sustainability 6
International
Openness
Price Competitiveness
markets.
2015 2017
Source: The Travel & Tourism Competitiveness Report 2015 and 2017,
The trade, hotel and accommodation, restaurant and food World Economic Forum
Note: Larger values indicate a better rate
and beverages sector is also expected to grow in 2018
and 2019. Bank Indonesia forecasts growth of between
4.7% and 5.1% in 2018 and between 4.8% and 5.2% in as a development priority for Indonesia for the medium
2019, up from 4.6% in 2017. This growth is based on a to long term. The Government is also seeking to optimize
projected rise in incomes and a growing middle class. the fisheries sector, including by revitalizing aquaculture
ponds, developing processed seaweed products
This expected improvement is also influenced by ongoing and replacing equipment for capture fisheries. The
tourism development and support from various government development of an agriculture support infrastructure began
programs to promote Indonesian tourist destinations. The in the early stages of the 2015–2019 National Medium
government spending budget for tourism has risen 123% Term Development Plan (RPJMN) and several projects have
in 2018 versus the realized budget of 2017, due both already been completed to date. Already, the agriculture
to the development of new tourism destinations and to support infrastructure program is ahead of its 2019 target
more intensive promotion of Indonesia internationally. (Chart 10.4 and Chart 10.5).
Indonesia’s hosting of the 2018 Asian Games, the 2018
Asian Para Games and the IMF-World Bank Group Annual
Meeting may also lift growth in the tourism sector. Already,
the numerous government efforts to develop tourism are
showing positive results. Notably, Indonesia’s position in
the World Economic Forum (WEF)’s Travel and Tourism
Index report climbed to 42 in 2017 from 50 in 2015.
This improved ranking is due mainly to the opening up of
Chart
Grafik10.4. Irrigation
10.4. Progres DevelopmentIrigasi
Pembangunan Progress
the tourism sector to investors, as well as the preservation
and development of Indonesia’s natural beauty for tourism
Thousand Hectare
(Chart 10.3). 1,400
1,147.6
1,200
The outlook for the agriculture sector is also similarly 931.7
1,000.0
1,000
positive in the short term, and growth is forecast to 754.6
800
improve. The agriculture sector is expected to grow by
600 509.2
between 2.8% and 3.2% in 2018 and in a range of 3.0% 447.1
to 3.4% in 2019, due partly to the positive prospects 400

263.8
for agricultural export commodity prices. The improved 200

45.1
agricultural outlook also stems from government efforts to 0
revitalize agricultural infrastructure, in particular irrigation 2015 2016 2017 2018 2019
networks, and targeted provision of subsidized seeds Target of Irrigation Rehabilitation Realization of Irrigation Rehabilitation
and fertilizer. This is line with the position of agriculture

Source: KPPIP

Chart
Grafik10.5. Irrigation
10.5. Progres Rehabilitation
Rehabilitasi IrigasiProgress Chart
Grafik10.6. Inflation Inflasi
10.6. Perkiraan Forecasts
Lembaga Internasional
Thousand Hectare Percent, yoy

3,500 5.0
3,000.0
3,000 4.5
2,535.9
2,500 2,278.1
4.0
1,952.3
2,000
1,556.1 3.5 3.5±1%
1,500
1,171.7
3.0
1,000 834.2
500 2.5
205.8
0 2.0
2015 2016 2017 2018 2019 2018 2019
Target of Irrigation Rehabilitation

Realization of Irrigation Rehabilitation Consensus Forecast WEO Inflation Target
Source: KPPIP Source: Consensus Forecast and WEO, calculated
Inflation Outlook Core inflation is expected to remain under control in 2018

and 2019 in line with moderate global price pressures,
Inflation in 2018 and 2019 is expected to remain low and controlled rising domestic demand and well-anchored
stable in the 3.5±1% range (Table 10.4). This forecast is inflation expectations. Non-oil and gas commodity prices
based on indications that Indonesia has entered a low and are also predicted to remain under control, despite rising
stable inflation regime. Developments in the last four years global oil prices, therefore adding only minimal pressure
indicate a downward trend in inflation, despite pressure to inflation. Meanwhile, the rise in domestic demand
from administered prices (AP) inflation. Indonesia’s success in line with economic growth is expected to be met by
in consistently keeping inflation on target over the last domestic production capacity. Furthermore, the risk of
three years has helped to anchor inflation expectations second-round effects from AP inflation and VF inflation is
to inflation targets. Maintained inflation expectation low as both these components remain under control.
levels are evident in the inflation projections of various
international agencies, which fall within the 3.5±1% Administered prices inflation in 2018 and 2019 is
target range set by Indonesia (Chart 10.6). These inflation predicted to be lower than in recent years. Any increase
expectations will, in turn, support continuing inflation in inflationary pressures resulting from fuel and energy
control. The outlook for controlled inflation is supported price adjustments is expected to be minimal, as indicated
by all inflation components, namely AP inflation, volatile by the unchanged level of the subsidy budget within the
food (VF) inflation and core inflation. However, the outlook 2018 APBN. This AP prediction for helps overall inflation
for inflation in the short term still includes risks related to to remain under control, given the considerable weight of
the potential for ongoing food and oil price increases. In fuel and energy in the inflation basket.
order to mitigate these risks, Bank Indonesia continues to
strengthen coordination with central and local government Meanwhile, VF inflation in 2018 and 2019 is projected
through the Central Inflation Control Team (TPIP) and to be moderate, supported by a government drive to
Regional Inflation Control Teams (TPID). maintain food supplies and price stability with adequate
food stocks and increased food crop production, amid
Table 10.4. Indonesian Economic Outlook 2018‑2019 uncertain weather conditions. The Government also
continually strives to reinforce food trade regulations,
Percent
develop and improve irrigation systems and enhance
Component 2017 2018* 2019*
stock management and distribution networks in order
Gross Domestic Product Growth 5.07 5.1 - 5.5 5.2 - 5.6
to reduce inflationary pressure. Coordination between
Inflation 3.61 2.5 - 4.5 2.5 - 4.5
Bank Indonesia and the Government through the TPIP and
CA Deficit (%GDP) 1.7 2.0 - 2.5 2.0 - 2.5
Credit Growth 8.2 10.0 - 12.0
TPID inflation control teams plays an important role in
Source: BPS and Bank Indonesia
controlling food price inflation.
*Forecast by BI

Indonesia’s Balance of Payments Outlook capital adequacy. In addition, bank liquidity is also
predicted to improve on the back of substantial
Indonesia’s BOP in 2018 and 2019 is expected to government financial operations.
continue at a surplus with stronger structures that bolster
the external resilience of the national economy. The BOP
outlook is buoyed by a healthy current account deficit Medium-Term Economic Outlook
that is expected within a range of 2.0% to 2.5% of GDP
in 2018 and 2019. The slightly higher current account In the medium term, Indonesia’s economic outlook is
deficit range compared to 2017 is due to an increase in expected to continue to improve. Economic growth
imports to meet expanding domestic demand, as well as a from 2020 to 2022 is forecast to continue upwards,
rise in the payment of foreign returns in line with the inflow accompanied by falling inflation and a sound current
of foreign capital. Nonetheless, the current account will account deficit. These positive developments are supported
remain at a healthy level as exports are also predicted to by the consistency of the macroeconomic policies of Bank
increase – albeit by a slightly lower level than in 2017 – Indonesia and the Government, and their commitment to
driven by world economic growth and rising commodity structural reforms. Structural reforms will help to improve
prices. the efficiency, productivity and competitiveness of the
economy, reinforcing the ongoing economic strengthening
In addition to the healthy current account, Indonesia’s in the medium term.
BOP outlook is also influenced by the capital and financial
account, which not only continues to post a surplus but is The outlook for the domestic economy is positive at a time
also better structured. The capital and financial account when global economic growth is not expected to change
is expected to record a surplus in 2018 and 2019, albeit much from its current level. Global economic growth from
lower than that of the previous year. The surplus will be 2020 to 2022 is forecast by the IMF to reach about 3.9%.
underpinned by rising foreign direct investment (FDI), It is thought that developing countries will play a greater
as improvements to the business climate drive higher role than developed countries in driving global economic
investment growth. The increase in FDI is expected to growth in the medium term. Developing countries are
outweigh portfolio capital inflows, thus enhancing the expected to post robust growth, with China and India
composition of the capital and financial account with likely to be the major growth engines. Meanwhile,
more sustainable financing sources. Foreign capital developed economies including the US, Europe and Japan
in portfolio form is still expected to flow to Indonesia, will experience lower growth due to productivity problems
although possibly at a lower level than the previous year. resulting from aging populations and limited investment.
This continuing portfolio flow is supported by substantial
global excess liquidity, investors’ positive perceptions of Indonesia’s economic growth is expected to continue
Indonesia’s economic prospects and still-attractive rupiah upwards in the medium term, hitting a growth rate in the
yields. range of 5.8% to 6.2% by the end of 2022. The outlook
for steady economic growth in the medium term is boosted
Banking Outlook by improvement in all factors of production. In the medium
term, capital accumulation will be mainly supported
Growth of credit and deposits in 2018 is expected to by continuing infrastructure investment. Infrastructure
improve in line with the outlook for an improved domestic projects included in the RPJMN are estimated to cost
economy. Loans are projected to grow in a 10% to 12% around IDR4,800 trillion. In line with efforts to improve
range, and deposits in a 9% to 11% range. A decline in infrastructure, the Government has established a series of
bank credit risk and the prospect of stronger loan demand national strategic projects (PSN) as development priorities.
– linked to predictions that corporate consolidation is These PSN consist of 245 projects and development
coming to an end – will boost credit growth. programs for electricity and the aircraft industry, worth
a total of approximately IDR4.417 trillion. Only 2%
As banking intermediation increases, the resilience of these had been completed by the end of 2017 and
of banks and the stability of the financial system are approximately 59% is under construction. In the electricity
expected to remain solid. This forecast is supported by program, 3% of the targeted 35,000MW has been
banks’ known ability to manage credit risk satisfactorily, completed, and 46% remains under construction (Chart
thereby contributing to maintaining profitability and

10.7). Taking into account the progress of these projects, Broken down into expenditure components, Indonesia’s
capital accumulation in the future is likely to increase. economic growth outlook in the medium term is
supported by consumption, investment and net export
Human resources is also expected to grow in importance improvement. Household consumption is expected to
as a source of growth in Indonesia, given the advancing remain fairly resilient with stable growth, bolstered by
educational level of workers. The average length of school a projected increase in the proportion of the working
education for employees is predicted to increase gradually age population over the next few years and the
to 8.8 years in 2022, from 8.3 years in 2016, due to the continued growth of the middle class. The rising growth
Government’s commitment to various education programs, of the productive age population compared to the non-
including the development of vocational education and productive age population represents a demographic
improving the quality of teachers. The Government has bonus that is also expected to have a positive influence
allocated a minimum of 20% of the APBN for education on consumption growth. In line with these developments,
funding. This will be distributed to programs including government consumption is also expected to increase,
Program Indonesia Pintar or the Smart Indonesia Program, buoyed by rising state revenues. This is consistent with
Bidik Misi scholarships and school operational assistance, government efforts to optimize tax sector revenue through
with the aim of increasing school enrolment rates and intensification, extensification and policy. These efforts will
reducing the number of children dropping out. result in greater fiscal space and allow for better quality
government spending, particularly for the development
The expected upward economic growth in the medium of productive sectors and the expansion of social security
term is also driven by increases in productivity following programs in key sectors such as education and health.
various infrastructure projects and structural reforms
undertaken via economic policy packages (PKE). To The outlook for investment performance, both private
date, the Government has launched 16 PKEs aimed and government, is one of fairly high growth. In line with
at accelerating bureaucratic reform, enhancing law increasing competitiveness and ease of doing business,
enforcement and business certainty, and ensuring the role of investment in the economy is expected to
deregulation in the economic sector, among others. become more significant and the investment-to-GDP ratio
Structural reforms implemented consistently by the is expected to rise. Infrastructure projects are supporting
Government are expected to boost productivity and, with both government and private sector investment, and
this in mind, total factor productivity (TFP) is projected to this is expected to continue. At current progress rates,
grow at approximately 1.3% annually from 2020 to 2022 approximately 50% of all PSN may be complete by 2019
(see Box 10.1 Impact of Economic Policy Packages on the and 85% by 2022 (Chart 10.8).
Economy).
Grafik 10.7. Perkembangan Proyek Strategis Nasional

Chart 10.7. Development of National Strategic Chart
Grafik10.8. Estimated
10.6. Estimasi CompletionProyek-proyek
Penyelesaian of PSN
dan Program Ketenaglistrikan Infrastruktur PSN
Projects and Electrical Power Programs Infrastructure Projects
Percent absorption
100
2%
6 projects accomplished
90
35% 145 projects + 1 in construction phase 80
245+2
9 projects in transaction phase 70
PSN
59% 85 projects + 1 in preparation phase 60
4%
50
40
1.041 MW: operate 30
3%6%
9% 16.642 MW: construction phase 20
12.776 MW: power purchase agreement 10

35 accomplished, yet financial close
46% GW 0
36% 3.160 MW: procurement phase
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2.228 MW: planning phase Highway & on Highway Railways Airport and National Plane Port
Housing Energy and Electricity Refinery SPAM, Dam, and Irrigation
ICT KEK and KI Smelter PLBN and Fishery
Source: KPPIP, December 2017
Note: Data as of December 2017 Source: KPPIP, calculated

International trade is also expected to continue to perform current account deficit further. Furthermore, the decrease
well. Exports are projected to register an improved in the services account deficit will also lead to a falling
performance in both value and volumes, and the current account deficit, in line with the positive impact
composition of exports will become increasingly robust. of government policies in supporting leading sectors,
The expected increase in exports will also be supported by especially tourism.
non-oil and gas exports from the manufacturing sector as
economic productivity expands. Imports are also expected The improvement to the capital and financial account is
to increase due to growing domestic demand and also expected to continue. A capital and financial account
to fulfil manufacturers’ needs for inputs for their exports. surplus is predicted as a result of increased FDI inflows
Imports of raw materials for inputs are predicted to remain and a moderate rise in portfolio capital inflows. The
under control as the level of import dependence declines. increase in FDI is fueled by infrastructure projects and
However, imports of other goods – including machinery, the positive impact of the Government’s economic policy
equipment and components, among others – will increase packages. Portfolio capital inflows in the medium term are
to meet the needs of infrastructure projects. forecast to rise only modestly, due to anticipated rising
global interest rates on expectations of an increase in
Inflation in the medium term is forecast to remain low due the US Federal Reserve policy rate. Further, in line with
to the positive effects of rising efficiency and economic the increasing need for infrastructure funding and the
productivity. Inflation from 2020 to 2022 is expected in expanding export–import activities, other investment flows,
the range of 3.0±1%. This inflation outlook is influenced such as loans and foreign exchange deposits, are likely to
by improving supply-side growth and a greater economic increase moderately.
capacity to respond to rising domestic demand. Further,
global inflationary pressure is not expected to be
particularly forceful, in line with global economic growth 10.2. Economic Challenges
and moderate price rises in imported commodities.
Amid optimism about the future economic outlook,
The improved medium-term outlook for the domestic challenges are emerging that require attention. Identifying
economy is also attributable to the positive performance such challenges is important in supporting policy
of Indonesia’s BOP. In the medium term, this is expected formulation, which is aimed not only at mitigating risks
to continue showing a surplus, thereby boosting foreign that arise, but also at strengthening the structure of the
exchange reserves. The expectation of a strengthening economy. This, in turn, ensures continuing economic
external sector is closely linked to the positive effects recovery in the future.
of structural reforms undertaken by the Government.
These structural reforms have enhanced the economy’s The challenges to the Indonesian economy stem from both
productivity and efficiency which, in turn, have improved global and domestic issues, both in the short and medium
the competitiveness and overall outlook of the Indonesian term. On the global front, short-term challenges concern
economy. All of this serves to attract foreign investment efforts to mitigate risks from the tightening of monetary
into Indonesia and, overall, these factors have resulted in policy in developed countries, ongoing geopolitical
a more optimistic BOP projection for the future. turmoil and an escalating tendency towards protectionist
trade policies. The first and second risks must be carefully
Indonesia’s improved BOP outlook in the medium term can observed as they can trigger uncertainties in global
also be credited to an increasingly healthy current account financial markets and increase the risk of capital reversals
deficit, as well as a capital and financial account that from developing countries. The growing protectionism
remains in surplus. The current account deficit is expected could disrupt the outlook for the sustainability of global
to be maintained at a healthy level on a downward trend, economic growth and international trade, which would
partly due to favorable global economic developments have a negative impact on the Indonesian economy.
and the positive impact of the Government’s structural
reforms. Improved efficiency and productivity as a result of Medium-term challenges arising from global issues
these structural reforms may improve the competitiveness relate to mitigating the negative impact of risks to global
of Indonesian products. Enhanced competitiveness would productivity that could once again weaken the world
boost exports and control imports, ultimately reducing the economy. Recent developments show that the global

economic recovery remains vulnerable and temporarily In the medium term, domestic challenges are related to
unsteady, as it is largely reliant on the monetary and strengthening the structure of the economy to ensure it
fiscal stimulus policies pursued in both developed can grow sustainably. A reinforced economic structure
and developing countries. As to structural factors, the is important because it affects the ability of the economy
populations of some developed countries are aging. In to grow strongly without the potential for increased
addition, world productivity levels are now lower than economic vulnerability and instability. The most prominent
they were prior to the global financial crisis, representing vulnerability concerns the positive relationship between
another global structural challenge (Chart 10.9). Lower economic growth and the current account deficit. Empirical
productivity is caused by insubstantial investment and experience shows that Indonesian economic growth is
leads to slowing capital accumulation and a lack of vulnerable to being followed by an increase in the current
technological innovation. account deficit (Chart 10.10).
Domestic issues also pose short- and medium-term Efforts to spur the Indonesian economy to achieve high,
challenges. In the short term, domestic challenges sustainable, balanced and inclusive growth must tackle
concern the need to accelerate the end of the corporate at least five challenges. The first relates to strengthening
and banking consolidation process, to mitigate the risk the less-than-optimal competitiveness of the economy.
of insufficient fiscal stimulus space, minimize the risk of Robust economic competitiveness involves at least four
reduced capital inflows if monetary policy tightening basic capital requirements for development, namely
in developed countries proceeds faster than the market infrastructure, human capital, technology absorption and
expects, and maintain macro stability amid the risk of institutions. The second challenge concerns efforts to build
rising inflation. A lengthy period of corporate and banking industrial capacities and capabilities, which at present
consolidation may undermine economic growth as it remain limited. This challenge also includes building a
hinders the potential for business expansion. In addition, high technology industrial sector with strong potential
Indonesia is not bringing in as much in tax revenues to strengthen import-export structures and enhance the
as it could, a factor that risks constricting the space for external sector’s resistance to shocks. The third challenge
fiscal stimulus and limiting the role of fiscal policy in concerns efforts to reduce Indonesia’s poverty rate; so
encouraging economic growth. Furthermore, the risk of far these have resulted in declining wealth gap levels.
reduced capital inflows due to monetary policy tightening The fourth challenge relates to efforts to strengthen
in developed countries should be anticipated as it may financing structures and sources that remain limited, from
disrupt economic stability. Finally, there is a risk of rising both the financial and fiscal sectors. The final challenge
inflation in the short term if oil and food commodity price involves efforts to optimize the various opportunities that
rises exceed forecasts. If not managed properly, this could exist in the field of digital technology while, at the same
disrupt macroeconomic stability.
Chart
Grafik10.9. Global Economic
10.9. Produktivitas DuniaProductivity
Percent
3
Advanced Economies Developing Economies Low
2 Income
Global Financial Crisis Countries
‘08 - ‘09
1
-1
Exclude China
-2
-3
1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015
Source: IMF, 2017

Note: 5 years average growth

Chart
Grafik10.10. Growth of GDPPertumbuhan
10.7. Perkembangan and Current Account
PDB dan Tr Chart
Grafik10.11. Indonesia’s
10.8. Distance Distance
to Frontier to Frontier
Indonesia
CA/GDP (%)
5
72% 47% 38% 35%

3
2 1 1 1 1
2 2 2 2
3 3 3
4 3
1
Overall Human Capital
GDP Growth (Percent, yoy) Institution Innovation
Infrastructure Quality and Research
0
2 3 4 5 6 7 8 9 Frontier: Korea Frontier: Hungary Frontier: US Frontier: Korea
-1
1. Road 1. Trade and 1. Knowledge 1. Research and
-2 Investment Creation Development
2. Rail Infrastructure
3. Port Infrastructure Barriers 2. Knowledge (R&D)
-3
2. Entrepreneurship Diffusion 2. Tertiary
4. Air transporta-
-4 barriers 3. Knowledge Education
tion infrastructure
3. State Control Impact 3. Education
Source: Bank Indonesia and BPS, processed

Note: Data includes 1990-2017 period by expelling sample in crisis period Source: Global Competitiveness Index 2017, Global Innovation Index 2017,
1998 and 1999 and PMR OECD 2013, calculated
time, mitigating the risks that may arise from its rapid technological expertise and innovation levels, all of
development. which remain limited. Education levels, as reflected in the
average length of schooling in Indonesia, are still lagging
(Chart 10.15). The same can be said of the quality of
Challenges in Strengthening Economic education, as evident in Indonesia’s International Student
Competitiveness Assessment Program (PISA) scores, which need to improve
to be aligned with other countries (Chart 10.16).
Efforts to enhance the competitiveness of the economy
include four basic capital requirements that must be Another aspect related to human capital development
developed – infrastructure, human capital, technology is the need to prepare a workforce with high levels of
absorption and institutions. These are due further expertise. This represents a challenge for Indonesia,
consideration, given the substantial disparities that exist because both the amount and quality of education
between Indonesia and frontier countries (Chart 10.11). in Indonesia are less than optimal, resulting in a
Efforts to narrow the disparities will help to strengthen limited number of highly educated workers. Moreover,
Indonesia’s economic competitiveness. little research and development is conducted by the
Government or private sector, due in part to the limited
However, strengthening these four basic capital
requirements poses challenges. In terms of infrastructure,
Indonesia still faces connectivity constraints and needs
Chart
Grafik10.12.
10.12. Infrastructure Ranking Comparisons
to expedite measures to catch up with other countries in
the region by building good-quality infrastructure (Chart
10.12). The Government’s commitment and efforts in
2
Singapore
this regard are beginning to bear fruit, and quality 2
improvements have begun in all types of infrastructure, Malaysia

22
24
including roads, trains, ports and airports (Chart 10.13). Thailand
43
49
In addition, Indonesia needs to continue enhancing digital
52
Indonesia
connectivity through the use of digital technology to be 60
60
comparable with other countries, in terms of numbers of Brunei Darussalam
78
internet users and fixed broadband internet subscribers Vietnam

79
79
(Chart 10.14).
0 10 20 30 40 50 60 70 80 90
In regard to human capital as a basic capital requirement, 2017-2018 2016-2017
Indonesia needs to pay attention to education levels,

Source: The Global Competitiveness Report, 2016-2017 & 2017-2018

Chart
Grafik10.13. Quality of
10.10. Kualitas Indonesia’sIndonesia
Infrastruktur Infrastructure Grafik10.15.
Chart 10.12. Perbandingan Rata-rata
Average Comparison of Masa
SchoolSekolah
Year
Year
14
Electricity 86
Infrastructure Quality 89 13
Air Transportation 51 12
Infrastructure Quality 62
11
Port 72
10
Rail 30 9
Infrastructure Quality 39 8
Road 64 7
6
Overall 68
Australia
Belgia
Brazil
Canada
Rep. Ceko
Denmark
France
Germany
Greece
Hongkong
Hungary
Iceland
Indonesia
Ireland
Italy
Japan
South Korea
Latvia
Mexico
New Zeland
Norway
Portugal
Russia
Spain
Swedia
Swiss
Thailand
United States
Malaysia
Finland
Poland
Second Pillar: 52
Infrastructure 60
0 20 40 60 80 100
2017-2018 Ranking 2016-2017 Ranking 2015 Average
Source: The Global Competitiveness Report, 2016-2017 & 2017-2018 Source: OECD
research workforce in the field of science and technology. (Chart 10.18). Indonesia’s quality of governance also
The combination of a limited highly skilled workforce with continues to improve, as reflected by an improvement in
limited research and development leads to low levels its corruption perception index standing (Chart 10.19 and
of productivity, technological absorption capacity and Chart 10.20).
innovation. The ability to improve innovation is important
as it would give Indonesia the opportunity to quickly
catch up with other countries in the region – particularly Challenges in Industrial Capability and Capacity
Malaysia, China and India (Chart 10.17). Strengthening
Another challenge related to basic capital is the need for Boosting industrial capacities and capabilities brings
improved institutional quality. The quality of institutions is challenges in the field of building resilient economic
linked, among other things, to the ease of doing business, structures. Indonesia’s economic structures require
good governance and an efficient bureaucracy. In terms of reinforcement given several unfavorable factors that could
the ease of doing business, Indonesia’s ranking continues trigger economic vulnerability. First, Indonesia’s imports
to improve, but it remains below that of some peer are mostly aimed at domestic-oriented production while,
countries and should be prioritized for further improvement second, exports are dependent on commodities and are
Chart
Grafik10.14. Digital Connectivity
5.11. Perbandingan Comparisons
Konektivitas Digital Chart
Grafik10.16. Quality of Education
10.13. Perbandingan Comparisons
Kualitas Pendidikan
Percent Population Test Score

100 600
90
550
80
70 500
60
450
50
400
40
30 350
Australia
Belgia
Brazil
Canada
Rep. Ceko
Denmark
France
Germany
Greece
Hongkong
Hungary
Iceland
Indonesia
Ireland
Italy
Japan
South Korea
Latvia
Mexico
New Zeland
Norway
Portugal
Russia
Spain
Swedia
Swiss
Thailand
United States
Malaysia
Finland
Poland
20
10
China Indonesia South Korea Malaysia Phillipines Thailand
Internet User Fixed Broadband User 2015 Average
Source: International Telecommunication Union (ITU) 2016 Source: OECD

Chart
Grafik10.17. Innovation
10.14. Indeks Index
Inovasi Chart
Grafik10.19. Government
10.16. Indikator TataGovernance Indicator
Kelola Pemerintahan
Ranking
Index (1-7 highest) Rank
5.0 60
4.8
4.6 50
4.4
4.2 40
4.0
3.8 30
3.6
3.4 20
3.2
3.0 10
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016
Voting Rights and Accountability Political Stability and Absence of Violence/Terrorism
Malaysia Indonesia India
Government Effectivity Regulation Quality
China South Africa
Law Enforcement Corruption Control
Source: Global Innovation Index 2017 Source: World Bank
shipped to a limited list of export destinations. Some high- in the form of raw materials and auxiliary materials for
tech sectors have strong potential, but remain small and products that are mostly oriented to the domestic market.
uncompetitive, and Indonesia has a lack of diversification
in its products and commodities. Third, there are persistent Limited industrial capacities and capabilities are also
limitations in service sector capabilities. reflected in the commodity-based export structure, both
for primary commodities and natural resource-based
If limited industrial capacities and capabilities persist, this manufactured products. The composition of these exports
may trigger an increase in imports. A rise in the middle is almost unchanged from that of 20 years ago, with
class is followed by an increase in demand for more the export portion of primary commodities and natural
sophisticated imported goods that cannot yet be produced resource-based products over the last 10 years averaging
domestically (Chart 10.21). As a result, expanding 57% of total exports (Chart 10.22). This high reliance
economic growth is accompanied by the possibility that on commodity-based exports makes export performance
external imbalances will emerge. The manufacturing susceptible to global commodity price fluctuations.
sector, for example, depends to a great extent on imports
Chart
Grafik10.18. Ease of Doing
10.15. Peringkat BusinessBerusaha
Kemudahan Ranking Chart
Grafik10.20. Corruption
10.17. Indeks Perception
Persepsi KorupsiIndex
Rank Score
0 55
20
50
40
60
45
80
40
100
120
35
140
160 30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016
Malaysia Indonesia India Malaysia China India

China Thailand Vietnam Indonesia Thailand Vietnam
Source: Ease of Doing Business, World Bank Source: Corruption Perception Index 2016, Transparency International

Chart
10.18. Komposisi of Indonesian
Impor Indonesia Imports Chart
Grafik10.23. Share of
10.20. Pangsa Indonesian
Ekspor ProdukSophisticated
Sophisticated Ind
Product Exports
Percent Total Import Percentage of total manufacture export
7
Median PRODY
2016 16.47 19.38 13.28 33.92 16.95
6
2011 16.58 26.65 10.62 31.40 14.75 5
4
2006 18.55 25.76 9.40 29.86 16.43
3 Promoting Highly Potential Sectors
Need increasing in economies of scale
2001 19.07 19.31 11.72 35.13 14.77 2
1
1996 14.23 16.67 11.37 42.56 15.16 Share
0
0 10 20 30 40 50 60 70 80 90 100 0 10,000 20,000 30,000 40,000 50,000

Product Sophistication (Hausman PRODY index)
Primary Product Resource Processing Low Technology Processing
Chemical Machine and Transportation Equipment Leather, Rubber, Textile,
Moderate Technology Processing High Technology Processing Steel, and Metal
Furniture, Building Materials, Footwear, and Optics
Source: UNCTAD, calculated Source: UN Comtrade, calculated
In light of these circumstances, the challenge is to bolster oriented industries with high-tech products needs to be
industrial capacities by selecting growth strategies based stepped up, if Indonesia is to move forward towards
on the potential and characteristics of each individual becoming a high-income country. This urgency of this is
region. The search for new sources of growth in each illustrated by empirical global trends that show a positive
of these areas should be carried out synergistically to relationship between high-tech export products and per
achieve economic integration, facilitate higher economic capita income (Chart 10.24).
growth and improve the current account position (see Box
10.2 on Regional Economic Growth Strategies). The capacity of the service sector, which supports activities
in the manufacturing sector, also requires improvement.
Persistent limitations in industrial capacities and This is important because recent developments indicate
capabilities have led to inadequate diversification of that the services account in Indonesia’s balance of
high-tech export products, which in 2016 accounted for payments is consistently in deficit, and this deficit mainly
less than 1% of total exports. (Chart 10.23). To this end, stems from transport, insurance and financial services. The
economies of scale need to be improved, including by deficit in transport services, which makes up the largest
reducing investment barriers and producing highly skilled portion of the services account deficit at about 80%, is
human capital. The pace of development of export- related to export–import activities. Export products are
Chart
10.19. Komposisi of Indonesian
Ekspor IndonesiaExports Chart
Grafik10.24. Relationship
10.21. Hubungan between
antara Sophisticated
Ekspor Produk Sophis
Product Exports and GDP per Capita
Percent Total Export Log Product Sophistication Index (EXPY, 2016)
4.7
2016 28.42 30.95 18.30 16.00 6.32 QAT
MRT IRI MAC
4.5 MLT
PHL SGP
PAN JPNUSA LUX
2011 43.97 27.41 11.07 11.53 6.02 IND IDN NZL ARE
4.3
CAF GHA SYC
ZWE GTM
MMR LKA
PAK
2006 36.53 27.29 15.89 12.38 7.91 4.1 KHM
3.9
2001 31.74 22.09 22.70 12.38 11.09
3.7
AFG
1996 35.12 26.14 22.50 10.62 5.62
3.5
0 10 20 30 40 50 60 70 80 90 100 2.5 3.0 3.5 4.0 4.5 5.0 5.5
Primary Product Resource Processing Low Technology Processing GDP per Capita (2016, PPP)
Moderate Technology Processing High Technology Processing
Source: UNCTAD, calculated Source: UN Comtrade, calculated

mostly transported by foreign fleets, while import products numerous inhabited islands. Efforts to narrow economic
are wholly transported by foreign fleets. This is partly due disparities face constraints such as unequally distributed
to the limited capabilities of domestic shipping services education services, employment opportunities and
and means that any increase in exports or imports is ownership of financial assets.
always followed by a rise in the transport services deficit,
as well as that of insurance and financial services. The challenge of developing an inclusive economy is
a growing focus, as poverty and inequality levels in
Overall, efforts to increase industrial capacities and Indonesia need to continue to fall to be consistent with
capabilities are aimed at strengthening the role of the the country’s increasing per capita income. In 2004,
industrial sector in the economy. This is important given Indonesia dropped out of the low-income country category
that industrial growth since the 1997/1998 crisis has, and become a middle-income country. Its per capita
on average, been lower than before the crisis. The income continues to climb, currently standing at over
contribution of the industrial sector to the economy has USD3,500, and poverty rates have fallen below 10%.
also been on a downward trend since 2000, at a time Nevertheless, further reductions in the poverty rate are
when per capita income remains low compared to that essential to bring Indonesia on a par with other Asian
of other countries. The rapid decline in the contribution of countries (Chart 10.26).
the industrial sector contrasts sharply with developments
elsewhere, particularly in Malaysia, Thailand and China The challenge of reducing societal inequality also includes
(Chart 10.25). Usually a decline in the share of the a spatial element, as there are long-standing differences in
industrial sector occurs only when a country has reached disparities in urban and in rural areas, as well as within
a high per capita income level and has a dominant the islands. Disparity levels in urban areas are higher than
industrial sector, which is then superseded by the services in rural areas, with a wide gap between the urban richest
sector. and urban poorest. Furthermore, there are also disparities
within two major islands in Indonesia, with a per capita
income gap evident between northern and southern Java,
Challenges in Creating an Inclusive Economy as well as between eastern and western Sumatra (Chart
10.27). Such disparities underline the growing importance
Another challenge in promoting higher quality economic of developing interregional connectivity and building on
growth is the creation of inclusive economic growth with the potential of underdeveloped regions.
reduced poverty rates and reduced economic disparities.
These disparities are prevalent not only at a national Efforts to accelerate a reduction in these disparities are
level, but also spatially, as seen in differing disparity faced with the issue of unequal access to education
levels between cities and villages, and within Indonesia’s among different societal groups. The challenge then
Chart
Grafik10.25. Share of
10.22. Pangsa Manufacturing
Industri Industries
Pengolahan in P
terhadap Chart
Grafik10.26. Comparison ofTingkat
10.24. Perbandingan PovertyKemiskinan
Rates and dan
Various Countries Economic Gaps of Asian Countries
Percent GDP Percent*
40 25
High Poverty LAO High Poverty

IND
Low Gap High Gap
35 China '95 20
Thailand ‘10 BAN
Median Gap
China ‘13 Malaysia '00

China '90
30 15 NEP
Thailand ‘95
Indonesia '00
Thailand '15
25 Indonesia
10
Malaysia '90 PHL
Malaysia '15
IDN
20 PAK
Indonesia '15 5 MYA
Indonesia '90 VIE BTN CHN
Poverty Median SRI
KOR JPN AUS FJI
15 IRN TUR MAL
0 MGL
THA
0 5,000 10,000 15,000 20,000 25,000 30,000 25 30 35 40 45 50
Low Poverty Gini Index Low Poverty
GDP Per Capita, PPP (USD, Konstan 2011) Low Gap High Gap
Source: World Bank Poverty & Inequality Database

(Current data in 5 years 2011-2016), calculated
Source: World Development Indicators, World Bank Note: *Poverty rate with 1.9 USD per day as poverty border line

Chart 10.27. Regional Gross Domestic Product per Capita of Regencies/Cities in Java and Sumatra
Pamekasan Empat Lawang

Sampang Ogan Komering Ulu Timur
Pagar Alam
Ponorogo Seluma
Ngawi Lampung Barat
Nganjuk Ogan Komering Ulu Selatan
Tanggamus
Bondowoso Bengkulu Utara
Kediri Ogan Ilir
Trenggalek Mukomuko
Kaur
Bangkalan Pringsewu
Madiun Lebong
Pacitan Lubuk Linggau
Situbondo Pesisir Barat
Kepahiang
Magetan Way Kanan
Probolinggo Banyuasin
Blitar Rejang Lebong
Bengkulu Selatan
Jember Metro
Jombang Ogan Komering Ilir
Lumajang Lampung Utara
Lamongan Pali
Sumenep
Eastern Part of Java Merangin
Pesawaran
Tulungagung Kerinci
Malang Ogan Komering Ulu
Bengkulu Tengah
Pasuruan Tulang Bawang Barat
Blitar Lampung Timur Southern Part of Sumatra
Probolinggo Tebo
Prabumulih
Banyuwangi Lampung Selatan
Mojokerto Musi Rawas Utara
Bojonegoro Lahat
Tuban Bangka
Bangka Selatan
Mojokerto Musi Rawas
Batu Kota Jambi
Madiun Mesuji
Bungo
Malang Bangka Tengah
Pasuruan Lampung Tengah
Sidoarjo Tulang Bawang
Gresik Bandar Lampung
Sarolangun
Surabaya Belitung
Kediri Muaro Jambi
Pemalang Kota Bengkulu
Batang Hari
Grobogan Belitung Timur
Demak Kota Pangkalpinang
Kebumen Kota Sungai Penuh
Bangka Barat
Banjarnegara Muara Enim
Tegal Palembang
Jepara Tanjab Timur
Wonosobo Musi Banyuasin
Tanjab Barat
Brebes Pesisir Selatan
Pekalongan Pasaman
Magelang Solok Selatan
Solok
Blora Pasaman Barat
Purbalingga Tanah Datar
Purworejo Lima Puluh Kota
Kulonprogo Sijunjung
Agam
Gunungkidul Padang Pariaman
Batang Dharmasraya
Bantul Payakumbuh
Kep. Mentawai
Temanggung Pariaman
Wonogiri Lingga
Rembang
Central Part of Java Solok
Sawahlunto
Banyumas Padang Central Part of Sumatra
Boyolali Bukittinggi
Klaten Padang Panjang
Pati Karimun
Rokan Hulu
Pekalongan Indragiri Hilir
Sragen Tanjungpinang
Sukoharjo Kuantan Singingi
Pekanbaru
Sleman Kampar
Kendal Kepulauan Meranti
Karanganyar Indragiri Hulu
Semarang Dumai
Pelalawan
Tegal Bintan
Salatiga Batam
Magelang Rokan Hilir
Siak
Cilacap Natuna
Surakarta Bengkalis
Yogyakarta Kepulauan Anambas
Nias Barat
Semarang Nias Selatan
Kudus Aceh Singkil
Cianjur Subulussalam
Tasikmalaya Pidie Jaya
Aceh Tenggara
Garut Pakpak Bharat
Kuningan Simeulue
Lebak Nias Utara
Aceh Selatan
Cirebon Pidie
Pandeglang Nias
Majalengka Tapanuli Utara
Banjar Tapanuli Tengah
Aceh Timur
Subang Aceh Tamiang
Ciamis Padangsidimpuan
Sukabumi Aceh Barat Daya
Mandailing Natal
Pangandaran Bireuen
Bandung Barat Aceh Jaya
Sumedang Langsa
Depok Gayo Lues
Dairi
Tasikmalaya Humbang Hasundutan
Bandung Samosir
Bekasi Bener Meriah
Gunungsitoli
Sukabumi Aceh Besar
Kab. Tangerang Western Part of Java Tebing Tinggi Northern Part of Sumatra
Bogor Aceh Utara
Langkat
Bogor Aceh Tengah
Serang Aceh Barat
Tangerang Selatan Padang Lawas
Serang Toba Samosir
Sabang
Cimahi Binjai
Indramayu Simalungun
Cirebon Padang Lawas Utara
Serdang Bedagai
Purwakarta Tanjungbalai
Kota Tangerang Tapanuli Selatan
Karawang Nagan Raya
Asahan
Bekasi Deli Serdang
Bandung Karo
Jakarta Timur Lhokseumawe
Jakarta Barat Pematangsiantar
Sibolga
Cilegon Labuanbatu Utara
Jakarta Selatan Labuhan Batu
Jakarta Utara Banda Aceh
Labuhanbatu Selatan
Kepulauan Seribu Batu Bara
Jakarta Pusat Medan
Million Rp Million Rp
0 100 200 300 400 500 600 0 50 100 150 200 250 300 350 400 450
Northern Part of Java Southern Part of Java Western Part of Sumatra Eastern Part of Sumatra
Source: BPS-Statistics Indonesia 2014-2015, calculated

becomes to provide equal access to education for all, Chart
Grafik10.29. Asset Ownership
10.27. Tingkat Level
Kepemilikan by Berdasarkan
Aset Household
regardless of income or social status. At present, there are Group
still limited opportunities for low-income citizens to improve Percent
their social status through greater access to education. 100 10%

Highest
90
Based on surveys, children whose parents are in the top
80
20% of earners are more likely to receive a university level 70 40%
54%
education – 39% do so – than those whose parents are in 60
the bottom 40% of earners – 11% (Chart 10.28). 50
40
30
50% 41%
Unequal access to education means that skill levels and 20 Lowest
employment opportunities are also not evenly distributed. 10
5%
In line with the ongoing industrialization, the demand 0
Household Group
Value of Asset Ownership
By Asset Ownership
for highly skilled workers in Indonesia continues to rise.
However, this demand is not matched by the number of
workers with adequate skill levels. As a result, the wages Source: Aspects of Indonesian Household Life Survey 2000 and 2014, RAND
Corporation and Demography Institution, calculated
of in-demand skilled workers are pushed higher, and a
substantial pool of low-skilled labor remains, as reflected
in the large number of workers employed in the informal economic financing, both from the private sector and the
sector. Government. On the private sector side, the challenge
is to deepen domestic financial markets so as to explore
Unequal access to education leading to disparities new sources of financing that can support economic
in employment opportunities eventually also leads to activity on a sustainable basis. On the government side,
disparities in the ability to acquire physical and financial the challenge is to increase tax revenue so as to support
assets. Survey results show that income disparities in government expenditure and fiscal sustainability.
Indonesia are very high, with the richest 10% owning
54% of the country’s total asset value (Chart 10.29). The challenge of strengthening financing structures for the
private sector includes such issues as short-term dominated
and costly funding sources. As to financing periods,
Challenges in Sustainable Economic Financing in general the proportion of long-term financing is not
substantial in banks or in bonds. The role of the banking
Within the realm of economic financing, the challenges industry in meeting the need for long-term economic
are linked to efforts to build sustainable sources of financing is limited, because most of the funds collected
by banks are short-term. Domestic banking fund sources
from deposits are dominated by tenors of up to one
Chart 10.28. Educational Opportunities for Children month, which account for about 76% of total deposits.
Until University Level in 2014 based on This situation reduces the flexibility of banks in long-term
Grafik 10.26. Peluang Pendidikan Anak Hingga Univ
Household Economic Status in 2000 financing. Moreover, the wide spread in interest rates on
Percent loans and time deposits causes bank financing to be quite
expensive (Chart 10.30).
Percentage of Registered University ( 2014)
45
39%
40
35
Challenges related to the insubstantial share of long-term
30
financing are also evident in the bond market. The volume
25
21% of bond trading in Indonesia remains low compared with
20
15
other countries in the region (Chart 10.31), with capacity
11%
10 and liquidity of the corporate bond market still lagging.
5 In addition, the participation rates of pension funds and
0
40% of 40% of 20% of
insurance funds – long-term lenders – also remain low as
low spending moderate spending high spending
indicated by the low level of funds invested in government
Household Expenditure Rate (2000)
securities (SBN) with tenors of over ten years. In the
Source: Aspects of Indonesian Household Life Survey 2000 and 2014, RAND future, SBN ownership by pension and insurance funds
Corporation and Demography Institution, calculated

Chart
Grafik10.30. Bank Interest
10.28. Spread Rate Spread
Suku Bunga Perbankan Chart
Grafik10.32. ForeignKepemilikan
10.31. Pangsa Ownership of Government
Asing pada Obliga
Bonds
Percent Percent
14 50
12
40
10
30
8
6
20
4
10
2
0 0
2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Japan Indonesia Korea

Working Capital Interest Rate 1 Month Deposit Rate Spread
Malaysia Thailand
Source: Bank Indonesia Source: Ministry of Finance, Bank of Thailand, and ADB, calculated
To date, efforts have been made by the Government to

increase private participation as a source of domestic
is expected to increase in line with the implementation of financing. These efforts included the development of
a Financial Services Authority (OJK) regulation requiring public private partnership schemes (PPP) and government
non-bank financial services institutions to place their non-budget investment financing (PINA). The PPP schemes
investments in SBN. encompassed: (i) 13 projects worth USD8.4 billion with
the status of financially closed; (ii) five projects worth
Private financing is also still much supported by partly USD3.7 billion with the status of signed contracts; and
short-term foreign capital flows; this has the potential to (iii) 27 projects worth USD13.2 billion with the status of
become a source of vulnerability for the economy. This is in preparation (Figure 10.2). Through PINA, the role of
reflected in the considerable portion of foreign funds in financing and partnerships with private investors serves as
SBN. By the fourth quarter of 2017, the share of foreign a core strategy aimed at accelerating financially closed
investors in SBN was still increasing and was the largest transactions through creative financing. PINA generated
out of several regional countries (Chart 10.32). USD1.5 billion in financing in 2017.
Chart
Grafik10.31. Volume Perdagangan
10.29. Volume of Bond Trading in Secondary
Obligasi di Pasar Figure 10.2. Achievements of Public-Private
Gambar 10.2. Capaian KPBU dan PINA
Market Partnerships (KPBU) and Non-Budget

USD billion
Investment Financing (PINA)
2,000 A. Project Value 2016-2017
Financial Close 8.4 US Billion Dollars

1,500 Transactions up to Contract Signing 3.7 US Billion Dollars
Preparation 13.2 US Billion Dollars

KPBU
1,000
B. Project Quantity
500 Financial Close 13
Transactions up to Contract Signing 5
0 Preparation 27
China
Hongkong
Indonesia
Japan
Korea
Mal aysia
Phillipines
Singapore
Thailand
Vietnam
2017
PINA
Transaction Value 1.5 US Billion Dollars

Government Bond Corporate Bond
Transaction Quantity 5 Transactions
Source: ADB
Note: Data as of Q III 2017 Source: Bappenas

Domestic financing challenges also arise from the to grow rapidly, necessitating scrutiny of both the benefits
government side and the performance of state revenue, and the risks.
especially from taxes, still needs to be improved. In 2017,
tax revenue accounted for just 9.9% of GDP, down from Digital technology can provide benefits to the economy
10.4% in 2016. The amount of tax revenue collected primarily through enhanced efficiency and innovation
needs to be scrutinized in view of the important role (Chart 10.34). One of the greatest effects the digital
played by tax in supporting the Government’s structural economy can generate is a decline in the costs of
reforms, including the upgrading of infrastructure. Low economic and social transactions. This happens
tax revenue narrows the fiscal space for infrastructure because in digital economy platforms, the marginal
spending and can potentially disrupt prospects for fiscal cost of generating any additional production output is
sustainability. increasingly low, despite substantial costs early in the
business process. The increasingly low marginal cost
of goods production in a digital economy business
Challenges in the Development of Digital contrasts with a conventional business, which faces an
Technology increase in the marginal cost of goods production at a
certain point. In the business world, this characteristic
Another emerging economic challenge concerns efforts encourages the emergence of new business models that
to optimize the rapid development of digital technology. are more efficient and innovative. The development of
While the expansion of digital technology can benefit the digital technology could also spur innovations leading to
economy, it also brings with it risks, and must be closely even greater efficiency. In addition, digital technology has
monitored and well managed in order for it to contribute the potential to facilitate the creation of a more inclusive
in a positive manner to sustainable economic growth. economic ecosystem and, in turn, reduce inequalities. This
is because the cost of obtaining information is becoming
Over the past decade, internet and mobile phone cheaper and information is more accessible, thereby
technology has grown rapidly. Household access to digital allowing more individuals to access markets. However,
technology, such as mobile phones, is much greater even the overall impact on income disparities depends on the
than access to sanitation or education (Chart 10.33). number of people using digital technology for business
This development has been driven by the low cost of and other productive activities, and to its impact on
developing digital connectivity. In contrast, the costs of employment.
developing physical infrastructure for sanitation, education
or electricity are much higher. The affordability of the Digital technology does bring risk, however, and
development of the digital economy means it will continue may disrupt the sustainability of economic growth if
not managed properly. These risks include the risk of
Chart
Grafik10.33. Internet Access Akses
10.32. Perkembangan and Cellular Telephones
Internet dan Mob Chart
Grafik10.34. Benefits of
10.33. Manfaat Digital Technology
Teknologi forDunia U
Digital bagi
in Indonesia Business, People, and Government
Percent Population
160
Digital
140 Technology
120
100
TRADE EFFICIENCY INNOVATION
80
60
Firms Trade Capital Utilization Competition
40
Job
20 Society Opportunity Productivity Social Welfare
0 Public
Government Participation Policy Making
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Sector Capability
Internet Cellular Phone

Sanitary Improvement Secondary School
Source: World Development Indicators, World Bank Source: Adapted from World Development Report 2016, World Bank

monopolistic behavior, low employment and risks to the Monetary Policy
stability of the financial system. Monopolies can emerge
when expanded markets and information from digital Bank Indonesia will pursue a policy mix that remains
technology can only be accessed by some economic focused on maintaining the macroeconomic stability and
actors. Low employment can occur if the development of financial system stability that has already been achieved,
digital literacy among the workforce does not keep up because economic stability is a fundamental prerequisite
with the rapid development of technology, and the number for sustainable economic recovery. Bank Indonesia’s policy
of highly skilled workers is limited. Indeed, this will mix consists of three policy pillars – monetary policy,
exacerbate inequality. macroprudential policy and payment system and currency
management policy (SP–PUR).
Digital technology offers expanded access to the financial
system, with enhanced transaction speeds and low As to monetary policy, Bank Indonesia will maintain a
costs. However, business model innovations and digital measured monetary policy stance consistent with efforts
technology are also changing conventional functions, to keep inflation within its target range, and will control
especially those of the banking industry, which if not the current account deficit at a safe level. To improve
anticipated could disrupt the stability of the financial the effectiveness of monetary policy, Bank Indonesia will
system. Risks in the financial sector are also becoming continue to strengthen its monetary operations, pursue an
more complex. These include the risk of money laundering exchange rate policy in line with fundamentals, and move
and potential terrorism financing, cyber threats, risks to ahead with efforts to deepen financial markets.
aspects of consumer protection, along with systemic risks
that may upset financial system stability. These risks have Bank Indonesia will also continue to bolster monetary
implications for the importance of developing a digital operations to improve the effectiveness of monetary
connectivity infrastructure across all regions, improving policy. This ongoing strengthening provides space for
the quality of human capital and strengthening financial flexibility in managing bank liquidity and supporting the
system stability. stability of money market interest rates. In this regard,
Bank Indonesia will strengthen the implementation of
the rupiah reserve requirement (GWM) averaging
mechanism. This policy, implementation of which began
in July 2017, is having a positive impact on both the
10.3. Policy Direction macroeconomy and microeconomy for banks. On the
macro side, the policy helps accelerate the deepening of
In general, policy is aimed at guiding the economy financial markets through the creation of new instruments
towards strong, balanced and sustainable growth. Policy to absorb additional liquidity when fulfilling the rupiah
direction is pursued through a policy mix stemming from average reserve requirement, and also boosts money
Bank Indonesia, the Government and relevant authorities. market stability. On the micro side, the policy helps banks
This policy mix includes monetary policy, macroprudential improve the efficiency of daily liquidity management
and microprudential policy, payment system and currency and optimize revenue, while maintaining prudential
management policy, fiscal policy and structural policies. principles. The policy will be refined by expanding the
Policy strategies are undertaken while maintaining implementation of average reserve requirements so as
macroeconomic and financial system stability such that to include a rupiah reserve requirement and foreign
they serve as a basis for sustainable economic growth. currency reserve requirement for both conventional and
Policy strategies are also carried out to mitigate various Islamic banks. Refinements will also include the adjustment
short-term risks, so as not to disrupt the ongoing process of average reserve requirement ratios and extension of
of economic recovery. In addition, policy strategies are the period for fulfilling average reserve requirements.
aimed at overcoming numerous medium-term challenges These refinements will be carried out gradually and in a
so as to create an increasingly robust and resilient measured manner, taking into account the condition of
economic structure. financial markets and the readiness of banks.

Exchange rate policy will aim to maintain the stability of accommodative macroprudential policy stance will be
the rupiah in accordance with its fundamental value, while retained as a countercyclical measure to improve the
still supporting the operations of market mechanisms. To direction of the financial cycle and support the ongoing
better manage rupiah stability, Bank Indonesia continues economic recovery. The strengthening of macroprudential
to encourage efforts aimed at reducing dependence on policy will focus on three important aspects: strengthening
certain currencies. Bank Indonesia will reinforce bilateral liquidity, strengthening the intermediary function and
cooperation to improve the settlement of bilateral trade enhancing the effectiveness of instruments.
transactions using local currency, or local currency
settlement (LCS). This is being done by developing LCS In terms of liquidity strengthening, Bank Indonesia will
schemes facilitated by the authorities or central bank, such implement a macroprudential liquidity buffer (MLB) as a
as a bilateral currency swap arrangement (BCSA) and an means of bolstering the secondary reserve requirement.
LCS scheme based on appointed cross currency dealers The MLB requires banks to maintain liquid instruments
involving both the authorities and the private sector. These with a ratio of 4% of deposits in rupiah. Liquid instruments
schemes will be implemented from early 2018. counted in the calculation of MLB are all bank-owned
securities in rupiah that can be repurchased by Bank
Bank Indonesia will also continue to develop non-dollar Indonesia in accordance with monetary operation
currency swap hedging transactions with commercial provisions. Under certain conditions and to meet liquidity
banks by expanding the types of currencies that can be requirements, such securities may be repurchased by Bank
traded. Furthermore, the mitigation of exchange rate risks Indonesia – in the framework of open market operations
arising from external debt will be further strengthened. – to a maximum amount of 2% of deposits in rupiah. This
Bank Indonesia will improve the application of prudential policy is expected to support the liquidity management
principles in managing non-bank corporate external debt, of banks in accordance with their needs, thus mitigating
in particular the expansion of external debt coverage. In liquidity risks.
the same vein, Bank Indonesia will continue to encourage
domestic banks to ensure they can provide more efficient To enhance the quality of the intermediary function,
hedging instruments to corporations, including through Bank Indonesia will implement a macroprudential
the use of structured products such as call-spread options intermediation ratio (MIR) as a means of strengthening
(CSO). the loan-to-funding ratio (LFR). The target range of the
MIR will be 80% to 92%. Unlike the LFR concept, the MIR
Bank Indonesia continues to improve efficiency and will accommodate a diversity of banking intermediation
credibility in financial markets by strengthening both forms. It will incorporate bank investments into securities –
regulations and institutions. On the regulatory side, such as corporate bonds – that meet certain requirements
Bank Indonesia is set to issue regulations on money in their calculation. This policy is expected to boost
market and foreign exchange market operators in order the intermediary function of banks in the real sector in
to create fair, organized and transparent financial accordance with economic growth and capacity, while
markets. On the institutional side, Bank Indonesia and maintaining prudential principles and supporting the
the relevant authorities are set to establish a central deepening of financial markets. Meanwhile, in terms
clearing counterparty for over-the-counter derivative of increasing the effectiveness of instruments, Bank
financial transactions. Moreover, Bank Indonesia Indonesia will continue to improve the effectiveness of
continues to strengthen the credibility of financial macroprudential instruments, including via a targeted loan-
markets by encouraging market participants to fulfil their to-value (LTV) implementation as a way to mitigate certain
treasury certification obligations, thereby enhancing sector bubble risks more specifically.
professionalism and competitiveness at the global level.
In line with Bank Indonesia’s mandate to manage price
stability, its policy to develop micro, small and medium
Macroprudential and Financial Sector Policy enterprises (MSMEs) will be aligned with efforts to control
supply-side inflation. Bank Indonesia will continue to
Bank Indonesia will continue to reinforce macroprudential strengthen the development of MSME clusters linked
policy to boost the intermediary function of banks with supply-side inflation control, particularly for food
amid well-maintained financial system stability. An commodities that affect VF inflation. Bank Indonesia

will devise further innovations for existing clusters, and With regard to non-cash payment systems, Bank
will also add new clusters. This cluster development is Indonesia’s policy direction remains focused on continuing
mainly for areas that experience difficulty in developing efforts to establish an interconnected, affordable,
VF commodities, as revealed by the mapping results for innovative, competitive non-cash payment ecosystem that
each region contained in the Regional Inflation Control protects customers. As to the formation of the National
Roadmap. Payment Gateway (NPG), Bank Indonesia will ensure
that the functions of standards, services and switching
To enhance the capabilities of MSMEs, Bank Indonesia agencies – the three main institutional elements in the
will also prepare policies and infrastructure in various NPG – work efficiently. Bank Indonesia will also continue
fields, including ease of doing business, production, to encourage these NPG agencies to expand the scope of
marketing and finance. In this regard, Bank Indonesia will interconnection and interoperability. In 2018, there will
strengthen its entrepreneurship development program. This be a focus on expanding the development of electronic
program aims to foster the creation of new entrepreneurs bill invoicing, presentment and payment for the purpose of
who are reliable and innovative, thereby encouraging integrating routine bill payments, particularly those related
the growth of new economic centers and creating new to government revenue and expenditure.
jobs. The enhancement of the capabilities of MSMEs
requires additional intermediation on the part of banks Through the electronification program, Bank Indonesia will
with MSMEs. To this end, Bank Indonesia will reinforce help to ensure that the beneficiaries of non-cash assistance
its commitment to encourage banks to extend credit to are more widespread. In 2018, the target is to increase
MSMEs in accordance with their risk management ability. the number of beneficiaries of non-cash assistance from
the Family Hope Program and Non-Cash Food Assistance
As with conventional commercial banks, Bank Indonesia (BPNT) to 10 million beneficiary families.
will also implement an MIR and a MLB for Islamic banks.
Bank Indonesia will encourage the development of an Bank Indonesia will also support the Government’s efforts
Islamic economy through the implementation of a 2017 to strengthen the efficiency and governance of central and
blueprint for Islamic economic and financial development. regional government financial transactions from January
It will also strengthen cooperation with all relevant 2018, as instructed by the Minister of Home Affairs. This
stakeholders to consistently promote the three strategy will be achieved through the expansion of electronification
pillars for Islamic economic and finance development. programs, including in the distribution of non-cash village
These three pillars are: (i) empowerment of an Islamic funds and school operational assistance, as well as
economy; (ii) deepening of Islamic financial markets; and smart cities, urban areas that use technology to optimize
(iii) strengthening of research, assessment and education resources and services.
for Islamic economic and finance development (Box 10.3:
Bank Indonesia’s Blueprint for Islamic Economic and Electronification will be expanded to public transport
Financial Development). and infrastructure through the use of non-cash payment
instruments to improve efficiency and good governance.
Bank Indonesia and the payment system industry are
Payment System and Currency Management reviewing a proposal to establish an overarching entity
Policy responsible for electronic fare collection from the various
transport operators. This entity will be able to integrate
Bank Indonesia will continue to support economic intermodal and inter-operator payment systems. Further,
efficiency in payment systems by referring to the policy the initiative also helps to prepare for the integration
guidance contained in the 2017–2024 blueprint of transport that is set to begin in the Greater Jakarta
on payment system and currency management (SP– (Jabodetabek) area in 2018. Bank Indonesia and the
PUR). Bank Indonesia will ensure that every economic industry also plan to set up an electronic toll collection
transaction, both cash and non-cash, takes place consortium with the goal of using multi-lane free flow
securely, efficiently and smoothly. This will enhance Bank technology for toll road transactions from December
Indonesia’s ability to carry out its duty of maintaining 2018.
macroeconomic and financial system stability.

On the supervision front, Bank Indonesia continues to analyze the impact of implemented economic policy
strengthen payment system policy and supervision. In packages.
2018, Bank Indonesia’s policy is focused on bolstering the
payment system supervisory framework by implementing In order to deepen financial markets through the FK-
risk-based supervision. PPPK, Bank Indonesia, the Ministry of Finance and OJK
will prepare the National Strategy for Financial Market
In the area of currency management, Bank Indonesia Development and Deepening (SN-PPPK). This will set out
will ensure there is an adequate supply of currency fit a work plan developed from three development pillars:
for circulation in all corners of Indonesia through its (i) sources of economic financing and risk management;
centralized cash network planning (CCNP). It will also (ii) development of financial market infrastructure; and
protect the public from counterfeit currency, and will (iii) policy coordination, harmonization of provisions,
not only ensure there is enough currency in circulation, and education. Through the SN-PPPK, for the first time
but also that the right denominations are available. To Indonesia will have a shared vision and a measurable
achieve this, Bank Indonesia will continue to strengthen work program towards the creation of more robust
cash services by working with its partners. Bank Indonesia Indonesian financial markets.
collaborated with banks that act as cash custodians
to bring cash services to all of Indonesia’s regencies Bank Indonesia will continue to coordinate with the
and cities by the end of 2017. Bank Indonesia is also Government to manage liquidity optimally, in order
extending the reach of cash services to the sub-districts to strengthen the stability of the money market. Joint
and to remote, outlying and underdeveloped (3T) areas communications to market participants about the
through the BI-Jangkau (BI-Reach) and Kas Kepulauan commitment to maintaining liquidity will also be further
(Archipelago Cash) programs. Further, Bank Indonesia strengthened. Good communications allow market actors
will ensure that the supply of good-quality currency is – including authorities – to anticipate changes, especially
maintained and that currency security is strengthened. when there is a spike in demand for liquidity.
Bank Indonesia will also continue to improve the quality of
rupiah currency and protect the public from counterfeits, Bank Indonesia will also continue to enhance
in part by intensified training for rupiah currency handling coordination with OJK and the Deposit Insurance
service providers (PJPUR). Corporation (LPS) to ensure stability of the financial
system. Coordinating on information derived from
the supervision of systemic banks has taken place
Policy Coordination periodically, as mandated by Article 17 of the Financial
System Crisis Prevention and Mitigation Law. Cooperation
To boost the effectiveness of the policies it pursues, Bank between Bank Indonesia and the LPS will be stepped
Indonesia continues to strengthen coordination with both up, most notably in terms of the exchange of data and
central and regional stakeholders. Coordination between information on the ownership of LPS government securities
Bank Indonesia and the Government has been effective (SBN LPS), following the approval of the SBN LPS
and will be further enhanced, including via: (i) Round Purchase Cooperation Agreement by Bank Indonesia.
Table Policy Dialogues; (ii) the Central Inflation Control
Team (TPIP) and Regional Inflation Control Teams (TPID); In the area of payment system functions, authorities need
(iii) Central Government, Local Government and Bank to synergize policies to respond to the rapid development
Indonesia Coordination Meetings (Rakorpusda); (iv) of digital technology. Bank Indonesia will ensure a
investor relations units at both the central and regional smooth registration process for financial technology
levels; (v) The Financial System Stability Committee (KSSK); (fintech) providers, including e-commerce companies,
(vi) the National Committee for Islamic Finance (KNKS); as outlined in the Bank Indonesia Regulation on Fintech.
(vii) the Indonesia Payment System Forum; and (viii) the Bank Indonesia has set up a regulatory sandbox, a testing
Coordination Forum for Development Financing through ground for fintech innovation, and is collaborating on this
Financial Markets (FK-PPPK). Further, in order to encourage with the OJK, Ministry of Trade, Ministry of Manpower
structural reforms, Bank Indonesia is coordinating with and Ministry of Communications and Informatics.
the Government through working groups to evaluate and

Elsewhere, efforts are also increasing to improve the is expected to help facilitate the flow of foreign capital into
quality of rupiah currency in circulation and reduce Indonesia and support regional economic development.
counterfeit currency. This is being achieved through This strengthening is achieved by linkage between the
coordination between Bank Indonesia and all partners three types of investor relations units, namely at the head
in the Coordinating Agency for Counterfeit Money office, domestic Bank Indonesia representative offices and
Eradication, which comprises: (i) the State Intelligence Bank Indonesia representative offices abroad. The three
Agency; (ii) the police force; (iii) the Attorney General’s main elements of the investor relations units – institutions,
Office; and (iv) the Ministry of Finance. This coordination investor relations strategies, and data and information
includes efforts to prevent, expose and crack down on the dissemination – are all being reinforced.
crime of creating and circulating counterfeiting currency.
This is complemented by attempts to improve the quality
of education about counterfeiting and the characteristics Fiscal Policy
of genuine rupiah notes. It is also achieved by enhanced
coordination among relevant authorities and agencies, The Government has established three fiscal policy
including by integrating the BI-Counterfeit Analysis strategies to accelerate Indonesia’s economic growth.
Center information system with banks and the police and The first is to optimize state revenue while preserving
establishing counterfeit money analysis laboratories in the investment climate. Secondly, it will ensure efficient
West Java, Central Java and East Java. spending and ramp up productive spending to
support priority programs. The third strategy focuses
Bank Indonesia is strengthening its coordination with on encouraging efficient, innovative and sustainable
the Government as the number of looming free trade financing.
agreements mounts. Intensive cooperation on these
agreements is needed between Bank Indonesia and To optimize state revenue, the Government will continue
the Government, amid a growing tendency of peer with tax reforms to improve tax revenues. This is to be
countries also to implement free trade agreements. It is done partly through (i) the exchange of tax information/
necessary to design a comprehensive working strategy automatic exchange of information to increase the tax
and mechanism so that Indonesia can gain the maximum base and prevent tax avoidance; (ii) using data and an
benefit from this openness. In the context of broader up-to-date and integrated tax information system; and
international cooperation, Bank Indonesia’s involvement in (iii) the granting of tax incentives to promote investment
the Government’s free trade agreements / Comprehensive and business enthusiasm. Non-tax state revenue (PNBP)
Economic Partnership Agreement (CEPA) is aimed at is to be optimized. However, the Government should not
securing policy space. In addition, Bank Indonesia is also only focus on collecting PNBP, but should also concern
involved to ensure that the commitment to liberalization itself with citizens’ satisfaction with services, and with the
is in line with its own programs on developing payment preservation of natural resources. The PNBP optimization
system services and fintech. In this regard, Bank Indonesia policy is to be partly carried out through regulatory
actively supports the Government in integration of the revisions (Revised Law on PNBP and Government
financial services sector, pursuant to the goals of the Regulation/PP on non-tax state revenue types and tariffs)
ASEAN Economic Community. Furthermore, to strengthen and the application of gross split production sharing
the process of formulating Indonesia’s position and contracts.
coordination at the national level, Bank Indonesia
will continue to organize dedicated team meetings in Elsewhere, the Government will strengthen the quality
the financial sector as a means of coordinating and and efficiency of state spending by improving the quality
calibrating the positions of each related agency with of capital expenditure. This will be done by increasing
regard to FTA/CEPA cooperation. productive spending, such as the development of
infrastructure and interregional connectivity, construction
Coordination is also being carried out consistently by Bank of electricity infrastructure and facilities, and the provision
Indonesia to boost Indonesia’s sovereign credit rating of housing, sanitation and clean water. In addition, the
and to shape a positive perception of the Indonesian efficiency of non-priority expenditure is continuously
economy. Bank Indonesia will continue to strengthen its being enhanced through: (i) targeted goods and subsidy
regional and global investor relations units and this in turn spending; (ii) synergies of social security programs; (iii)

refocusing on priority budgets such as infrastructure, an improvement in the quality of secondary and high
education and health; and (iv) enhancing the quality of school graduates (Table 10.5). Businesses also need
fiscal decentralization to reduce inequality and improve to be encouraged to provide formal in-house training
public services. to raise the capability and productivity of employees.
The Government must also remain committed to the
The Government will also focus on the sustainability development of human capital in the education sector
and efficiency of financing. This is to be achieved by through vocational education and improving the quality of
controlling deficits and debt ratios, reducing the primary its teachers. Vocational education produces graduates with
balance deficit and developing creative financing. competencies and skills that make them more prepared
Creative financing is to be developed through public to enter the labor market, including joining independent
private partnerships (PPP). and entrepreneurial start-ups. Quality vocational education
and training can also produce graduates who can adapt
rapidly to a changing job market. In addition, ongoing
Structural Policy improvement in the quality of teachers will improve the
quality of learning. Steps to be taken in this regard include
Structural reform policies are directed at three main management, placement, distribution and redistribution of
areas to support the achievement of strong, inclusive teachers based on comprehensive needs mapping, as well
and sustainable economic growth. The first area is the as the synchronization of central and regional policies.
provision of adequate and good-quality infrastructure, The Government’s concrete commitment to supporting the
the enhancement of innovation capacity and human improvement of the education sector is reflected in the
capital quality, and the improvement of institutional increased education budget (Chart 10.35).
aspects encompassing business climate, governance and
bureaucratic services. The second area is to improve the With regard to institutions, the Government will continue
competitiveness of industries and services, and to ensure its work to strengthen institutional factors that support
the domestic economy can grow inclusively, supported the efficiency of business, particularly by improving the
by sustainable financing. The third area pertains to business climate and carrying out bureaucratic reforms.
anticipating the impact of the rapid development of digital To improve the business climate, the Government
technology. This is necessary to provide maximum benefit is introducing policies dealing with increased legal
to the economy, while minimizing the risks. certainty relating to investment and business, and the
With regard to infrastructure provision, the Government

remains focused on infrastructure development, including Table 10.5. Primary Objectives of Education
increasing the energy capacity and boosting national
connectivity and digital connectivity. It is important for
No Major Target Target 2019
Indonesia to achieve its infrastructure development targets,
Average of school year for people above 15 years
because this helps to maintain momentum and is also 1
old
8.8 years
likely to have a positive impact on the economy. The Average of literacy rate for people above 15 years
2 96.1%
progress of infrastructure development to date gives cause old
for optimism about the economic outlook; more than half Percentage of Elementary School/Islamic
3 84.2%
Elementary School accredited minimum B
the infrastructure projects under development are already
Percentage of Junior High School/Islamic Junior
4 81.0%
in the construction phase. This means Indonesia is likely to High School accredited minimum B
meet its target of completing all PSN by 2019. Moreover, 5
Percentage of Senior High School/Islamic Senior
84.6%
High School accredited minimum B
increasingly strong national connectivity is expected to
Percentage of Vocational High School accredited
help reduce logistics times and costs within, as well as to 6
minimum B
65.0%
and from, Indonesia. Rough Participation Rate of Junior High School/

Islamic Junior High School ratio between the
7 0.90
poorest 20% of people and the richest 20% of
The Government will continue to improve the education people
sector, in order to enhance the quality of human capital. Rough Participation Rate of Senior High School/
Islamic Senior High School ratio between the
The development of the education sector needs to 8
poorest 20% of people and the richest 20% of
0.60
include an increase in the average schooling period and people
Source: Ministry of Education and Culture

Chart 10.35. Education Budget In line with efforts to strengthen industrial capacities and
capabilities, the Government is seeking to improve the
Rp trillion competitiveness of non-oil and gas export products, in
500 part by improving the administrative services surrounding
it, and also by improving the quality of Indonesian export
400
products. The Government is also prioritizing efforts to
300 speed up the development of growth centers outside Java.
This is achieved by accelerating the downstreaming of
200
natural resource processing in five special economic zones
100 on the basis of economic potential. This initiative is being
complemented by expediting the development of three
0
2017 2018 industrial estates and improving the readiness of others,
2013 2014 2015 2016 Revised Budget State Budget
especially outside Java. To be chosen to host an industrial
estate, a region must have, among other things, a strategic
location, proximity to raw materials, and accelerated
infrastructure, energy and human resources development.
simplification of investment and business licensing at the To foster an increasingly inclusive and more prosperous
central and regional levels, particularly in manufacturing economy, the Government has set poverty alleviation as a
and services. Already, a number of policy packages national priority. This program aims to accelerate poverty
intended to address institutional issues have been rolled reduction and achieve more equitable growth that can be
out. By the end of 2017, 215 regulations that hindered enjoyed by the bottom 40% of earners. To achieve this,
business development had been successfully eliminated. In targeted social security and social assistance programs
addition, a total of 130 projects were progressed under will be implemented, the basic needs of communities
a three-hour investment license service, part of a one-stop will be satisfied, and the access of micro and small
integrated licensing service. Notably, these government enterprises and cooperatives to services will be expanded.
efforts to create an increasingly favorable business climate The Government will distribute social assistance and
are already bearing fruit, and saw Indonesia move up 19 energy subsidies by means of a single card in support of
places in the ease of doing business rankings between financial inclusion, which will also increase the coverage
2017 and 2018. Institutional reform efforts will continue in of the social security programs. To meet basic needs,
the future in support of the creation of a favorable business the Government will continue to expand its provision of
climate. basic infrastructure and facilities. To expand the access to
services of micro and small enterprises and cooperatives,
Bureaucratic reform is also a key part of efforts to create a the Government will focus on, among others: (i) improving
favorable business climate. In this regard, the Government product quality and access to marketing for micro and
will take several steps to accelerate improvements, small enterprises; (ii) improving credit services for micro-
including: (i) strengthening bureaucratic reforms; (ii) enterprises and ensuring access to business capital; and
enhancing the accountability of government agencies; (iii) strengthening cooperatives, partnerships and business
(iii) improving the integrity of the civil state apparatus; protection.
(iv) bolstering ministerial and institutional organizations,
for example in governance and human resources These structural policies will be sustained by encouraging
management; (v) improving governance; (vi) strengthening the deepening of financial markets as a basis for
human resources; and (vii) improving the quality of public strengthening the sustainability of development funding
services. These institutional reforms will be undertaken sources. To meet infrastructure financing needs, new
parallel with the boosting of economic competitiveness, funding sources for projects need to be continuously
both of which are expected to remove Indonesia from the created given the limitations of the government budget.
middle income trap and enable it to become a high per The Government remains committed to increasing private
capita income country. participation in development financing. PPP schemes
in 2018 are targeted to include: (i) 13 projects worth
USD3.7 billion with the status of financially closed; (ii) 10

Figure 10.3. Targets of Public-Private Partnerships (KPBU) and Non-Budget Investment Financing (PINA)
Gambar 10.3. PINA
A. Value of Project 2018
Financial Close 3.7 USD Billion

TARGET
KPBU
Transaction until Contract Signing 1.1 USD Billion

PINA
Preparation 12.1 USD Billion + TARGET
12 Projects Under
Calculation
B. Amount of Project
Financial Close 13
Transaction until Contract Signing 10
2018
Preparation 29
Project in 2016-2017 as the result from previous period Need pipeline project build up (1-3 year) 3.0 USD Billion
10 Quick Win Project 2018 Pipeline Project 20 Transactions

PIPELINE
KPBU
1. Serang Panimbang Highway 6. RSPTN Sam Ratulangi 13 Connectivity Projects

2. Jembatan Suramadu Highway 7. SPAM Bandar Lampung 2 Urban Facilities Projects
3. Medan City Transportation 8. SPAM Semarang Barat 14 Social Facilities Projects
4. RSUD Krian Sidoarjo 9. SPAM Pekanbaru
5. RSUD Pirngadi Medan 10. SPAM Jatiluhur
Source: Bappenas
projects worth USD1.1 billion with the status of signed In the stock and bond markets, attempts to expand the
contracts; and (iii) 29 projects worth USD12.1 billion, investor base are also focused on domestic investors in
including 12 projects under calculation and with the status order to minimize vulnerability to external turmoil.
of in preparation (Figure 10.3).
On the banking side, OJK wants to transform banks
Financial markets are also a source of financing that over the next five years so that they contribute to
need continuing development. Bank Indonesia continues economic equity and sustainable economic growth. In
to promote the role of financial markets by enriching this regard, the OJK also helps to boost the financing of
the instruments available and by expanding the investor priority sectors. More specifically, strategies to enhance
base. These efforts are undertaken in coordination with cooperation and synergy between the OJK and other
the Government and OJK in the Coordination Forum for relevant agencies or institutions include: (i) supporting
Development Financing through Financial Markets (FK- financing in the energy sector and the provision of
PPPK). Instrument enrichment is achieved by developing infrastructure; (ii) improving prudential regulations to
innovative financial instruments to support infrastructure encourage financial services institutions to provide more
financing, including infrastructure bonds, infrastructure financing to priority economic sectors; and (iii) enhancing
mutual funds and infrastructure investment funds. At the the capital and institutional structure of financial services
same time, efforts are also being made to expand the institutions so that they play a more substantial role in
investor base, particularly in terms of institutional investors. supporting economic activities.

Box 10.1. encourages industries to become more innovative and
efficient, thereby improving productivity.4
Impact of
Economic Policy PMR indicators enable countries to choose appropriate
policies to improve their institutions, and include the
Packages on the following three main parts, or high-level indicators: (i)
Economy state control or government involvement in business; (ii)

barriers to entrepreneurship; and (iii) barriers to trade and
investment. These three parts form a composite index of
seven mid-level indicators and 18 low-level indicators.
IImproving the quality of institutions is one of the priorities
of the Government’s structural reform policy. To address
Each indicator has a score ranging from zero (the
this, the Government has in recent years issued various
regulation in question does not impede competition) to six
economic policy packages (PKE). One of the focuses
(the regulation in question greatly impedes competition).
of these packages is the improvement of the quality of
Next, the scores are aggregated with certain weights
institutions so as to support the creation of a favorable
to form the PMR index. Each country can then adjust
investment climate. This is achieved by eliminating
its individual policy options to minimize the difference
duplication and creating consistency among regulations
between the PMR index and the frontier country. In
(deregulation), simplifying and facilitating licensing
other words, improving the quality of institutions can
(debureaucratization) and lowering or eliminating tax
be achieved through different policies according to the
rates (fiscal incentives).
economic characteristics of the country concerned.
Based on the Organisation for Economic Co-operation

To measure the impact of the implementation of economic
and Development (OECD) distance to frontier calculation,
policy packages (PKE), Rakhman et. al. (2018) conducted
the quality of institutions in Indonesia is still low.1
a self-assessment simulation using PMR indicator
Improving the quality of institutions has the potential to
instruments.5 The simulation results showed that the PKE
have a significant positive impact on the economy as a
could improve Indonesia’s PMR index to 2.47 (simulation
whole.2 In addition, institutional improvements are a viable
for PMR in 2017) from 2.85 (calculation of PMR in 2013).
policy option that can be undertaken in the short term, at
Improvements mainly took place in the barriers to trade
low cost and deliver relatively quick results compared to
and investment indicator, which saw a 25% decrease
other structural reforms.
(Chart 1). Significant improvements due to the PKE
occurred in the following components; other barriers to
The quality of institutions can be measured by product
trade and investment, involvement in business operations
market regulation (PMR) indicators developed by the
and administrative burdens on start-ups (Chart 2).
OECD for member countries and for some non-members,
including Indonesia.3 The development of PMR indicators
The implementation of PKE can encourage increased
was based on empirical studies showing that competition
productivity and economic growth. Further simulations
can increase per capita income due to the investment and
show the impact of improved PMR indicators on economic
employment growth that accompanies it. Competition also
conditions by calculating the benefits towards increases
in total factor productivity (TFP).6 In general, a country’s
1 Distance to frontier is defined as the measurement of the index distance to the 'frontier',
which represents the country considered to have the best performance. The frontier in 4 Bourlès, R. et al. (2010), Do Product Market Regulations in Upstream Sectors Curb
terms of institutions is Hungary. Indonesia's distance to the frontier in terms of institutions Productivity Growth: Panel Data Evidence for OECD Countries, OECD Economics
is 47%, based on OECD data (2013). Department Working Papers, No. 791.
2 Hausmann, R. et al. (2008), Doing Growth Diagnostics in Practice: A ‘Mindbook’, CID 5 Rakhman, R. et al. (2017), Kajian Dampak Reformasi Struktural/Structural Reform
Working Papers 177, Center for International Development at Harvard University. Impact Study, Laporan Hasil Penelitian Bank Indonesia/Bank Indonesia Working Paper
Report.
3 PMR indicator measurements have been performed every five years since 1998. PMR
indicators for Indonesia have been available since 2008. 6 The method used was panel data referencing Bourlès, R. et al. (2010).

Chart
Grafik1. Indonesia
1 Boks PMR SimulationPMR
10.1. Perkembangan – High Level –
Indonesia Table 1. PMR Impact on TFP
PMR Score
3.5
Year Contribution of TFP Hike
3.0 2017 0.03%
2.5 0.6 2018 0.24%

0.45
2.0 2019 0.38%
0.91
0.79 2020 0.49%
1.5
1.0 2021 0.57%

1.35
0.5
1.23 2022 0.62%
0
PMR 2013 2017 Scenario
Barriers to trade and investment Barriers to entrepreneurship

State control
The implementation of these economic policy packages
or PKE is backed up by the formation of the PKE
Implementation Task Force.8 Bank Indonesia plays an
active role in this task force, especially in Working Group
TFP changes are modelled as a result of changes in global (Pokja) III, which is responsible for the evaluation and
TFP (spillover effect), TFP differences with frontier countries analysis of the impact of economic policies. In general, the
(technology catch up effect) and regulatory barriers (PMR duties of Pokja III include: (i) monitoring and inventorying
index). Based on the estimates made, the contribution problems and obstacles in the implementation of economic
of rises in TFP due to the Government’s economic policy policies; (ii) evaluating and analyzing the effectiveness
packages will continue to increase over the next few years and impact of economic policy implementation; (iii)
(Table 1). The contribution of increases in TFP is estimated reviewing new proposals for deregulation; and (iv)
at 0.03% in 2017, rising to 0.62% by 2022. The impact preparing and submitting policy recommendations to
of such rises in TFP can also be translated as an increase the task force regarding evaluations and analyses of the
in economic growth.7 impact of economic policies.
Chart
Grafik2. Indonesia
2 Boks PMR SimulationPMR
10.1. Perkembangan – Medium Level
Indonesia –
PMR Score
3.5
Other barriers to trade
3.0 and investment
0.33
Explicit barriers to trade
2.5
and investment
0.27 0.21 Regulatory protection
0.25 of incumbents
2.0 0.45
Administrative
0.42
0.31 burdens on
1.5 0.24 Complexity of
0.15
0.13 regulatory procedures
0.43
1.0 0.34 Involvement in
business operation
0.5 Public ownership
0.92 0.88
PMR 2013 2017 Scenario

8 The task force was formed as part of the implementation of Presidential Instruction
(Inpres) No.12 of 2015 on Increasing Industrial Competitiveness, Industrial
Independence, and Business Certainty. The PKE Implementation Task Force consists of
7 The elasticity of TFP to economic growth is assumed to be equal to one. leaders, support units and Working Groups I-IV.

Box 10.2. nature of the textile industry means that Indonesia’s
industrial sector will contribute to the aspiration of higher
Regional national economic growth.
Economic
Structural reforms are essential for achieving strong and
Growth sustained economic growth. As part of these reforms,
Strategies Indonesia needs to reformulate its economic growth model

and strategies. Its growth model can no longer rely on
cheap labor wages and abundant natural resources.
I
In 2017, Indonesia’s high-tech exports accounted for
ndonesia faces specific challenges in bringing about 6.98% of total exports, lower than the overall average of
economic integration. On the external side, the countries in the lower middle income group. To enter the
Indonesian economy does not yet enjoy a strong position upper middle income group, Indonesia needs a significant
in the global supply chain, because it is still dominated by increase in industry capability, innovation capacity, quality
the production of small value-added goods. Internally, as an of goods and labor skills in order to produce high-tech
archipelago with diverse regional characteristics, Indonesia exports (Chart 2).
cannot be seen as a single economic entity that can be
sufficiently served by a single national policy. Indonesia’s economic growth strategies need to take
into consideration the individual characteristics and
The contribution of exports reflects a country’s growth the diversity of its regions. This is the next challenge in
strategy (Chart 1). For example, Thailand’s manufacturing designing economic growth strategies at the national
upgrading strategy began with the textile industry, which level. To build an industrial-based innovation ecosystem,
is a lower-tech but labor-intensive industry, followed by it is necessary to find new sources of regional economic
the more high-tech electronics industry, and ended with growth, which can then be integrated at the national level.
the capital-intensive machinery and automobile industries. In particular, the search for these sources should take
Malaysia, however, chose a different growth strategy by into consideration the variety of types and availability of
focusing directly on the electronics industry, in this case resources in each area of Indonesia.
semiconductors. In contrast, for three decades Indonesia
has been reliant on the textile industry as an engine of A study by Ridwan et. al (2017) measured the relative
export growth. The labor-intensive and low value-added superiority of a region in Indonesia in producing a group
Chart 1. Comparison of Export Share

Grafik 1 Box 10.3. Dinamika Sektor Industri Thailand
Thailand Malaysia Indonesia

Percent to Total World Export
5.0 5.0 5.0
4.5 4.5 4.5
4.0 4.0 4.0
3.5 3.5 3.5
3.0 3.0 3.0
2.5 2.5 2.5
2.0 2.0 2.0
1.5 1.5 1.5
1.0 1.0 1.0
0.5 0.5 0.5
0 0 0
-0.5 - 0.5 -0.5
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2016
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2016
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2016
Textile Electronics Machine Automotive
Source: UN COMTRADE

Chart
Grafik2. High10.3.
4 Boks Technology
ProporsiProportion
Teknologi to Indonesia’s
Tinggi terhad The study concluded that the manufacturing industry is
Export Manufacture in 2017 still required as a driver of growth, but the Indonesian
Percent economy needs to promote and develop a number of
25 other economic sectors, such as the creative industry and
tourism. The United Nations World Tourism Organization,
20
the global tourism agency under the auspices of the UN,
15 even predicts the tourism sector will become Indonesia’s
main source of foreign exchange in the coming years.
10
Indonesia
6.98 The development of regional competitive potential
5
industries requires the attention of various parties. Bank
0 Indonesia, through its 45 domestic representative offices
Low Lower Upper High
income Middle Middle income (KPwDN) spread across 34 provinces, is playing an
Income Income
active role in bringing about strong and good-quality
Source: WDI, World Bank, calculated
regional economic growth. It is doing this by acting as a
strategic advisor to regional governments, especially with
regard to managing inflation and financial system stability
of goods with regard to international trade (exports).1 in the regions.4 In addition, the KPwDN are actively
The study used the RCPA (revealed comparative product implementing programs to empower regional economies,
advantage) and LQ (location quotient) approaches.2 including through the development of MSMEs and the
Subsequently, identified potential economic sectors enhancement of financial inclusion.
were selected to serve as regional competitive potential
industries (IPKD) based on a number of criteria (Figure 1).3
Figure 1.1. Boks

Gambar Regional
10.3. Competitive Potential
Industri Potensial Industry Daerah
Kompetitif
KALIMANTAN SULAWESI
Strengthening Current Industry* Potential Industrial Development Strengthening Current Industry* Potential Industrial Development
• CPO Downstream Industry • Tourism Services • Food and Beverage Industry • Tourism Services
• Food and Drugs Industry • Shipping Industry
• Wooden Goods Industry • Basic Metals Industry
• Chemical Industry
SUMATRA MALUKU - PAPUA

Strengthening Current Industry* Potential Industrial Development Strengthening Current Industry* Potential Industrial Development
• Food and Beverage Industry • Tourism Services • Food and Beverage Industry • Tourism Services
• Electronic Industry • Shipping Industry
• Base Metals Industry
• Chemical Industry
JAVA
Strengthening Current Industry* Potential Industrial Development BALI - NUSA TENGGARA
• Automotive Industry • Tourism Services Strengthening Current Industry* Potential Industrial Development
• Pharmacy Industry* • Creative Industry (Animation, Games,
• Food and Beverage Industry Films, Application, Fashion) • Food and Beverage Industry • Creative Industry and Agro Tourism
• Textile and Textile Product Industry • Tourism Services
• Electronic Industry
• Shipping Industry

Note: *Labor intensive industry with comparative advantage and high export
1 Ridhwan, MHA. et al. (2017), Regional Growth Strategy, Working Paper Bank
Indonesia, forthcoming.
2 Balassa, B. and Marcus Noland (1989), Revealed Comparative Advantage in Japan

and the United States, Journal of International Economic Integration, 2(2): 8–22.
3 These criteria were: (i) To provide employment and support welfare improvement and
poverty alleviation; (ii) To have a comparative advantage with the potential for local
raw materials and markets (highly competitive); (iii) To encourage the progress of other
sectors (high level of forward and backward linkages); (iv) To provide high value-added 4 The role forms part of the nine functions of Bank Indonesia's domestic representative
products, sustain export performance and generate foreign exchange; (v) To serve as an offices (KPwDN), as mandated by Bank Indonesia's Strategic Functions Architecture
agent of transformation of the national economic structure. (AFSBI).

Box 10.3. have implications on Indonesia’s balance of payments
situation.
Bank Indonesia’s
Blueprint for Islamic The potential of the halal industry needs to be harnessed
as well as possible to advance the Indonesian economy.
Economic and Financial This would include the integration of resources in the
Development Islamic commercial finance sector and Islamic social

finance sector, which includes zakat (the obligation to give
alms), infaq (spending without expectation of reward),
A
sedekah (voluntary offerings) and waqf (an endowment
n Islamic economy and Islamic finance are not
for religious or charitable purposes), collectively known as
exclusive concepts only intended for Muslims.
ZISWAF. If managed properly, ZISWAF can play an active
The concept of an Islamic economy is inclusive
role in bringing about a more equitable distribution of
in nature and actively involves all levels of society in an
income and opportunities and can empower communities.
economic movement. The inclusive nature of the Islamic
As a form of active social participation on the part of the
economy concept is one of the factors driving the rapid
public, ZISWAF also has the potential to support various
development of the Islamic economy and Islamic finance
national investment programs related to public interests
in the international world, including in Indonesia.
such as infrastructure and hospitals.
The global Islamic economy and Islamic finance have

Indonesia has many pesantren (Islamic boarding schools)
grown rapidly. By the end of 2016, the volume of the
and other educational institutions that if optimized
global halal product industry amounted to USD5.80 trillion
properly can act as reliable Islamic economy participants,
and is expected to continue rising to USD9.30 trillion
educators and activists. These Islamic educational
in 2022. These opportunities have prompted various
institutions not only boast substantial human resources,
countries to compete to become players in the global
but also have extensive distribution capabilities within
industry for halal products, and this is not only limited to
the economies of surrounding communities down to the
countries with Muslim majority populations.
smallest economic unit.
The Islamic financial industry is growing robustly in

A comprehensive, integrative, effective and efficient
Indonesia. However, in other Islamic industry sectors
strategy, policy and program of Islamic economic and
– including halal food, medicine and cosmetics, halal
financial development are needed if the potential of this
tourism and Islamic fashion – Indonesia generally only
sector is to be realized. In accordance with Presidential
serves as a large market.
Regulation No. 91 of 2016, the Government has set up
the National Committee for Sharia Finance (KNKS) to
By the end of 2016, Indonesia’s halal food market was
harness this enormous potential. Led by the President of
worth USD169.7 billion. It is the main destination for
Indonesia, it is expected to synergize the Islamic economic
domestic halal products and is also the largest global
and financial development policies and programs of
market, demonstrating the potential magnitude of the
relevant authorities and institutions. Bank Indonesia, as a
domestic Islamic economy as a whole.1 On the other
member of the KNKS Steering Committee, fully supports
hand, in line with the application of Law No. 33 of 2014
the coordination and synergizing efforts.
on Halal Product Guarantees in 2019, which will require
a wide range of goods sold in Indonesia to be certified
In 2017, Bank Indonesia was increasingly active in
halal, this large potential market could be a constraint if it
its support for the development of a national Islamic
turns out the need for halal products cannot be met from
economy. It launched a blueprint for Islamic economic and
within the country. This may encourage imports that will
financial development, with three main focuses in line with
the government goal of achieving Indonesia’s economic
independence.
1 State of the Global Islamic Economy Report 2017/2018, Thomson Reuters.

Figure
Gambar 1.1. Boks 8.2
Framework of Strategy Development on Blueprint Economic and Financial Sharia
Developing fair economic and finance in Indonesia,

grow equality, and sustainable in line with sharia values
Target Increase of Asset Financing Level of Financial International

Achievement in Sharia Business Literacy Rate
of Sharia Finance Market Depth Standing
Sharia Business Share of Sharia Finance Share of Outstanding
Major Asset Growth (Percent to Total Sharia Money Market Literacy Index International Initiation
Indicator (Percent per annum) Financial Market) (Percent GDP)
Major Economic Sharia Sharia Financial Strengthening Research,

Strategy Empowerment Market Deepening Assessment & Education
Regulation Research
Halal Supply Chain and Assessment
Infrastructure
Major
Working Institutional Instrument Education
Program Investor Basis
Supporting Infrastructure Institutional
Institutional
Basic Regional Sharia Economic Policy National Sharia Economic Policy International Sharia Economic Policy
Strategy
Human Resources Data and Information Coordination and Cooperation
Firstly, the Empowerment of an Islamic Economy which strategy aims to increase competence in developing
focuses on the development of the Islamic business sector a workforce that is reliable, professional and
by strengthening all groups of business players, be they internationally competitive. In practice, this means that
large, medium, small or micro entrepreneurs, and the educational programs with a strong relevance to industry
development of Islamic educational institutions such as needs must be developed. Appropriate curricula are
pesantren. These business players will become part of required, vocational programs must be enriched and
a halal value chain partnership in numerous leading the Islamic economic and financial industry professions
sectors of the Islamic economy, such as agriculture, must be promoted. Another important goal is to
manufacturing and renewable energy. increase community understanding of the sector through
comprehensive and integrated outreach programs.
Secondly, the Deepening of Islamic Financial Markets
which aims to improve Islamic liquidity management These Islamic economic and financial development
and financing to support the development of sharia strategies will be supported by appropriate policies and
businesses. The variety of Islamic financial instruments coordination. The implementation of these development
is to be increased, investor interest and transaction strategies will be backed by regional, national and
volumes will be enhanced and regulations and international Islamic economic and financial policies. In
infrastructure strengthened. This strategy is not limited to addition, the strategies will be reinforced by coordination
the commercial finance sector, but also extends to the and cooperation to ensure their implementation is
social finance sector – zakat, infaq, sedekah and waqf sustainable. In this context, Bank Indonesia will act as a
(ZISWAF) – and will facilitate the integration of the two. regulator. It will also act as an accelerator and initiator,
collaborating and working with stakeholders to support
Thirdly, the Strengthening of Research, Assessments and the implementation of programs.
Education including outreach and communication. This

Appendices

| 207
2017 Bank Indonesia Regulations
No. Regulation Date Concerning
Bank Indonesia Regulation

1 30 January 2017 Total and Nominal Value of Rupiah Currency Destroyed in 2016
(PBI) No.19/1/PBI/2017

2 16 March 2017 Transaction of Certificates of Deposits in Money Market
(PBI) No.19/2/PBI/2017

3 11 April 2017 Short Term Liquidity Loans for Conventional Commercial Banks
(PBI) No.19/3/PBI/2017

4 11 April 2017 Short Term Liquidity Loans for Sharia Commercial Banks
(PBI) No.19/4/PBI/2017

5 12 April 2017 Treasury Certification and Application of Market Ethics Code
(PBI) No.19/5/PBI/2017
Bank Indonesia Regulation Fifth Amendment to Bank Indonesia Regulation (PBI) No 15/17/PBI/2013 concerning
6 17 April 2017
(PBI) No.19/6/PBI/2017 Rupiah and Foreign Statutory Reserve Requirements for Conventional Commercial Banks

7 3 May 2017 Carrying Foreign Currency Into and Outside the Indonesian Customs Area
(PBI) No.19/7/PBI/2017

8 21 June 2017 National Payment Gateway
(PBI) No.19/8/PBI/2017

9 19 July 2017 Issuance and Transaction of Commercial Papers in Money Market
(PBI) No.19/9/PBI/2017
Bank Indonesia Regulation Implementation of Anti-Money Laundering and Prevention of Terrorism Financing for Non-
10 6 September 2017
(PBI) No.19/10/PBI/2017 Bank Payment System Service Provider and Non-Bank Money Changing Service Provider

11 2 October 2017 Settlement of Bilateral Trade Transactions Using Local Currency Settlement through the Bank
(PBI) No.19/11/PBI/2017

12 29 November 2017 Implementation of Financial Technology
(PBI) No.19/12/PBI/2017
Bank Indonesia Regulation Integrated Licensing Services related to Commercial Bank Operational Relationships with
13 15 December 2017
(PBI) No.19/13/PBI/2017 Bank Indonesia
Bank Indonesia Regulation Second Amendment to Bank Indonesia Regulation (PBI) No 17/18/PBI/2015 concerning
14 27 December 2017
(PBI) No.19/14/PBI/2017 Transactions Implementations, Securities Administration, and Instantly Fund Settlement
Bank Indonesia Regulation Second Amendment to Bank Indonesia Regulation (PBI) No 17/9/2015 concerning
15 27 December 2017
(PBI) No.19/15/PBI/2017 Implementation of Fund Transfer and Scheduled Clearing by Bank Indonesia
208 | Appendices • 2017 ECONOMIC REPORT ON INDONESIA

Tables
Number Title
Table 1 Gross Domestic Product by Expenditures
Table 2 Gross Domestic Product by Industrial Origin at Constant Prices
Table 3 Gross Domestic Product by Industrial Origin at Current Prices
Table 4 Indonesia’s Consumer Price Index
Table 5 Inflation in 82 cities
Table 6 Indonesia’s Wholesale Price Index
Table 7 Indonesia’s Balance of Payments
Table 8 Interest Rate on Time Deposits in Rupiah and Foreign Currency by Group of Banks
Table 9 Interest Rates of Credit on Rupiah (IDR) by Group of Banks
Table 10 Flow of Bank Notes within Bank Indonesia Head Office and Regional Offices
2017 ECONOMIC REPORT ON INDONESIA • Appendices | 209

Table 1. Gross Domestic Product by Expenditures 1)
Rp billion
2017**
Items 2013 2014 2015 2016*
I II III IV Total
Constant Prices
1. Household
Consumption 4,423,417 4,651,018 4,881,631 5,126,028 1,308,800 1,326,428 1,372,108 1,372,184 5,379,520
Expenditure
a. Food and
Beverages, except of 1,612,839 1,685,185 1,776,297 1,871,192 479,707 486,407 502,436 500,685 1,969,234
Restaurant
b. Clothing and
182,010 190,369 198,733 205,265 51,556 53,042 53,254 53,779 211,631
Services Related
c. Dwelling and
608,427 636,225 666,807 697,459 177,736 179,842 183,815 185,764 727,157
Utilities Related
d. Health and
300,791 318,154 335,480 353,409 90,700 91,624 95,352 95,471 373,148
Education Services
e. Transportation
1,085,322 1,148,300 1,203,217 1,267,219 323,648 328,020 342,455 340,215 1,334,339
and Communication
f. Restaurant and
403,321 430,250 451,793 476,173 121,105 122,883 128,885 129,608 502,481
Hotel
g. Others 230,706 242,536 249,304 255,311 64,348 64,610 65,910 66,662 261,530
2. NPI Serving
Household
88,618 99,420 98,800 105,362 27,153 27,954 28,475 29,065 112,647
Consumption
Expenditure
3. Government
Consumption 727,812 736,283 775,398 774,282 142,202 183,935 193,681 271,040 790,858
Expenditure
a. Collective
455,890 459,596 476,826 477,611 86,366 111,566 118,165 168,703 484,800
Consumption
b. Individual
271,922 276,687 298,572 296,671 55,836 72,368 75,516 102,337 306,058
Consumption
4. Gross Fixed
2,654,375 2,772,471 2,911,356 3,041,587 760,191 782,585 823,498 862,474 3,228,748
Capital Formation
a. Building 1,933,672 2,040,387 2,165,135 2,277,210 576,436 585,749 612,509 644,578 2,419,272
b. Machineries and
307,782 300,154 301,907 281,723 68,189 67,277 79,793 93,253 308,512
Equipment
c. Transportation 161,592 152,090 152,887 171,280 44,690 44,751 49,816 47,197 186,454
d. Other Equipment 37,472 40,913 44,887 50,686 12,771 13,343 14,102 15,163 55,378
e. Cultivated
149,080 160,304 166,126 174,089 39,982 46,971 44,729 44,167 175,850
Biological Resources
f. Intellectual
64,776 78,622 80,414 86,599 18,122 24,495 22,548 18,117 83,282
Property Product
5a. Changes in
124,454 163,583 112,848 112,848 60,429 56,571 29,402 -31,005 115,396
Inventories
b. Statistical
57,576 81,318 60,957 60,957 20,395 41,454 46,705 -11,594 96,960
Discrepancies 1)
6. Export of Goods
2,026,114 2,047,887 2,004,467 2,004,467 523,526 511,120 556,102 561,656 2,152,404
and Services
a. Goods 1,828,150 1,842,728 1,797,135 1,797,135 467,513 454,786 491,986 505,193 1,919,479
a.1. Non-Oil 1,584,709 1,607,807 1,538,133 1,538,133 404,313 394,793 428,175 441,059 1,668,340

Gross Domestic Product by Expenditures 1) - Continued
2017**
Items 2013 2014 2015 2016*
I II III IV Total
a.2. Oil and Gas 243,441 234,921 259,002 259,002 63,200 59,993 63,811 64,134 251,138
b. Services 197,964 205,159 207,332 207,332 56,013 56,334 64,116 56,462 232,925
7. Less Import of
1,945,867 1,987,114 1,862,939 1,862,939 464,520 456,622 497,754 544,888 1,963,784
Goods and Services
a. Goods 1,665,064 1,704,444 1,596,174 1,596,174 402,794 390,455 431,230 469,974 1,694,452
a.1. Non-Oil 1,338,229 1,377,904 1,272,092 1,272,092 311,634 315,220 347,089 381,766 1,355,708
a.2. Oil and Gas 326,835 326,541 324,082 324,082 91,159 75,235 84,141 88,209 338,744
b. Services 280,803 282,670 266,765 266,765 61,726 66,168 66,524 74,914 269,331
8. Gross Domestic
8,156,497.8 8,564,866.6 8,982,517.1 8,982,517.1 2,378,176.3 2,473,425.0 2,552,216.5 2,508,931.5 9,912,749.3
Product
Current Prices
1. Household
Consumption 5,321,088 5,915,194 6,490,930 7,024,997 1,838,637 1,873,332 1,952,580 1,962,438 7,626,986
Expenditure
a. Food and
Beverages, except of 2,049,782 2,247,451 2,495,433 2,758,583 724,758 732,274 761,258 762,156 2,980,446
Restaurant
b. Clothing and
203,088 221,633 239,644 256,800 65,401 68,095 69,096 70,326 272,918
Services Related
c. Dwelling and
705,522 774,867 849,310 902,131 235,596 241,581 249,036 253,242 979,455
Utilities Related
d. Health and
359,752 394,268 433,073 472,128 123,873 125,571 132,209 133,717 515,370
Education Services
e. Transportation
1,246,467 1,420,289 1,518,755 1,598,864 420,566 432,556 454,262 451,674 1,759,058
and Communication
f. Restaurant and
499,346 570,465 636,959 695,183 179,928 183,913 195,047 198,041 756,929
Hotel
g. Others 257,131 286,222 317,754 341,308 88,515 89,341 91,672 93,282 362,810
2. NPI Serving
Household
103,929 124,242 130,951 144,499 38,314 39,698 40,764 41,794 160,569
Consumption
Expenditure
3. Government
Consumption 908,574 996,197 1,123,750 1,183,640 211,829 289,936 308,053 427,051 1,236,869
Expenditure
a. Collective
568,131 622,774 691,755 732,490 129,690 176,663 189,029 267,911 763,293
Consumption
b. Individual
340,443 373,423 431,995 451,150 82,139 113,273 119,025 159,139 473,576
Consumption
4. Gross Fixed
3,051,496 3,436,924 3,782,012 4,040,205 1,017,940 1,055,630 1,115,903 1,181,083 4,370,556
Capital Formation
a. Building 2,242,780 2,569,122 2,844,115 3,037,240 772,891 790,528 832,221 887,796 3,283,436
b. Machineries and
343,132 357,548 377,472 364,798 89,140 88,191 104,914 123,661 405,906
Equipment
c. Transportation 172,446 163,609 173,851 208,133 55,831 56,321 62,498 59,278 233,929
d. Other Equipment 41,709 49,215 59,036 68,916 17,744 18,646 19,792 21,319 77,501

Gross Domestic Product by Expenditures 1) - Continued
2017**
Items 2013 2014 2015 2016*
I II III IV Total
e. Cultivated
177,280 201,676 225,516 246,684 57,679 68,162 65,218 63,627 254,684
Biological Resources
f. Intellectual
74,149 95,753 102,023 114,433 24,656 33,781 31,260 25,403 115,100
Property Product
5a. Changes in
178,091 220,231 144,179 158,867 98,726 95,913 44,498 -64,619 174,518
Inventories
b. Statistical
58,392 -44,000 -189,602 -245,062 -37,646 -35,178 -12,978 -58,697 -144,499
Discrepancies 1)
6. Export of Goods
2,283,777 2,501,425 2,438,993 2,372,293 663,391 644,390 714,810 745,557 2,768,149
and Services
a. Goods 2,044,358 2,223,342 2,131,563 2,040,317 576,513 556,584 614,561 655,830 2,403,488
a.1. Non-Oil 1,703,499 1,869,262 1,884,921 1,866,721 523,640 508,834 563,096 598,307 2,193,877
a.2. Oil and Gas 340,859 354,080 246,642 173,596 52,872 47,750 51,466 57,523 209,611
b. Services 239,419 278,083 307,429 331,976 86,879 87,806 100,249 89,727 364,661
7. Less Import of
2,359,212 2,580,508 2,394,879 2,272,666 603,157 597,135 660,061 743,998 2,604,350
Goods and Services
a. Goods 2,012,940 2,177,253 1,963,460 1,851,967 501,136 487,418 549,258 616,522 2,154,334
a.1. Non-Oil 1,523,386 1,652,229 1,625,136 1,596,402 411,157 418,689 471,065 519,884 1,820,795
a.2. Oil and Gas 489,554 525,024 338,325 255,565 89,978 68,729 78,193 96,638 333,539
b. Services 346,272 403,255 431,419 420,699 102,021 109,717 110,803 127,476 450,016
8. Gross Domestic
9,546,134 10,569,705 11,526,333 12,406,774 3,228,035 3,366,586 3,503,569 3,490,608 13,588,797
Product
Notes:
1) Since year 2010, GDP figures are using 2010=100 as a base year
*Preliminary figures

Table 2. Gross Domestic Product by Industrial Origin at Constant Prices 1)
Rp billion
2017**
Industrial Origin 2013 2014 2015 2016*
I II III IV Total
Agriculture, Forestry
1,083,141.8 1,129,052.7 1,171,445.8 1,210,749.8 306,493.7 332,186.8 346,539.8 271,674.0 1,256,894.3
and Fishery
Agriculture, Livestock,
Hunting, and 847,763.7 880,389.5 906,805.5 936,334.7 236,712.4 260,367.6 273,111.8 198,146.4 968,338.2
Agriculture Services
Food crops 268,268.2 268,426.9 280,018.8 287,212.1 88,067.7 81,326.2 79,953.9 43,801.3 293,149.1
Horticultural crops 118,207.7 124,300.9 127,110.0 130,832.3 30,307.8 36,740.6 37,253.1 30,519.3 134,820.8
Plantation crops 319,532.6 338,502.2 345,164.9 357,137.7 77,016.4 99,943.9 112,636.0 83,457.7 373,054.0
Livestock 125,302.3 132,221.1 136,936.4 142,999.5 36,578.4 37,497.3 38,065.8 36,331.6 148,473.1
Agricultural Services
16,452.9 16,938.4 17,575.4 18,153.1 4,742.1 4,859.6 5,203.0 4,036.5 18,841.2
and Hunting
Forestry and Logging 59,228.8 59,573.5 60,623.5 59,891.9 14,019.8 15,929.8 15,592.0 15,735.6 61,277.2
Fishery 176,149.3 189,089.7 204,016.8 214,523.2 55,761.5 55,889.4 57,836.0 57,792.0 227,278.9
Mining and Quarrying 791,054.4 794,489.5 767,327.2 774,593.1 193,460.5 194,928.1 195,480.5 196,056.3 779,925.4
Crude Petroleum,
Natural Gas, and 313,328.1 307,161.7 307,325.8 313,743.9 75,919.0 75,032.2 76,555.2 75,260.7 302,767.1
Geothermal
Coal and Lignite
247,594.6 251,073.6 232,725.3 223,098.6 59,224.7 58,103.2 54,231.3 54,919.7 226,478.9
Mining
Iron Ore mining 98,608.6 98,257.9 87,702.9 89,303.2 21,053.2 23,098.4 25,144.8 25,854.0 95,150.4
Other Mining and
131,523.1 137,996.3 139,573.2 148,447.4 37,263.6 38,694.3 39,549.2 40,021.9 155,529.0
Quarrying
Manufacturing 1,771,961.9 1,854,256.7 1,934,533.2 2,016,876.8 511,147.9 525,244.6 536,237.1 530,436.8 2,103,066.4
Manufacture of Coal
and Refined Petroleum 221,449.9 216,750.8 214,312.0 220,392.0 55,464.4 55,411.9 55,426.8 53,381.2 219,684.3
Products
Manufacture of
Food Products and 459,283.0 502,856.2 540,756.4 585,786.3 147,160.7 159,528.9 165,908.7 167,231.7 639,830.0
Beverages
Manufacture of
72,814.0 78,878.7 83,798.7 85,119.7 20,988.7 21,382.2 21,764.7 20,272.3 84,407.9
Tobacco Products
Manufacture of Textiles
115,913.1 117,723.4 112,078.9 111,978.2 28,105.1 29,385.2 28,990.5 29,711.8 116,192.6
and Wearing Apparel
Manufacture of
Leather and Related 21,745.7 22,967.7 23,879.2 25,875.3 6,803.5 6,802.3 6,347.3 6,496.0 26,449.1
Products and Footwear
Manufacture of Wood
and Products of Wood
and Cork, Articles of 58,180.6 61,742.5 60,735.4 61,790.6 15,296.0 15,397.6 15,345.8 15,829.0 61,868.4
Straw and Plaiting
Materials
Manufacture of
Paper and Paper
products Printing 68,229.4 70,670.1 70,556.8 72,399.9 18,593.0 18,308.5 18,396.5 17,342.1 72,640.1
and Reproduction of
Recorded Media
Manufacture of
Chemicals and
147,248.6 153,191.9 164,843.0 174,469.8 45,700.7 46,858.5 46,862.1 42,957.6 182,378.9
Pharmaceuticals and
Botanical Products
Manufacture of
Rubber, Rubber
71,945.7 72,777.3 76,442.1 69,940.9 18,700.5 17,287.2 17,310.8 18,367.6 71,666.1
Products, and Plastic
Products

Gross Domestic Product by Industrial Origin at Constant Prices 1) - Continued
2017**
I II III IV Total
Manufacture of Other
Nonmetallic Mineral 61,228.7 62,706.8 66,485.2 70,118.7 17,138.1 16,482.3 17,629.1 18,264.2 69,513.7
Products
Manufacture of Basic
67,972.4 72,059.1 76,532.1 77,293.0 19,595.0 20,616.9 20,871.2 20,750.2 81,833.3
Metals
Manufacture of
Fabricated Metal
Products, Computer, 173,452.4 178,544.2 192,528.0 200,860.9 51,489.2 51,347.8 52,613.9 51,017.7 206,468.6
Optical Products, and
Electronic Devices
Manufacture of
Machinery and 24,163.8 26,259.7 28,250.5 29,676.6 7,456.4 8,013.0 8,013.8 7,841.4 31,324.6
Equipment
Manufacture of
171,165.5 178,022.5 182,289.1 190,523.4 48,347.2 48,103.4 50,324.9 50,751.9 197,527.4
Transport Equipment
Manufacture of
22,375.4 23,179.9 24,377.4 24,489.8 6,284.2 6,352.1 6,429.9 6,331.1 25,397.3
Furniture
Other Manufacturing,
Repair and Installation
14,793.7 15,925.9 16,668.4 16,161.7 4,025.2 3,966.8 4,001.1 3,891.0 15,884.1
of Machinery and
Equipment
Electricity and Gas

88,805.1 94,047.2 94,894.8 100,009.9 24,816.6 24,570.5 25,878.3 26,285.9 101,551.3
Supply
Electricity 75,050.7 79,581.5 81,407.0 86,580.3 21,458.8 21,679.2 22,523.4 23,002.0 88,663.4
Gas Supply and
13,754.4 14,465.7 13,487.8 13,429.6 3,357.8 2,891.3 3,354.9 3,283.9 12,887.9
Production of Ice
Water Supply,
Sewerage, Waste
6,539.9 6,882.5 7,369.0 7,634.5 1,953.0 1,977.7 2,008.7 2,047.0 7,986.4
Management and
Remediation Activities
Construction 772,719.6 826,615.6 879,163.9 925,062.5 233,883.1 239,717.6 251,101.1 263,181.7 987,883.5
Wholesale and Retail

Trades, Repair of
1,119,272.1 1,177,297.5 1,207,164.5 1,255,759.4 317,304.5 326,455.7 336,182.0 331,521.5 1,311,463.7
Motor Vehicles and
Motorcycles
Trade and Repair of
218,291.1 229,228.4 229,967.5 239,089.3 60,921.4 61,944.5 63,695.3 63,987.9 250,549.1
Motor Vehicles and
Motorcycles
Trades, except of
900,981.0 948,069.1 977,197.0 1,016,670.1 256,383.1 264,511.2 272,486.7 267,533.6 1,060,914.6
Motor Vehicles and
Motorcycles
Transport and Storage 304,506.2 326,933.0 348,855.9 374,843.4 96,679.5 99,593.1 104,949.3 105,457.5 406,679.4
Railways Transport 2,336.9 2,823.1 2,948.6 3,050.6 827.2 874.4 955.6 973.0 3,630.2
Land Transport 167,559.5 180,367.4 192,631.0 206,218.1 54,122.5 55,015.5 56,330.3 57,119.0 222,587.3
Sea Transport 27,372.4 29,473.7 30,174.0 30,550.9 7,325.2 7,868.9 8,253.2 8,521.8 31,969.1
River, Lake and Ferry
9,469.2 10,117.6 10,222.2 10,371.9 2,678.2 2,697.5 2,779.0 2,840.4 10,995.1
Transport
Air Transport 49,263.2 52,255.1 57,671.8 65,295.4 16,830.5 17,493.1 19,702.4 19,058.2 73,084.2

Gross Domestic Product by Industrial Origin at Constant Prices 1) - Continued
2017**
I II III IV Total
Warehousing and
Support Services for
48,505.0 51,896.1 55,208.3 59,356.5 14,895.9 15,643.7 16,928.8 16,945.1 64,413.5
Transportation, Postal
and Courier
Accommodation and
243,748.3 257,815.5 268,922.4 282,823.4 72,875.9 74,094.2 75,146.7 76,398.1 298,514.9
Food Service Activities
Accommodation 47,699.6 51,426.7 54,340.3 57,440.8 14,674.5 14,924.2 15,206.5 15,504.0 60,309.2
Food and Beverages
196,048.7 206,388.8 214,582.1 225,382.6 58,201.4 59,170.0 59,940.2 60,894.1 238,205.7
Service Activities
Information and
349,150.1 384,475.6 421,769.8 459,208.1 120,874.5 126,316.2 127,285.8 129,802.4 504,278.9
Communication
Financial and
305,515.1 319,825.5 347,269.0 378,193.1 97,562.7 99,472.6 102,464.3 99,419.4 398,919.0
Insurance Services
Financial Intermediary
192,098.0 197,712.2 216,631.2 237,896.4 61,580.6 62,055.8 62,109.2 60,286.2 246,031.8
Services
Insurance and Pension
64,661.3 69,794.6 74,398.1 79,230.2 20,070.5 20,990.9 22,912.9 22,668.7 86,643.0
Fund
Other Financial
41,371.7 44,464.7 48,013.8 52,449.1 13,681.1 14,198.7 15,219.7 14,181.8 57,281.3
Services
Financial Supporting
7,384.1 7,854.0 8,225.9 8,617.4 2,230.5 2,227.2 2,222.5 2,282.7 8,962.9
Services
Real Estate Activities 244,237.5 256,440.2 266,979.6 279,500.5 71,675.6 72,419.6 72,651.3 73,042.9 289,789.4
Business Services 125,490.7 137,795.3 148,395.5 159,321.7 41,662.4 42,733.4 43,853.2 44,514.8 172,763.8
Public Administration
and Defence;
289,448.9 296,329.7 310,054.6 319,946.1 77,971.3 78,071.7 79,925.8 90,558.0 326,526.8
Compulsory Social
Security
Education 250,016.2 263,685.0 283,020.1 293,779.7 71,525.3 73,700.3 74,725.3 84,574.1 304,525.0
Human Health and

84,621.4 91,357.1 97,465.8 102,487.8 26,619.3 26,775.0 27,247.8 28,805.9 109,448.0
Social Work Activities
Other Services
123,083.1 134,070.1 144,904.2 156,523.4 40,999.6 42,043.6 43,178.7 43,851.8 170,073.7
Activities
Gross Value Added At
7,953,312.3 8,351,368.7 8,699,535.3 9,097,313.2 2,307,505.4 2,380,300.7 2,444,855.7 2,397,628.1 9,530,289.9
Basic Price
Taxes less Subsides on
203,185.5 213,497.9 282,981.8 337,319.1 70,670.9 93,124.3 107,360.8 111,303.4 382,459.4
Products
GROSS DOMESTIC
8,156,497.8 8,564,866.6 8,982,517.1 9,434,632.3 2,378,176.3 2,473,425.0 2,552,216.5 2,508,931.5 9,912,749.3
PRODUCT
Notes:
1) Since year 2010, GDP figures are using 2010=100 as a base year

Table 3. Gross Domestic Product by Industrial Origin at Current Prices
Rp billion
Industrial Origin 2013 2014 2015 2016* 2017**

Agriculture, Forestry and Fishery 1,275,048 1,409,656 1,555,207 1,671,330 1,785,881
Agriculture, Livestock, Hunting, and Agriculture Services 994,778 1,089,550 1,183,969 1,266,849 1,344,732
Food crops 332,112 343,252 397,409 425,179 437,804
Horticultural crops 137,369 160,569 174,453 187,403 196,132
Plantation crops 358,172 398,261 405,292 428,783 471,308
Livestock 147,982 167,008 184,152 201,086 213,468
Agricultural Services and Hunting 19,143 20,460 22,664 24,399 26,021
Forestry and Logging 69,599 74,618 82,322 87,390 91,618
Fishery 210,671 245,488 288,917 317,092 349,530
Mining and Quarrying 1,050,746 1,039,423 881,694 890,868 1,028,772
Crude Petroleum, Natural Gas, and Geothermal 520,088 509,783 384,516 364,986 390,480
Coal and Lignite Mining 282,193 259,767 229,974 231,698 323,365
Iron Ore mining 98,468 93,615 74,264 73,301 94,322
Other Mining and Quarrying 149,996 176,258 192,940 220,884 220,605
Manufacturing 2,007,427 2,227,584 2,418,892 2,545,204 2,739,415
Manufacture of Coal and Refined Petroleum Products 314,216 337,201 320,845 286,400 309,142
Manufacture of Food Products and Beverages 491,142 562,017 647,072 740,810 834,403
Manufacture of Tobacco Products 82,684 95,668 108,652 117,086 121,986
Manufacture of Textiles and Wearing Apparel 129,912 139,032 139,394 143,545 150,427
Manufacture of Leather and Related Products and Footwear 24,810 28,600 31,441 35,214 36,988
Manufacture of Wood and Products of Wood and Cork, Articles of Straw and
66,958 76,072 77,993 80,078 81,583
Plaiting Materials
Manufacture of Paper and Paper products, Printing and Reproduction of
74,319 84,373 87,760 89,650 97,060
Recorded Media
Manufacture of Chemicals and Pharmaceuticals; and Botanical Products 157,042 180,037 209,788 223,405 236,186
Manufacture of Rubber, Rubber Products and Plastic Products 76,466 80,263 85,951 79,101 85,869
Manufacture of Other Nonmetallic Mineral Products 69,401 76,852 83,371 89,056 89,606
Manufacture of Basic Metals 74,495 82,119 90,159 89,560 98,847

Manufacture of Fabricated Metal Products, Computer, Optical Products and
186,195 198,081 226,678 241,757 252,740
Electronic Devices
Manufacture of Machinery and Equipment 25,504 33,079 37,288 40,170 43,092
Manufacture of Transport Equipment 192,768 207,401 220,511 236,559 246,915
Manufacture of Furniture 24,931 28,118 31,340 32,124 33,869
Other Manufacturing, Repair and Installation of Machinery and Equipment 16,584 18,673 20,649 20,690 20,702
Electricity and Gas Supply 98,687 114,905 129,834 142,344 162,340
Electricity 74,358 84,151 100,645 112,792 132,976
Gas Supply and Production of Ice 24,329 30,754 29,189 29,552 29,364
Water Supply, Sewerage, Waste Management and Remediation Activities 7,209 7,841 8,546 8,943 9,720
Construction 905,991 1,041,950 1,177,084 1,287,659 1,409,834

Gross Domestic Product by Industrial Origin at Current Prices - Continued
Industrial Origin 2013 2014 2015 2016* 2017**
Wholesale and Retail Trades, Repair of Motor Vehicles and Motorcycles 1,261,146 1,419,239 1,532,877 1,635,259 1,767,718
Wholesale and Retail Trade and Repair of Motor Vehicles and Motorcycles 258,942 292,839 311,606 334,788 356,588
Wholesale and Retail Trades, except of Motor Vehicles and Motorcycles 1,002,203 1,126,400 1,221,271 1,300,471 1,411,130
Transport and Storage 375,306 466,969 578,464 645,000 735,230
Railways Transport 3,143 4,228 6,577 7,319 9,172
Land Transport 190,201 225,882 281,079 300,985 328,307
Sea Transport 30,062 36,075 39,307 39,907 41,986
River, Lake and Ferry Transport 11,165 13,137 14,267 14,185 15,078
Air Transport 77,722 108,792 143,664 177,904 220,967
Warehousing and Support Services for Transportation, Postal and Courier 63,014 78,855 93,570 104,699 119,721
Accommodation and Food Service Activities 289,498 321,062 341,556 363,056 387,467
Accommodation 63,489 74,255 80,791 86,421 91,823
Food and Beverages Service Activities 226,009 246,807 260,765 276,634 295,644
Information and Communication 341,009 369,457 406,017 449,189 515,889
Financial and Insurance Services 370,132 408,439 464,400 520,088 571,129
Financial Intermediary Services 237,170 256,029 290,943 327,378 353,060
Insurance and Pension Fund 76,005 87,337 99,041 109,269 124,062
Other Financial Services 48,279 55,245 63,465 71,825 81,422
Financial Supporting Services 8,679 9,829 10,950 11,616 12,585
Real Estate Activities 264,275 294,573 327,601 350,488 379,783
Business Services 144,604 165,991 190,268 211,624 238,217
Public Administration and Defence; Compulsory Social Security 372,195 404,630 449,382 479,794 502,239
Education 307,862 341,818 387,611 418,347 446,785
Human Health and Social Work Activities 96,881 109,147 123,192 132,545 144,967
Other Services Activities 140,316 163,549 190,581 211,456 239,122
GROSS DOMESTIC PRODUCT 9,546,134 10,569,705 11,526,333 12,406,774 13,588,797

Notes:

Table 4. Indonesia’s Consumer Price Index
Prepared Transporta-
Housing,
Food, Education, tion, Com-
End of Water,
Food Stuff Beverage, Clothing Medical Care Recreation munication CPI CPI Inflation
Period 1) Electricity,
Cigarette and and Sports and Financial
Gas and Fuel
Tobacco Services
2001 290.74 278.75 208.57 277.90 262.99 224.12 221.47 249.15 12.55
2002 317.29 304.35 235.08 285.38 277.79 248.43 255.85 274.13 10.03
2003 311.84 323.35 256.74 305.60 293.54 277.52 266.34 287.99 5.06
2004 2)
111.10 115.70 124.19 113.36 113.06 126.20 114.25 116.86 6.40
2005 126.55 131.56 141.50 121.21 119.99 136.60 165.38 136.86 17.11
2006 142.92 139.93 148.34 129.50 127.03 147.70 167.06 145.89 6.60
2007 159.01 148.90 155.58 140.41 132.51 160.74 169.15 155.50 6.59
2008 3) 122.70 114.98 113.02 112.27 109.13 109.84 107.26 113.86 11.06
2009 127.46 123.96 115.09 119.01 113.38 114.11 103.32 117.03 0.33
2010 6.96
January 129.66 126.35 115.48 118.77 113.55 114.22 103.49 118.01 0.84
February 130.78 126.85 115.71 118.21 113.76 114.30 103.60 118.36 0.30
March 129.59 127.21 115.86 118.22 114.04 114.32 103.67 118.19 -0.14
April 130.02 127.52 115.98 118.38 114.23 114.33 103.71 118.37 0.15
May 130.66 127.95 116.09 119.79 114.35 114.35 103.73 118.71 0.29
June 134.84 128.48 116.36 120.91 114.42 114.42 103.89 119.86 0.97
July 141.17 129.32 116.66 120.80 114.73 115.40 105.46 121.74 1.57
August 141.83 130.19 118.51 120.87 115.04 116.86 105.84 122.67 0.76
September 142.46 130.87 118.81 122.18 115.30 117.16 106.44 123.21 0.44
October 141.25 131.50 119.24 124.29 115.58 117.68 105.83 123.29 0.06
November 143.36 132.11 119.54 125.40 115.68 117.78 105.84 124.03 0.60
December 147.39 132.59 119.79 126.76 115.86 117.86 106.10 125.17 0.92
2011 3.79
January 150.64 133.24 120.37 126.95 116.41 118.36 106.43 126.29 0.89
February 150.14 133.86 120.85 126.85 117.21 118.51 106.59 126.46 0.13
March 147.22 134.29 121.20 127.33 117.65 118.71 106.68 126.05 -0.32
April 144.42 134.56 121.46 128.28 118.10 118.80 106.75 125.66 -0.31
May 144.01 134.86 121.76 129.10 118.69 118.83 106.90 125.81 0.12
June 145.84 135.41 122.13 129.84 119.18 119.04 107.06 126.50 0.55
July 148.52 135.98 122.36 130.65 119.50 120.20 107.24 127.35 0.67
August 150.11 136.60 122.76 134.66 119.81 122.77 108.10 128.54 0.93
September 149.97 137.25 123.08 135.96 120.07 123.43 108.29 128.89 0.27
October 149.45 137.61 123.33 134.25 120.38 123.80 107.85 128.74 -0.12
November 150.33 137.88 123.60 136.08 120.58 123.85 107.99 129.18 0.34
December 152.76 138.57 123.95 136.35 120.79 123.94 108.14 129.91 0.57
2012 4.30
January 155.59 139.47 124.62 136.24 121.40 124.12 108.39 130.90 0.76
February 154.45 139.95 124.96 137.90 121.58 124.22 108.46 130.96 0.05
March 153.94 140.59 125.21 138.11 121.77 124.31 108.57 131.05 0.07

Indonesia’s Consumer Price Index - Continued
Housing,
End of Water,
Gas and Fuel
Tobacco Services
April 154.13 141.46 125.51 137.48 122.05 124.39 108.80 131.32 0.21
May 153.90 142.03 125.74 137.18 122.27 124.41 108.88 131.41 0.07
June 156.32 142.71 126.19 137.71 122.53 124.55 108.91 132.23 0.62
July 158.94 143.98 126.39 137.96 123.04 125.25 109.25 133.16 0.70
August 161.29 144.94 126.72 139.14 123.34 127.38 110.89 134.43 0.95
September 159.80 145.76 127.16 141.19 123.51 128.74 110.00 134.45 0.01
October 159.12 146.32 127.69 142.52 123.82 129.01 109.98 134.67 0.16
November 158.91 146.61 127.88 142.38 124.08 129.09 110.23 134.76 0.07
December 161.44 147.04 128.10 142.72 124.30 129.16 110.52 135.49 0.54
2013 8.38
January 166.91 147.71 128.82 143.07 124.66 129.22 110.21 136.88 1.03
February 170.39 148.41 129.87 142.23 125.36 129.47 110.30 137.91 0.75
March 173.87 149.00 130.14 141.23 125.66 129.62 110.51 138.78 0.63
April 172.48 149.45 130.68 139.63 125.94 129.82 110.62 138.64 -0.10
May 171.04 149.98 131.66 137.92 126.23 129.90 110.67 138.60 -0.03
June 173.04 150.98 131.93 137.52 126.52 129.95 114.88 140.03 1.03
July 182.48 153.32 132.51 137.39 127.02 130.85 125.91 144.63 3.29
August 185.67 154.37 133.39 139.88 127.49 132.63 127.10 146.25 1.12
September 180.32 155.57 134.20 144.06 127.83 133.57 126.09 145.74 -0.35
October 179.20 156.42 134.55 143.26 128.25 133.98 126.76 145.87 0.09
November 178.36 156.85 135.47 143.22 128.69 134.13 126.79 146.04 0.12
December 179.77 157.99 136.07 143.46 128.90 134.21 127.50 146.84 0.55
2014 4)
8.36
January 117.81 110.71 108.72 103.88 105.76 105.98 113.72 110.99 1.07
February 118.23 111.19 108.90 104.47 106.06 106.16 113.89 111.28 0.26
March 117.71 111.67 109.07 104.55 106.50 106.31 114.16 111.37 0.08
April 116.43 112.17 109.34 104.29 107.15 106.56 114.39 111.35 -0.02
May 116.26 112.56 109.59 104.42 107.59 106.63 114.63 111.53 0.16
June 117.41 112.92 110.01 104.73 107.98 106.72 114.85 112.01 0.43
July 119.69 114.05 110.50 105.62 108.40 107.20 115.86 113.05 0.93
August 120.12 114.64 111.31 105.86 108.76 108.89 115.72 113.58 0.47
September 119.92 115.23 112.17 105.68 109.07 109.63 115.44 113.89 0.27
October 120.22 115.73 113.34 105.90 109.72 109.88 115.62 114.42 0.47
November 122.80 116.55 113.90 105.81 110.19 109.97 120.58 116.14 1.50
December 126.76 118.84 115.55 106.49 111.00 110.37 127.27 119.00 2.46
2015 3.35
January 127.52 119.61 116.48 107.39 111.73 110.66 122.13 118.71 -0.24
February 125.65 120.15 116.96 107.95 112.17 110.81 120.26 118.28 -0.36
March 124.73 120.88 117.30 107.86 112.89 110.92 121.19 118.48 0.17
April 123.75 121.48 117.56 108.12 113.32 110.98 123.37 118.91 0.36

Indonesia’s Consumer Price Index - Continued
Housing,
End of Water,
Gas and Fuel
Tobacco Services
May 125.47 122.09 117.80 108.37 113.70 111.05 123.62 119.50 0.50
June 127.48 122.76 118.07 108.67 114.06 111.13 123.75 120.14 0.54
July 130.06 123.39 118.22 109.09 114.47 111.51 125.90 121.26 0.93
August 131.24 124.26 118.41 109.10 115.27 113.43 125.17 121.73 0.39
September 129.83 124.75 118.65 110.01 115.78 114.44 124.67 121.67 -0.05
October 128.46 125.25 118.76 110.29 116.11 114.62 124.69 121.57 -0.08
November 128.89 125.84 118.94 110.04 116.62 114.68 124.76 121.82 0.21
December 133.01 126.47 119.41 110.14 116.90 114.75 125.32 122.99 0.96
2016 3.02
January 135.93 127.11 120.04 110.43 117.32 114.92 123.93 123.62 0.51
February 135.14 127.91 119.50 111.14 117.63 114.99 123.74 123.51 -0.09
March 136.07 128.37 119.42 111.75 117.98 115.02 123.47 123.75 0.19
April 134.79 128.82 119.26 112.00 118.35 115.05 121.50 123.19 -0.45
May 135.19 129.57 119.28 112.49 118.67 115.08 121.76 123.48 0.24
June 137.38 130.32 119.46 113.28 119.07 115.12 122.53 124.29 0.66
July 138.92 131.03 119.75 113.78 119.51 115.71 124.03 125.15 0.69
August 137.98 131.57 120.24 114.24 119.98 117.07 122.76 125.13 -0.02
September 137.88 132.02 120.59 114.39 120.38 117.68 122.99 125.41 0.22
October 137.59 132.34 121.26 114.04 120.73 117.80 122.95 125.59 0.14
November 139.88 132.67 121.46 114.03 121.09 117.82 123.04 126.18 0.47
December 140.58 133.27 121.68 113.50 121.48 117.88 124.42 126.71 0.42
2017 3.61
January 141.51 133.89 123.01 113.87 122.09 118.02 127.35 127.94 0.97
February 141.07 134.41 123.93 114.46 122.41 118.12 127.54 128.24 0.23
March 140.14 134.82 124.30 114.67 122.67 118.22 127.37 128.22 -0.02
April 138.56 134.98 125.45 115.23 122.77 118.26 127.72 128.33 0.09
May 139.75 135.49 125.89 115.50 123.23 118.30 128.01 128.83 0.39
June 140.72 136.02 126.84 116.40 123.65 118.38 129.64 129.72 0.69
July 141.01 136.80 126.92 116.47 123.84 119.11 129.54 130.00 0.22
August 140.06 137.15 127.05 116.84 124.09 120.17 128.76 129.91 -0.07
September 139.32 137.62 127.32 117.45 124.29 121.41 128.78 130.08 0.13
October 138.69 138.01 127.55 117.66 124.55 121.60 128.61 130.09 0.01
November 139.20 138.32 127.71 117.80 124.89 121.72 128.72 130.35 0.20
December 142.35 138.74 127.93 117.95 125.11 121.81 129.68 131.28 0.71
Notes:
1) Annual/Quarterly data is figures at the end of the reference period
2) CPI has been calculated from 45 cities using 2002 = 100 as a base year, and classified into 7 groups
3) CPI has been calculated from 66 cities using 2007 = 100 as a base year, and classified into 7 groups, as of June 2008
4) CPI has been calculated from 82 cities using 2012=100 as a base year, and classified into 7 groups, as of January 2014

Table 5. Inflation in 82 cities
Percent, yoy
City 2011 1) 2012 1) 2013 1) 2014 2) 2015 2) 2016 2) 2017 2)
Meulaboh n.a. n.a. n.a. 8.20 0.58 3.77 4.76
Banda Aceh 3.32 0.06 6.39 7.83 1.27 3.13 4.86
Lhokseumawe 3.55 0.39 8.27 8.53 2.44 5.60 2.87
Sibolga 3.71 3.30 10.08 8.36 3.34 7.39 3.08
Pematang Siantar 4.25 4.73 12.02 7.94 3.36 4.76 3.10
Medan 3.54 3.79 10.09 8.24 3.32 6.60 3.18
Padang Sidempuan 4.66 3.54 7.82 7.38 1.66 4.28 3.82
Padang 5.37 4.16 10.87 11.90 0.85 5.02 2.11
Bukit Tinggi n.a. n.a. n.a. 9.24 2.79 3.93 1.37
Tembilahan n.a. n.a. n.a. 10.06 2.06 2.58 4.27
Pekanbaru 5.09 3.35 8.83 8.53 2.71 4.19 4.07
Dumai 3.09 3.21 8.60 8.53 2.63 3.98 4.85
Bungo n.a. n.a. n.a. 8.99 1.29 3.11 4.25
Jambi 2.76 4.22 8.74 8.72 1.37 4.54 2.68
Palembang 3.78 2.72 7.04 8.38 3.05 3.68 2.85
Lubuk Linggau n.a. n.a. n.a. 9.34 3.47 2.74 3.94
Bengkulu 3.96 4.61 9.94 10.85 3.25 5.00 3.56
Bandar Lampung 4.24 4.30 7.56 8.36 4.65 2.75 3.14
Metro n.a. n.a. n.a. 6.50 2.67 2.92 2.32
Tanjung Pandan n.a. n.a. n.a. 13.15 0.88 4.92 3.97
Pangkal Pinang 5.00 6.57 8.71 6.81 4.66 7.78 2.66
Batam 3.76 2.02 7.81 7.61 4.73 3.61 4.13
Tanjung Pinang 3.32 3.92 10.09 7.49 2.46 3.06 3.37
Jakarta 3.97 4.52 8.00 8.95 3.30 2.37 3.72
Bogor 2.85 4.06 8.55 6.83 2.70 3.60 4.59
Sukabumi 4.26 3.98 8.03 8.38 2.20 2.57 4.10
Bandung 2.75 4.02 7.97 7.75 3.93 2.93 3.46
Cirebon 3.20 3.36 7.86 7.08 1.56 1.87 4.36
Bekasi 3.45 3.46 9.46 7.68 2.22 2.47 3.01
Depok 2.94 4.11 10.97 7.49 1.87 2.60 3.93
Tasikmalaya 4.17 3.87 6.89 8.09 3.53 2.75 3.88
Cilacap n.a. n.a. n.a. 8.18 2.63 2.77 4.41
Purwokerto 3.40 4.73 8.50 7.09 2.52 2.42 3.91
Kudus n.a. n.a. n.a. 8.59 3.28 2.32 4.17
Surakarta 1.93 2.87 8.32 8.01 2.56 2.15 3.10
Semarang 2.87 4.85 8.19 8.52 2.56 2.32 3.64
Tegal 2.58 3.10 5.80 7.40 3.95 2.71 4.03
Yogyakarta 3.88 4.31 7.32 6.59 3.09 2.29 4.20
Jember 2.43 4.49 7.21 7.53 2.31 1.93 3.52
Banyuwangi n.a. n.a. n.a. 6.59 2.15 1.91 3.17
Sumenep 4.18 5.05 6.62 8.04 2.62 2.19 3.40
Kediri 3.62 4.63 8.05 7.49 1.71 1.30 3.44
Malang 4.05 4.60 7.92 8.14 3.32 2.62 3.75

Inflation in 82 cities - Continued
City 2011 1) 2012 1) 2013 1) 2014 2) 2015 2) 2016 2) 2017 2)
Probolinggo 3.78 5.88 7.98 6.79 2.11 1.53 3.18
Madiun 3.49 3.51 7.52 7.39 2.75 2.25 4.78
Surabaya 4.72 4.39 7.52 7.90 3.43 3.22 4.37
Serang 2.78 4.41 9.16 10.07 4.67 3.26 5.17
Tangerang 3.78 4.44 10.02 9.81 4.28 2.65 3.50
Cilegon 2.35 3.91 7.98 11.37 3.94 4.22 5.24
Singaraja n.a. n.a. n.a. 10.32 2.97 4.57 3.38
Denpasar 3.75 4.71 7.35 8.03 2.70 2.94 3.31
Mataram 6.38 4.10 9.27 7.18 3.25 2.47 3.59
Bima 7.19 3.61 10.42 7.37 4.11 3.11 4.08
Maumere 6.59 6.49 6.24 4.00 3.89 3.62 1.70
Kupang 4.32 5.10 8.84 8.32 5.07 2.31 2.05
Pontianak 4.91 6.62 9.48 9.38 6.17 3.88 3.86
Singkawang 6.72 4.21 6.15 9.65 4.00 2.58 5.23
Sampit 3.60 4.69 7.25 7.90 5.72 2.46 3.29
Palangkaraya 5.28 6.73 6.45 6.63 4.20 1.91 3.11
Tanjung n.a. n.a. n.a. 8.80 6.69 2.18 2.40
Banjarmasin 3.98 5.96 6.98 7.16 5.03 3.68 3.82
Balikpapan 6.45 6.41 8.56 7.43 6.26 4.13 2.45
Samarinda 6.23 4.81 10.37 6.74 4.24 2.83 3.69
Tarakan 6.43 5.99 10.35 11.91 3.42 4.31 2.77
Manado 0.67 6.04 8.12 9.67 5.56 0.35 2.44
Palu 4.47 5.87 7.57 8.85 4.17 1.49 4.33
Bulukumba n.a. n.a. n.a. 9.45 2.17 1.48 4.66
Watampone 3.94 3.65 6.86 8.22 0.97 1.50 5.54
Makassar 2.87 4.57 6.24 8.51 5.18 3.18 4.48
Parepare 1.60 3.49 6.31 9.38 1.58 2.11 3.43
Palopo 3.35 4.11 5.25 8.95 3.38 2.74 3.95
Kendari 5.09 5.25 5.92 7.40 1.64 3.07 2.96
Baubau n.a. n.a. n.a. 11.37 3.95 1.71 3.00
Gorontalo 4.08 5.31 5.84 6.14 4.30 1.30 4.34
Mamuju 4.91 3.28 5.91 7.88 5.07 2.23 3.79
Ambon 2.85 6.73 8.81 6.81 5.92 3.28 -0.05
Tual n.a. n.a. n.a. 11.48 8.58 2.97 9.41
Ternate 4.52 3.29 9.78 9.34 4.52 1.91 1.97
Manokwari 3.64 4.88 4.63 5.70 2.77 5.75 1.78
Sorong 0.90 5.12 7.93 6.84 6.17 2.95 1.33
Merauke n.a. n.a. n.a. 12.31 5.76 0.82 1.25
Jayapura 3.40 4.52 8.27 7.98 2.79 4.13 2.41
National Inflation 3.79 4.30 8.38 8.36 3.35 3.02 3.61

Notes:
1) CPI has been calculated from 66 cities using 2007 = 100 as base year
2) CPI has been calculated from 82 cities using 2012=100 as base year

Table 6. Indonesia’s Wholesale Price Index
Annual Annual Annual

Percentage Percentage Percentage
Items 2011 1) 2012 2013 2014 2) 2015 Changes 2016 Changes 2017 Changes
- 2015 to - 2016 to - 2017 to
2014 (%) 2015 (%) 2016 (%)
Agriculture 248.78 263.25 287.44 175.05 240.68 37.49 358.41 48.92 369.68 3.15
Mining and
221.50 231.20 239.05 117.22 119.87 2.26 118.43 -1.20 121.08 2.24
Quarrying
Manufacturing 180.32 187.48 194.09 122.83 128.89 4.93 133.92 3.90 138.65 3.53
Import 177.37 189.17 199.25 137.37 134.19 -2.32 128.10 -4.53 135.00 5.38
Export 154.11 163.15 168.71 138.73 130.46 -5.96 133.31 2.18 144.69 8.54
Oil and Gas 173.11 194.38 202.32 168.10 110.65 -34.18 94.42 -14.67 122.90 30.17
Non-Oil and
148.03 153.16 157.95 129.07 136.98 6.13 146.11 6.66 151.85 3.93
Gas
General Index 183.31 192.69 201.95 132.44 138.26 4.39 149.16 7.89 156.09 4.65
Notes:
1) 2011 data using 2010 = 100 as base year
2) Data from 2014 using 2012=100 as base year

Table 7. Indonesia’s Balance of Payments
USD million
2017
Items 2014 2015 2016
Q1* Q2* Q3* Q4** Total
I. Current Account -27,510 -17,519 -16,952 -2,178 -4,797 -4,557 -5,761 -17,293
A. Goods 1)
6,983 14,049 15,318 5,637 4,839 5,256 3,161 18,892
- Exports 175,293 149,124 144,470 40,764 39,170 43,393 45,561 168,887
- Imports -168,310 -135,076 -129,152 -35,127 -34,331 -38,137 -42,400 -149,995
1. General Merchandise 5,474 13,319 14,744 5,472 4,579 5,039 2,903 17,993
- Exports, fob. 173,760 147,725 143,105 40,439 38,814 42,825 44,928 167,006
- Imports, fob. -168,286 -134,406 -128,360 -34,967 -34,235 -37,785 -42,025 -149,013
a. Non-Oil and Gas 17,304 19,023 19,516 7,649 6,119 6,320 5,204 25,293
- Exports, fob 145,008 130,541 130,188 36,480 35,390 38,959 40,604 151,433
- Imports, fob -127,704 -111,518 -110,672 -28,831 -29,271 -32,639 -35,399 -126,140
b. Oil and Gas -11,830 -5,703 -4,772 -2,177 -1,540 -1,281 -2,301 -7,300
- Exports, fob 28,752 17,184 12,916 3,960 3,423 3,865 4,325 15,573
- Imports, fob -40,582 -22,887 -17,688 -6,137 -4,964 -5,146 -6,626 -22,873
2. Other Goods 1,509 730 574 165 260 216 258 899
- Exports, fob. 1,533 1,400 1,365 324 356 568 633 1,881
- Imports, fob. -24 -670 -792 -159 -96 -352 -375 -982
B. Services -10,010 -8,697 -7,084 -1,230 -2,246 -2,091 -2,296 -7,864
- Exports 23,531 22,221 23,324 5,825 5,553 6,521 6,769 24,668
- Imports -33,541 -30,918 -30,407 -7,055 -7,800 -8,611 -9,066 -32,532
C. Primary Income -29,703 -28,379 -29,647 -7,723 -8,390 -8,904 -7,821 -32,838
- Receipts 2,130 2,822 4,048 1,599 1,634 1,520 1,688 6,441
- Payments -31,832 -31,201 -33,695 -9,322 -10,024 -10,424 -9,509 -39,279
D. Pendapatan Sekunder 5,220 5,508 4,460 1,138 1,001 1,182 1,196 4,517
- Receipts 9,374 10,362 9,832 2,356 2,498 2,555 2,601 10,010
- Payments -4,154 -4,853 -5,371 -1,217 -1,497 -1,374 -1,405 -5,493
II. Capital Account 27 17 41 0 5 19 22 46
- Receipts 27 17 41 0 5 19 22 46
- Payments 0 0 0 0 0 0 0 0
III. Financial Account 2)

44,916 16,843 29,306 6,933 5,608 10,770 6,523 29,834
- Assets -10,786 -21,489 15,920 -4,273 -8,063 -3,965 -1,696 -17,998
- Liabilities 55,702 38,332 13,386 11,206 13,671 14,735 8,219 47,832
1. Direct Investment 14,733 10,704 16,136 2,924 4,553 8,069 4,605 20,151
a. Assets -10,388 -9,075 11,594 -395 -112 -933 -486 -1,927
b. Liabilities 25,121 19,779 4,542 3,319 4,665 9,003 5,092 22,078
2. Portfolio Investment 26,067 16,183 18,996 6,572 8,133 4,069 1,887 20,662
a. Assets 2,587 -1,268 2,218 -983 -216 -693 -1,379 -3,270
b. Liabilities 23,480 17,451 16,778 7,555 8,349 4,762 3,266 23,932
- Public Sector 15,380 17,386 16,835 6,437 4,530 6,107 4,804 21,877
- Private Sector 8,100 65 -57 1,119 3,820 -1,345 -1,538 2,055
3. Financial Derivatives -156 20 -9 -72 25 -12 -69 -128

Indonesia’s Balance of Payments - Continued
2017
Items 2014 2015 2016
Q1* Q2* Q3* Q4** Total
4. Other Investment 4,272 -10,064 -5,817 -2,491 -7,103 -1,356 99 -10,851
a. Assets -3,427 -11,812 1,499 -3,080 -7,858 -2,428 124 -13,242
b. Liabilities 7,699 1,748 -7,316 589 755 1,071 -25 2,391
- Public Sector -4,209 -190 -2,369 121 -923 48 -597 -1,353
- Private Sector 11,907 1,938 -4,947 468 1,679 1,024 573 3,744
IV. Total (I + II + III) 17,433 -659 12,394 4,755 816 6,232 785 12,588
V. Net Error and Omissions -2,184 -439 -305 -241 -77 -873 189 -1,002
VI. Overall Balance (IV + V) 15,249 -1,098 12,089 4,514 739 5,359 974 11,586
VII. Reserves and Related Items 3) -15,249 1,098 -12,089 -4,514 -739 -5,359 -974 -11,586
A. Reserve Asset Transactions -15,249 1,098 -12,089 -4,514 -739 -5,359 -974 -11,586
B. Credit and Loans with IMF 0 0 0 0 0 0 0 0
C. Exceptional Financing 0 0 0 0 0 0 0 0
Memorandum:
- Reserve Assets Position 111,862 105,931 116,362 121,806 123,094 129,402 130,196 130,196
In Months of Imports & Official Debt
6.4 7.4 8.4 8.6 8.6 8.6 8.3 8.3
Repayment
- Current Account (% GDP) -3.09 -2.03 -1.82 -0.90 -1.90 -1.73 -2.2 -1.7
Notes:
1) free on board (fob).
2) Excluding foreign reserve and related.
3) Negative figure is surplus and positive figure is deficit.

Table 8. Interest Rate on Time Deposits in Rupiah and Foreign Currency by Group of Banks 1)
Percent
December 2012 December 2013 December 2014 December 2015 December 2016 December 2017
Maturity Foreign Foreign Foreign Foreign Foreign Foreign
Rupiah Rupiah Rupiah Rupiah Rupiah Rupiah
Currency Currency Currency Currency Currency Currency
State Banks
1 month 5.22 0.95 7.15 1.11 8.12 1.81 7.14 0.73 6.15 1.03 5.58 1.30
3 months 5.54 1.11 7.60 1.38 8.73 1.61 7.25 0.73 6.35 1.01 5.85 1.81
6 months 5.58 1.98 6.84 1.37 8.83 1.99 7.56 1.21 6.61 1.17 6.20 1.90
12 months 5.91 1.66 6.88 1.69 8.80 1.75 7.87 1.43 6.83 0.79 5.98 1.22
24 months 5.87 1.23 8.19 0.94 9.34 0.65 9.09 1.85 7.33 1.80 6.73 0.39
Private National
Banks
1 month 5.96 2.06 8.53 2.48 9.04 2.34 7.89 1.23 6.69 0.94 5.86 1.10
3 months 5.81 2.14 7.53 2.51 9.11 2.53 8.35 1.36 6.85 1.22 6.20 1.46
6 months 6.18 2.40 7.61 2.64 9.54 2.59 8.84 1.68 7.25 1.25 6.75 1.61
12 months 5.82 2.47 6.79 2.39 8.58 2.52 8.36 1.64 7.17 1.03 6.65 1.26
24 months 4.23 2.63 7.43 3.28 7.33 2.67 9.09 2.52 7.62 2.62 6.71 1.48
Regional
Government Banks
1 month 5.92 2.03 7.55 2.60 8.05 2.76 7.81 1.42 7.27 2.53 6.53 1.64
3 months 6.69 2.48 8.41 2.82 9.03 2.64 8.26 1.11 7.45 2.13 7.07 1.34
6 months 6.60 1.55 7.81 1.45 9.35 1.09 8.42 1.10 7.82 0.81 7.26 0.97
12 months 7.08 1.04 7.32 1.80 9.10 1.52 9.21 0.62 8.38 1.56 7.85 1.04
24 months 6.65 1.20 7.44 1.15 7.70 1.04 7.68 0.53 7.85 0.50 6.84 0.71
Foreign and Joint

Banks
1 month 4.61 1.51 7.51 1.67 7.51 1.37 7.36 0.60 5.51 0.64 5.30 1.07
3 months 5.54 1.90 7.98 1.52 8.57 1.41 8.11 0.78 6.47 0.77 5.92 1.15
6 months 6.04 2.04 8.17 2.02 9.23 1.52 8.71 0.96 6.80 0.94 6.33 1.38
12 months 6.19 1.86 6.90 2.42 9.50 2.40 8.86 1.37 7.20 1.10 6.44 1.50
24 months 6.20 0.92 9.18 1.46 10.01 1.40 9.62 1.74 8.39 0.44 5.93 1.50
Commercial Banks
1 month 5.58 1.48 7.92 1.80 8.58 2.00 7.60 1.00 6.46 0.97 5.81 1.17
3 months 5.76 1.86 7.61 2.07 8.94 2.18 7.99 1.13 6.69 1.11 6.11 1.55
6 months 6.05 2.20 7.49 2.10 9.30 2.23 8.54 1.38 7.11 1.18 6.61 1.71
12 months 6.09 2.09 6.89 2.14 8.79 2.25 8.47 1.54 7.31 0.94 6.80 1.26
24 months 5.47 1.63 8.17 2.01 9.26 1.96 9.07 2.22 7.38 2.16 6.73 1.32
Notes:
1) Weighted average at end of period

Table 9. Interest Rates of Credit on Rupiah (IDR) by Group of Banks 1)
Percent
Regional Government
State Banks Private National Bank Foreign and Joint Banks Commercial Bank
End of Banks
Period Working Working Working Working Working
Investment Investment Investment Investment Investment
Capital Capital Capital Capital Capital
2009 13.63 12.56 13.91 12.54 14.09 13.51 11.73 12.22 13.69 12.96
2010 13.06 10.81 13.57 12.44 13.02 13.20 10.23 11.82 12.83 12.28
2011 12.37 10.39 13.52 12.40 12.34 12.64 8.71 14.89 12.16 12.04
2012 11.70 10.08 13.66 12.25 11.68 11.88 7.90 9.47 11.49 11.27
2013 11.94 10.84 13.37 12.23 12.55 12.51 9.84 10.71 12.12 11.82
2014
March 12.09 10.98 13.36 12.23 12.87 12.72 10.20 10.97 12.37 12.00
June 12.26 11.20 13.24 12.21 13.29 13.02 10.27 11.00 12.63 12.24
September 12.44 11.44 13.24 12.23 13.43 13.08 10.44 10.94 12.78 12.34
December 12.50 11.47 13.63 12.38 13.36 13.11 10.49 10.93 12.79 12.36
2015
January 12.52 11.47 13.56 12.25 13.31 13.02 10.39 10.59 12.76 12.29
February 12.55 11.45 13.38 12.13 13.29 13.03 10.26 10.51 12.74 12.27
March 12.65 11.49 13.71 12.37 13.36 13.06 10.26 10.47 12.82 12.32
April 12.64 11.45 13.71 12.36 13.25 13.06 10.23 10.77 12.75 12.32
May 12.61 11.45 13.72 12.38 13.20 13.02 10.21 10.75 12.72 12.30
June 12.60 11.46 13.74 12.39 13.17 13.02 10.18 10.60 12.70 12.29
July 12.54 11.46 13.56 12.18 13.14 12.98 10.28 10.68 12.65 12.26
August 12.59 11.45 13.47 12.45 13.03 12.87 10.30 10.67 12.63 12.21
September 12.48 11.44 13.47 12.52 13.00 12.83 10.51 10.78 12.58 12.19
October 12.43 11.42 13.45 12.25 12.98 12.85 10.72 10.95 12.58 12.19
November 12.36 11.40 13.66 12.44 12.92 12.77 10.79 11.13 12.55 12.14
December 12.30 11.35 13.50 12.19 12.82 12.77 10.79 11.25 12.46 12.12
2016
January 12.26 11.34 13.46 12.18 12.88 12.48 10.71 11.25 12.46 11.96
February 12.16 11.27 13.22 12.17 12.88 12.49 10.51 11.12 12.40 11.93
March 12.05 11.18 13.14 12.16 12.81 12.40 10.06 10.83 12.28 11.83
April 11.83 11.04 13.12 12.09 12.73 12.32 9.90 10.52 12.14 11.71
May 11.68 10.99 12.62 11.81 12.58 12.18 9.75 10.34 11.97 11.60
June 11.52 10.89 12.80 11.77 12.43 12.08 9.64 10.28 11.82 11.49
July 11.44 10.84 12.78 11.63 12.40 12.04 9.61 10.35 11.78 11.45
August 11.36 10.81 12.75 11.61 12.38 12.02 9.44 10.37 11.73 11.42
September 11.19 10.72 12.76 11.76 12.31 11.97 9.35 10.29 11.61 11.36
October 11.15 10.71 12.69 11.60 12.31 11.98 9.27 10.16 11.59 11.34
November 11.09 10.63 12.65 11.42 12.22 12.05 9.21 10.12 11.52 11.33
December 10.83 10.42 12.59 11.49 12.10 11.94 9.22 10.32 11.35 11.20

Interest Rates of Credit on Rupiah (IDR) by Group of Banks 1) - Continued
Regional Government
State Banks Private National Bank Foreign and Joint Banks Commercial Bank
End of Banks
Period Working Working Working Working Working
Investment Investment Investment Investment Investment
Capital Capital Capital Capital Capital
2017
January 10.89 10.45 12.48 11.46 12.07 11.88 9.04 10.03 11.34 11.17
February 10.86 10.40 12.32 11.48 11.96 11.78 8.95 9.91 11.26 11.10
March 10.78 10.36 12.17 11.47 11.91 11.74 8.88 9.83 11.19 11.05
April 10.89 10.55 12.14 11.42 11.82 11.65 8.74 9.82 11.20 11.10
May 10.87 10.48 12.32 10.43 11.73 11.52 8.66 9.85 11.15 10.96
June 10.81 10.48 11.97 10.51 11.70 11.58 8.77 9.91 11.12 11.00
July 10.82 10.46 12.00 11.35 11.60 11.48 8.61 9.87 11.07 10.97
August 10.81 10.45 12.02 11.31 11.62 11.37 8.48 9.82 11.07 10.91
September 10.77 10.42 12.11 11.63 11.50 11.23 8.27 9.50 10.99 10.83
October 10.76 10.38 12.00 11.54 11.44 11.20 8.05 9.12 10.94 10.78
November 10.69 10.34 11.95 11.50 11.34 11.03 7.97 8.95 10.87 10.66
December 10.54 10.29 11.74 11.39 11.12 10.89 7.83 8.84 10.68 10.56
Notes:
1) Weighted average

Table 10. Flow of Bank Notes within Bank Indonesia Head Office and Regional Offices
Rp billion
2012 2013 2014 2015 2016 2017

Office
In Out In Out In Out In Out In Out In Out
Sumatra
65,910.6 85,234.6 74,281.8 97,846.7 86,023.1 102,338.2 86,497.0 109,185.1 97,763.5 121,991.7 103,747.8 133,605.7
Region
Nanggroe
Aceh 2,619.6 6,378.0 4,035.8 8,242.4 4,567.0 8,632.4 4,709.8 9,636.6 5,774.9 11,310.6 5,514.2 11,760.2
Darussalam
North
25,980.6 22,494.6 26,674.6 22,284.0 30,499.9 26,389.3 30,253.6 27,877.1 34,426.9 31,958.8 35,616.7 35,243.2
Sumatra
West
11,192.1 6,434.3 13,151.6 7,204.7 14,102.9 7,060.0 13,308.8 7,470.7 14,078.2 9,197.8 15,311.8 10,754.5
Sumatra
Riau 4,447.3 13,013.8 6,286.8 15,974.0 6,356.3 15,157.5 7,156.5 15,788.6 8,210.9 17,645.0 8,553.4 18,127.7
Riau Islands 2,236.0 6,965.6 2,295.2 9,257.9 2,563.0 10,231.5 3,217.7 9,802.5 4,316.5 10,067.6 4,411.6 10,749.5
Jambi 2,138.5 5,013.2 3,864.9 8,018.7 5,169.1 8,379.3 4,978.1 8,324.5 4,398.2 7,774.0 4,403.6 8,433.9
South
9,126.0 15,600.1 8,056.5 14,350.6 10,039.8 13,262.9 10,797.2 13,483.7 12,751.7 15,755.9 13,075.3 16,981.1
Sumatra
Bengkulu 1,201.3 2,959.3 2,642.0 4,262.8 3,261.5 4,561.9 2,791.3 4,851.5 2,888.9 5,162.7 3,619.6 5,446.7
Lampung 6,969.2 6,375.6 7,274.3 8,251.6 9,450.1 8,341.1 8,107.5 9,945.2 9,373.1 10,435.5 12,078.1 13,358.8
Bangka
13.7 322.1 1,176.6 2,004.8 1,544.2 2,683.8 1,163.5 2,750.1
Belitung
Special
Capital
76,664.9 136,466.6 84,525.8 149,240.8 92,103.0 152,275.9 100,424.8 163,749.4 115,684.4 170,613.7 112,213.5 181,552.7
Region -
Jakarta
Java's
Region
160,482.3 111,362.6 200,722.0 137,567.4 217,301.9 147,069.0 230,140.4 171,567.5 261,606.6 190,567.8 277,608.8 228,904.7
(excluding
Jakarta)
West Java 60,629.0 28,894.9 72,420.8 35,821.4 78,660.2 40,856.6 81,302.7 47,062.7 88,036.1 49,404.8 83,220.3 53,824.7
Banten 1,494.6 2,113.4
Central
43,298.1 28,492.9 57,317.7 37,673.4 60,475.4 39,110.2 65,198.1 46,840.5 72,781.7 53,659.3 77,030.6 62,760.7
Java
Special
Region - 9,172.7 9,486.0 13,984.1 12,072.6 13,890.7 13,171.1 14,831.2 14,079.7 17,350.1 13,012.8 17,483.1 16,810.0
Yogyakarta
East Java 47,382.5 44,488.8 56,999.4 52,000.1 64,275.6 53,931.2 68,808.4 63,584.7 83,438.7 74,490.8 98,380.1 93,395.9
Eastern
Indonesia 63,198.8 96,487.6 77,347.9 105,352.5 88,792.6 110,393.6 92,694.7 121,178.9 109,548.7 127,264.8 106,315.4 139,354.0
Region
Bali 8,202.5 10,781.8 10,433.2 13,145.0 11,599.9 13,103.6 13,071.7 14,470.6 17,913.7 18,139.6 16,962.1 17,821.7
West Nusa
3,675.7 4,379.1 4,516.4 5,179.4 5,694.4 5,619.5 6,285.0 6,727.9 8,841.7 8,149.2 8,383.5 8,769.9
Tenggara
East Nusa
2,735.0 4,259.6 3,168.8 4,708.7 3,512.4 4,663.1 3,651.2 5,529.6 4,210.0 5,652.3 5,451.6 7,568.6
Tenggara
West
3,385.7 5,698.1 4,029.1 6,011.1 5,942.5 6,735.8 6,675.5 8,485.6 7,439.8 9,402.2 7,774.8 11,132.3
Kalimantan
Central
1,134.8 7,740.6 1,896.7 8,031.5 1,887.4 8,309.8 3,546.9 10,190.2 3,694.3 10,131.2 3,655.2 11,695.4
Kalimantan
South
7,311.0 5,579.8 8,471.1 6,419.1 9,613.8 6,264.8 9,558.4 6,754.6 10,809.5 7,424.3 12,415.4 9,544.3
Kalimantan
East
5,743.2 14,425.7 7,542.2 17,550.8 8,935.6 17,425.6 9,646.0 16,514.4 10,903.2 15,221.2 7,546.6 16,524.6
Kalimantan
North
6,634.6 6,375.0 7,436.4 4,738.8 7,374.5 7,207.1 6,286.3 7,202.2 7,265.6 7,707.4 7,044.3 8,420.9
Sulawesi
Central
1,884.8 4,457.9 2,585.6 5,045.5 3,000.1 5,731.1 2,593.3 5,309.8 2,665.3 4,962.4 2,806.4 5,226.5
Sulawesi

Flow of Bank Notes within Bank Indonesia Head Office and Regional Offices - Continued
2012 2013 2014 2015 2016 2017

Office
In Out In Out In Out In Out In Out In Out
South
13,701.5 11,872.6 16,805.3 14,149.9 19,384.3 15,645.6 19,583.1 16,235.7 21,043.3 15,493.6 18,803.1 15,158.8
Sulawesi
South-East
963.6 2,950.2 1,392.7 3,511.4 2,255.7 3,537.5 2,384.8 4,715.8 3,490.9 4,488.0 3,617.8 5,292.8
Sulawesi
West
536.1 1,514.0 745.6 2,503.8
Sulawesi
North
632.6 1,677.2 895.9 2,016.6 1,005.8 1,815.6 1,006.5 2,397.0 1,259.1 2,246.5 1,338.5 2,752.2
Maluku
Maluku 1,147.1 2,689.7 1,388.7 2,716.3 1,781.0 2,865.8 1,789.5 3,123.3 2,367.2 3,309.1 2,484.3 3,671.2
Papua 6,046.8 13,600.2 6,785.9 12,128.3 6,793.7 11,298.5 6,099.0 11,623.5 6,291.4 11,500.0 6,353.0 10,650.3
West Papua 11.7 170.1 517.5 1,898.6 817.7 1,923.8 933.3 2,620.7
Jumlah 4.99% 5.17% 10.38% 10.46% 1.02 1.03 1.42 1.42 1.98 1.97 -1.43% 10.39%
Notes: Bangka Belitung and West Papua Offices begin its activity on year 2014.

Glossary
Term Description
Acquirer Banks or non-bank institutions that cooperating with merchants to process electronic money data issued by other parties.
Administered Prices Inflation of goods and services predominantly influenced or regulated by government policy
Advanced Economy (AE) Group of developed countries, among others, reflected by the GDP and the high level of industrialization
Aging Population Increasing median age in the population of a region due to declining fertility rates and/or rising life expectancy
Currency Appreciation Strengthening of the domestic currency exchange rate (the rupiah for Indonesia) against foreign currency.
Balance sheet reduction The policy of the Fed to reduce the Fed's ownership of securities instruments.
Systemically important bank Banks that have significant impact on the domestic financial system
Basel III Principles The regulatory framework of the banking sector issued by the Basel Committee on Banking Supervision.
The consequences of the abnormally (either high or low) from previous period, thus affecting the growth rate in the
Base effect
current period
The difference between the highest price buyers want to pay for an asset and the lowest price the seller wants to
Bid-ask spread
receive.
BI-7DRR The policy rate reflecting the monetary policy stance adopted by Bank Indonesia
A market access scheme that allows investors in mainland China and abroad to trade in each other's obligations
Bond connect
market.
Brexit Stand for British Exit; a commonly used term for the United Kingdom's withdrawal from the European Union (EU)
BUKU Grouping of banks in Indonesia based on banks’ core capital

The combination of buy and sell call option is done simultaneously in one contract with the same nominal but with
Call spread option
different strike price.
Capital flows The movement of capital funds can be either inflow to the country or outflow from the country
Policy for replacement of damaged or soiled currency with currency fit for circulation in order to improve the quality
Clean money policy
standard of currency in circulation
Compact With Africa Framework to encourage private investment and infrastructure provision in Africa.
Consumption smoothing Tendency of consumer to have stable path of consumption over time
Core flexible price The core commodities in the CPI basket that have a higher frequency of price changes.
The core commodities in the CPI basket that are historically experiencing minimal price changes along with periodic
Core sticky price
price adjustments and not in high frequency.
Cost-push inflation Inflation caused by a substantial increase in cost or input production of goods or services.
Counter cyclical Movement in the opposite direction of the economic cycle.

Counter cyclical capital buffer A policy aimed at preventing the occurrence of systemic risk due to periods of excessive channeling of loans through the
(CCB) establishment of additional capital for bank
Affirmation-Special Allocation Special Allocation Fund/DAK directed to finance the acceleration of infrastructure and infrastructure provision in the
Fund/DAK areas of underdeveloped regions, borders, islands and transmigration.
Physical - Special Allocation
State budget/APBN allocated to local governments with the aim of assisting in funding physical development activities.
Fund/DAK
Non-Physical - Special State budget/APBN allocated to local governments with the aim of assisting in funding activities other than physical
Allocation Fund/DAK development activities.
State budget/APBN devoted to Indigenous Villages and Villages are transferred through the Regency / Municipal
Village Fund
Revenue and Expenditure Budget and are used to finance governance, development, and community empowerment.
State budget/APBN allocated to regions (autonomous) to fund regional needs in the context of decentralization
Balancing Fund
implementation.
Deflation General decline in prices of goods and services
Deleveraging The action of a country to reduce its debt in large quantities in order to promote its economic growth.
Demonetization Removal or recall of monetary standard functions and means of payment.
Deposit Facility Placement of rupiah funds (overnight) by banks at Bank Indonesia
Time deposit Deposit product with a predetermined withdrawal period, based on an agreement between the bank and the customer.
Currency Depreciation Weakening of the domestic currency exchange rate (the rupiah for Indonesia) against foreign currency.
Durable Goods Commodities in the CPI basket that are durable.
Divestment Reduction on a company's capital.

Term Description
Double Swipe A transaction/payment by double scraping the card
e-Commerce Online trading

El Nino is a warm phase and La Nina is a cool phase of a recurring seasonal pattern in the Pasific tropics. El Nino and
El Nino and La Nina
La Nina caused changes in global temperature and precipitation.
Group of nations with rapidly growing economies, reflected among others in their financial markets development and
Emerging Market (EM)
industrialization
Companies, both private and state-owned, seek capital from the stock exchange by issuing securities (stocks, bonds,
Issuer
rights issue, warrant, etc).
Exchange Rate Pass Through Impact of Rupiah exchange rate to inflation
Financial Inclusion Provision of affordable financial services access for all segments in society.
Used to determine the change in government spending or tax policy increases or decreases the gross domestic product
Fiscal Multiplier
(GDP)
Forward Sales contract to buy or sell the asset at a certain price in the future (future date).
Poverty Line Amount of minimum spending to fulfill basic needs for food and non-food.
Generations who were born in the early 1980s to early 2000s, in general this generation is more intensive in using
Gen-Y or Millenials
digital technology and internet.
Geopolitics Political condition affected by geographical conditions
Deposits in banks which the withdrawals may be made at any time by using checks or other payment orders or by
Demand Deposit
book-entry.
Reserve Requirement Funds or minimum deposits that must be maintained by banks in demand deposit placed at Bank Indonesia.
Minimum deposit in Rupiah that must be maintained by the Bank in a Demand Deposit Account balance at Bank
Reserve Requirement Loan to
Indonesia by certain percentage of Deposits calculated based on the difference between the LFR owned by the Bank
Funding Ratio
and the target LFR.
Hedging Transactions in a way or technique to reduce the risks which arise or expected to arise due to price fluctuations
Hedging
in financial markets.
Imported inflation Inflation caused by rising prices of imported goods.
Indonesia Export Commodity
Composite index of Indonesia's export prices which consists of commodities with the largest export value.
Price Index
Poverty Depth Index The average measurement of the spending disparity of each poor people to the poverty line.
Poverty Severity index Measurement of expenditure spread among the poor people.
The measurement of output from the industrial sector in the economy. Industrial sectors include manufacturing, mining
Production Index
and equipment.
Component of inflation which is likely to be persistent in the inflation movement and influenced by fundamental factors
Core Inflation such as demand-supply interactions, exchange rates, international commodity prices, trading partner inflation and
Inflation Expectations.
Integrated cash register link EDC connected to the cash register.
Investment grade Investment grade rating

Standby money supply in order to anticipate the force majeur conditions, such as natural disasters, bank rush, and other
Iron Stock Nasional
unpredictable conditions that resulted in increasing demand for money.
Provision of rupiah money owned by Bank Indonesia deposited to a bank (bank manager) to cover the cash reserves of
Cash Custodian
banks (bank participant) in order to meet the society needs in a particular region / region.
Implementation of Prudential Non-bank corporate activities which is carried out in order to mitigate exchange rate risk, liquidity risk, and
Principles (KPPK) overleverage of foreign debt.
Primary Balance Total revenue minus total expenditures by expelling interest payment components.
Financial Inclusion Financial services deepening for low income people to be able for benefiting formal financial products.
The measurement to show inflation deviation of major volatile food among regions towards the national volatile food
Diversity Coefficient
commodity inflation.
All remuneration paid by the company as a return to the employee (including salary, bonus, overtime, and social
Compensation per worker
security net costs)divided by the number of workers.
Nonprofits institution which is in charge for making, developing and managing standards to ensure interconnection and
Standard Institution
interoperability of payment instruments, payment channels and switching and security.
Nonprofits institution which responsible for maintaining transaction security, customer protection, optimal operational
Services Institution
services, handling transaction disputes for consumer protection, and developing acceptance expansions.
Switching Institution Institutions assigned to process payment transactions data domestically
Lending Facility Financial services deepening for low income people to be able for benefiting formal financial products.

Term Description
Volume of oil taken from the storage tank, transported by tanker or via pipeline, and sold to buyers. In other words, oil
Lifting
lifting is the production of ready-to-sell oil.
Liquidity The ability of a company to pay its short-term liabilities.
Financial Literacy Knowledge of financial management.
M1 Narrowed money (currency and demand deposit).
M2 Broad money (currency, demand deposit and deposit).
Macroprudential A financial regulatory approach aimed in mitigating the financial system risk as a whole.
Medium term budgetary Balanced budget target set by the European Commission specifically to the member states of the European Union to
objective ensure sound and sustainable fiscal policy.
Merchant Discount Rate Tariff charged on merchant / merchant by bank.
Metode Markov Switching The method used to model time series data on the economic and financial variables undergoing changing conditions.
Technological method in cultivation of rice plants with the number of seedlings 20 to 30 seedlings and planting
Hazton Method
seedlings age old enough about 30-35 days.
Prudential associated with the financial institution management individually in order not to endanger the sustainability of
Microprudential
its business.
Money Supply The total amount of money in the society and circulating in the economy.
Multiplier Tools to improve the multiplier effect for a thing / policy.
Current account balance Part of balance of payments that records a nation’s flow of goods and services
Non-durable goods See definition of durable goods.
Non-tradable See definition of tradable.
Offshore Foreign exchange transactions conducted outside the territory of the country that issues the currency
Off-balance sheet Financing techniques that make assets or debt not recorded in the balance sheet.
Onshore Foreign exchange transactions conducted within the territory of the country that issues the currency
Options An agreement that gives the buyer the option to purchase or sell the contract at a specified price in the future.
Output gap The difference between actual GDP and potential GDP
Peer countries Group of countries with similar characteristics
Tax amnesty Tax abolition for taxpayers who do not meet the obligation to pay taxes in exchange for paying taxes at a lower rate
Index obtained based on survey results to sample corporations in the manufacturing industry sector from the purchasing
Purchasing Manager Index managers side to predict future conditions for economic growth. PMI above 50 indicates improvement, while PMI below
50 indicates deterioration.
Policy for loosening or augmenting the monetary stimulus by the central bank by purchasing financial assets in a certain
Quantitative Easing
volume from commercial banks or other private institutions.
Quasi-fiscal Fiscal activities but carried out outside the government budget.
Gini Ratio Coefficient that measures the degree of inequality income distribution in society.
Refinancing Replace a loan with another loan.

one of the factors that motivate investors to invest and also rewarding an investor’s courage in assuming the risks of his
Return
investment.
Reverse Repo Transaction for purchase of securities with a commitment to resell at an agreed term and price.
Second round effect Impact of propagation.
Shadow banking Non-bank financial institutions that perform like banking functions.
Smelter Mineral processing and refining plant
Soil Level Rate / standard money riots.
Solvability The ability of the company to pay all its obligations.
Spot Forex transactions with settlement on the same day or maximum within two days.
The bank's obligation to provide current assets in the form of money, gold, or securities recognized by the Central Bank
Statutory Liquidity Ratio
amounting to a certain percentage of its liabilities.
The government's fiscal policy aimed at encouraging aggregate demand is further expected to impact on short-term
Fiscal Stimulus
economic activity
Cross-border investment channel which connecting Shanghai Stock Exchange and Hong Kong Stock Exchange. In that
Stock connect
program, investors in each market can trade stocks in other markets using local brokers and clearing at home.

Term Description
Form of financial assistance paid by the government to producers, distributors, consumers and the public in defined
Subsidy
areas.
Rice Subsidy Social assistance paid by the Government in the form of rice.
Sukuk A long-term securities based on sharia principles issued to issuers of sharia bonds.
Surveillance Observation or monitoring activities, behaviour or other changes information of a target

A transaction / contract to buy or sell foreign currency against another (foreign) currency on a particular currency date
Swap at the same time an agreement to sell or repurchase at a different currency date in the future, at a price specified on the
contract date. Both transactions are executed at once and with the same counterparty.
Financial Technology/Fintech Innovation that combines the functions of Finance (Financial) with Technology.
An amount of funds placed at a bank or other financial institution for a minimum term before it may be withdrawn
Term Deposit
without incurring a penalty. Also referred to as time deposit.
Terminal Usage Fee Costs incurred by the issuer to the infrastructure provider for terminal usage.
Total Loss Absorbing Capacity
The minimum standard of the bank's ability to absorb potential losses incurred by the Financial Stability Board (FSB).
Standard
Tradable Economic sectors whose output can be traded internationally, for example the manufacturing sector
Electronic Money
Payment instruments issued on the basis of the value of money that has been deposited in advance.
(e-Money)
Money fit for Circulation (ULE) Original rupiah that meets the requirements to be circulated based on quality standards determined by Bank Indonesia.
Undisbursed loan Credit increase approved by banks but not used.

The concept of transferring conventional agriculture to urban agriculture. Urban farming becomes an urban lifestyle
Urban Farming
because the increase of awareness to lead a healthy lifestyle.
Inflation consisting of food commodities (not processed) and their changes are susceptible to seasonal and shock factors
Volatile food
such as crop failure due to natural disturbance and disease and it is affecting prices.
Volatility Index an index that reflects expectations of S&P 500 stock market volatility.
Yield Income or profit or return that will be obtained from investment

Abbreviations
Abbreviations Description Abbreviations Description
ACCD Appointed Cross Currency Dealers BI-SCN BI-SSSS Central Node
ADB Asian Development Bank BI-SPP BI-SSSS Participant Platform
ADDI Indonesian Meat Distributor Association BI-SSSS Bank Indonesia Scripless Securities Settlement System
AE Advanced Economies BI Rate Bank Indonesia Rate
AEC ASEAN Economic Community BI-7DRR Bank Indonesia 7 Days Reverse Repo
AEoI Automatic Exchange of Information BKPM Investment Coordinating Board
AFLN Financial Asset Abroad BLU Public Service Agency
AFSBI Bank Indonesia Strategic Function Architecture BNN National Anti-Narcotics Agency
AIMMI Indonesian Oleofood Industry Association BOPO Operating Expenses to Operating Revenues
AL/DPK Liquid Assets to Deposits Coordinating Agency for Eradication of Counterfeit

Botasupal
Money
AL/NCD Liquid Assets to Non-Core Deposit
BoJ Bank of Japan
AMRO ASEAN+3 Macroeconomic Research Office
BoK Bank of Korea
AP Administered Prices
BOS Operational Aid to School Program
APBD Regional Government Budget
BPD Regional Development Bank
APBN State budget
BPHTB Acquisition of Land and Building Rights
APBN-P Revised State Budget
BPS Statistics Indonesia
APEC Asia Pasific Economic Cooperation
Brexit British Exit
APG Asia Pacific Group on Money Laundering
BPNT Non-Cash Food Assistance
APIK Application of Financial Information Recording
BSA Bilateral Swap Arrangement
APMK Card Payment Instrument
BUJP Security Services Enterprise
APPSI All-Indonesia Market Traders Association
BUK Conventional Bank
APRINDO Indonesian Retail Association
BUKU Commercial Banks by Group of Operations
Anti Money Laundering and Combating Financing of
APU-PPT Bulog National logistics Agency
Terrorism
AS United States BUMD Municipal Enterprise
ASA ASEAN Swap Arrangement BUMN State Owned Enterprise
ASPI Indonesian Payment System Association BUS Sharia Based Commercial Bank
Asset TO Asset Turn Over BWI Indonesian Waqf Board
ASEAN Association of South-East Asian Nations CAR Capital Adequacy Ratio
ATM Automated Teller Machine CCAF Counter Cyclical Adjustment Factor
Balinusra Bali and Nusa Tenggara CCB Countercyclical Capital Buffer
BankIR Bank Industry Rating CCNP Centralized Cash Network Planning
Bansos Social Assistance CCP Central Counterparty
Bappebti Commodity Futures Trading Regulatory Agency CDM Cash Deposit Machine
BAZNAS National Amil Zakat Body CDS Credit Default Swap
BBM Oil Based Fuel CeBM Central Bank Money
BCSA Bilateral Currency Swap Arrangement CEPA Comprehensive Economic Partnership Agreement
BEI Indonesia Stock Exchange CF Consensus Forecast
Bekraf Indonesian Creative Economy Agency CFETS China Foreign Exchange Trade System
BFC Financial Club of Indonesian Creative Economy Agency CFM Capital Flows Management Measures
BI-RTGS Bank Indonesia – Real Time Gross Settlement CHT Tobacco Excise Tax
BIS Bank for International Settlements CMA Central Moving Average

CMIM Chiang Mai Initiative Multilateralization FCF Free Cash Flow
CMP Crisis Management Protokol FFR Federal Funds Rate
CMS Cash Management System FinTech Financial Technology
CNH Chinese Yuan Offshore Coordination Forum for Development Financing through
FK-PPPK
Financial Markets
CNY China Yuan Renminbi
FKSSK Financial System Stability Coordination Forum
CPI Consumer Price Index
FLI Intraday Liquidity Facility
CPO Crude Palm Oil
FRN Floating Rate Notes
CRM Cash Recyling Machine
FSB Financial Stability Board
Central Securities Depository/Securities Settlement
CSD/SSS FSPI Indonesian Forum of Transaction System
System
CSO Call-Spread Option FRT Fixed Rate Tender
CWA Compact With Africa FTA Free Trade Agreement
DAU General Allocation Funds FTV Financing to Value
DAK Special Allocation Funds GFC Global Financial Crisis
Daring Online GFSN Global Financial Safety Net
DBH Revenue Sharing Funds GIMNI Indonesian Vegetable Oil Industry Association
DER Debt to Equity Ratio GIRU Global Investor Relation Unit
DF Deposit Facility GK Poverty Line
DI Direct Investment GMRA Global Master Repurchase Agreement
DIRE Real Estate Investment Funds GNNT National Non-Cash Movement
DPK Deposits GPN National Payment Gateway
DSGE Dynamic Stochastic General Equilibrium GS Growth Strategy
DSR Debt Service Ratio GST Goods and Services Tax
DTU General Funds Transfer GWM Reserve Requirement
DXY Dollar Index Spot GWM LFR Reserve Requirement based on Loan to Funding Ratio
Electronic Billing and Invoicing Presentment and G2P Government to Person
EBIPP
Payment
HBKN National Religious Day
ECB European Central Bank
HET Highest retail price
EDC Electronic Data Capture
IBRD International Bank for Reconstruction and Development
EM Emerging Markets
ICR Interest Coverage Ratio
EMEAP Executives Meeting of East Asia Pacific
ICT Integrated Communication and Technology
EODB Ease of Doing Business
IFEMC Indonesia Foreign Exchange Market Committee
EPU Economic Policy Uncertainty
IFSB Islamic Financial Stability Report
ER Excess Reserves
IHIM Import Price Index
ERPD Economic Review and Policy Dialogue
IHK Consumer Price Index
ERPT Exchange Rate Pass Through
IHKEI Indonesia Export Commodity Price Index
Ministry of Energy and Mineral Resources of the
ESDM
Republic of Indonesia IHPB Wholesale Price Index
ETC Electronic Toll Collection IHSG Composite Index
EU European Union IKAPPI Indonesian Market Traders Association
EUR European Currency IKF Fiscal Capacity Index
FAI Fixed Asset Investment IKK Poverty Gap Index
FATF Financial Action Task Force IKNB Non-Bank Financial Institutions
Financial Action Task Force-Pacific Group on Money
FATF-APG IMF International Monetary Fund
Laundering
FDI Foreign Direct Investment Inventory TO Inventory Turn Over

IP Industrial Production KSEI Indonesian Central Securities Depository
IPJ Jakarta Food Information KSSK Financial System Stability Committee
IPKD Regional Competitive Potential Industry KTI Eastern Region of Indonesia
IPO Initial Public Offering KUPVA Foreign Exchange Business Activity
IRF Impulse Response Functions KUPVA BB Non-Bank Foreign Exchange Business Activity
IRM Investment and Risk Management KUR Small Business Loan
IRU Investor Relation Unit KwH Kilowatt Hour
ISN Iron Stock Nasional LA Liquidity Assistance
ITF Inflation Targeting Framework Lantera Integrated Financial Services

Special Mining Business Licenses for Production LBU Commercial Bank Report
IUPK
Operations
LCGC Low Cost Green Car
JAKBIND Jakarta Basic Industry
LCS Local Currency Settlement
JAKCONS Jakarta Consumer Goods
LDR Loan to Deposit Ratio
JAKFIN Jakarta Finance Index
LED Local Economic Development
Jamkrindo Indonesian Credit Insurance
LF Lending Facility
JKN National Health Insurance
LFR Loan to Funding Ratio
JIBOR Jakarta Interbank Offered Rate
LKD Digital Financial Services
JPKI Global Finance Safety Net
LNG Liquid Natural Gas
JPY Yen currency
LNPRT Non-profit Organization Serving Households
JISDOR Jakarta Interbank Spot Dollar Rate
LPS Indonesia Deposit Insurance Corporation
K/L Ministries and Institutions
LQ Location Quotient
KEK Special Economy Zone
LRT Light Rail Train
KFLN Overseas Financial Obligation
LTV Loan-to-value
KHL Decent Living Standards
LU Business Sector
KI Industrial Zone
Luring Offline
KI Investment Credit
Mapua Maluku Papua
KIS Indonesian Health Card
MBR Low-income Citizens
KK Credit Card
MDR Merchant Discount Rate
KK Consumer Credit
MDBs Multilateral Development Banks
KKI Indonesian Creative Work
ME Mutual Evaluation
KPM Beneficiaries of Government’s Sosial Assistance
Migas Oil and gas
KKS Family Welfare Card
MLFF Multi Lane Free Flow
KLU Money Service Activities
MPM Macroprudential Measures
KM Minimum Cash
MRT Mass Rapid Transit
KMK Working Capital Loan
mtm month to month
KNKS National Committee for Sharia Finance
MTN Medium Term Notes
KPBU Public Private Partnership
MTO Medium Term Budgetary Objective
KPI Key Performance Indicators
M&A Merger and Acquisition
KPK Corruption Eradication Commission
NAIRU Non-Accelerating Inflation Rate Of Unemployment
KPPK Implementation of Prudential Principles
NCD Negotiable Certificate of Deposit
KPPN State Treasury Office
NDA Net Domestic Assets
KPR Housing Loan
NFA Net Foreign Assets
KPw BI Bank Indonesia Representative Office
NG Natural Gas
KPwDN-BI Bank Indonesia Regional Representative Office

NIM Net Interest Margin PMA Foreign Investment
NKRI Republic of Indonesia PMI Purchasing Managers' Index
NPF Non-Performing Financing PMK Minister of Finance Regulation
NPI Indonesia’s Balance of Payment PMR Product Market Regulation
NPL Non-Performing Loan PMTB Gross Fixed Capital Formation

National Standard of Indonesian Chip Card PNBP Non-Tax Revenue
NSICCS
Specification
PNS Civil Servants
NTB West Nusa Tenggara
PNSD Regional Civil Servants
NTT East Nusa Tenggara
POJK Financial Services Authority Regulation
O/N Overnight
Pokja Working Group
The Organisation for Economic Co-operation and
OECD
Development Pokjanas National Working Group
OJK Financial Services Authority Polairud Marine and Air Corps
OM Monetary Operation Polri Indonesian National Police
OPEC Organization Petroleum of Exporting Countries PP Finance Companies
OPT Open Market Operation Indonesian Financial Transaction Reports and
PPATK
Analysis Centre
PAD Regionally Generated Revenues
PPh Income Tax
PBB Land and Property Tax
PPI Producer Price Index
PBI Bank Indonesia Regulation
PPKSK Prevention and Resolution of Financial System Crisis
PBoC People’s Bank of China
PPN Value Added Tax
PCE Private Consumption Expenditure
PSC Production Sharing Contract
PCS Payments, Clearing and Settlement
PSN National Strategic Project
PDB Gross Domestic Product
PTD Fund Transfer Operators
PDN Domestic Revenue
PTKP Non-taxable Income
PDN Net Open Position
PTSP One Stop Integrated Service
PDRB Gross Regional Domestic Product
PUAB Interbank Money Market
PE Securities Company
PYD Disbursed Loan
Pergub Government Decree
P2G Person to Government
PHK Termination of Employment
QE Quantitative Easing
PIHPS Center of Strategic Food Price Information
QQE Qualitative and Quantitative Easing
PII International Investment Position
Rakor Pusda National - Regional Coordination Meeting
PIP Smart Indonesia Program
Rastra Rice for Prosperous Family Food Aid Program
PINA Non-Government Budget Investment Financing
RBA Risk Based Assessment
PIRAC Public Interest Research and Advocacy Center
RBI Reserve Bank of India
PJPUR Rupiah Processing Services Operator
RCPA Revealed Comparative Product Advantage
PJSP Payment System Service Providers
RDG Board of Governors Meeting
PJSPSB Non-Bank Payment System Service Providers
RE Reinvested Earning
PKE Economic Policy Package
RFAs Regional Financing Arrangement
PKH Family Hope Program
RIM Macroprudential Intermediation Ratio
PKLN Foreign Commercial Loan
RKD Regional Treasury Account
PLM Macroprudential Liquility Buffer
RKUN State General Treasury Account
PLN State Electricity Company
RIRU Regional Investor Relation Unit
PLN Foreign Loan
ROA Return on Assets
PLJP Short-term Liquidity Loan
ROE Return on Equity
PLJPS Syariah Short-term Liquidity Loan

RPJMN National Medium Term Development Plan TBS Fresh Fruit Bunch
RRT Weighted Average TD Term Deposit
RT Household TDPUD Distributor Registration Number
RTGS Real Time Gross Settlement TE Emission Year
RTPD Round Table Policy Dialogue Tekfin Financial Technology
S&P Standard & Poor TFP Total Factor Productivity

SAM multi- TKA Foreign Workers
Security Access Module multi-applet
applet
TKDD Regional Transfer and Village Fund
SAP Strategic Action Plan
TKI Indonesian Migrant Workers
SBI Bank Indonesia Certificates
TLAC Total Loss Absorbing Capacity
SBBI Bank Indonesia Securities
TMF Capital and Financial Account
SBN Government Securities
TPAK Labor Force Participation Rate
SBSN Islamic Based Government Securities
TPI Inflation Monitoring and Controlling Team
SDBI Bank Indonesia Certificates of Deposit
TPIP Central Inflation Monitoring and Controlling Team
SEPP Sumut Electronic Payment and Purchase
TPID Regional Inflation Monitoring and Controlling Team
SID Debtor Information System
TPT Textile and Textile Products
SiLPA Budget Financial Surplus
TPT Open Unemployment Rate
SITC Standard International Trade Classification
TTL Electricity Tariffs
SKDU Business Survey
TUF Terminal Usage Fee
SKNBI Bank Indonesia National Clearing System
TUKAB Interbank Cash Transactions
SLA Service Level Agreement
UE Electronic Money
SLIK Financial Information Service System
UKA Foreign Bank Notes
SNKI National Strategy for Inclusive Finance
ULE Currency Fit for Circulation
National Strategy on Financial Developing and
SN-PPPK
Deepening ULN Foreign Debt
SOP Standard Operating Procedure UMK Micro, Small Enterprises
SPBI Bank Indonesia Payment System UMKM Micro, Small Medium Enterprises
SPIME Survey on Macro Economy Indicator Projection UMP Provincial Minimum Wage
SPN Treasury Bills UNWTO United Nations World Tourism Organisation
SPNS Sharia Treasury Bills UTLE Currency Unfit for Circulation
SPPUR Payment System and Currency Management Policy UUS Sharia Business Unit
SPT Tax Return UYD Money in Circulation
SPV Special Purpose Vehicle Valas Foreign Exchange
SRA Sectoral Risk Assessment VAT Value Added Tax
SRA Solicitore Regulation Authority VF Volatile food
SRG Warehouse Receipt System VIX Volatility Index
SSB Securities VRT Variable Rate Tender
SSBIG Strong, Sustained, Balanced and Inclusive Growth WEF World Economic Forum
SSK Financial System Stability Wisman Foreign Tourist
STNK Vehicle Registration Certificate Wisnas Local Tourist
SUN Indonesia Government Bond WP Taxpayer
TA Tax Amnesty WTO World Trade Organization
TA/TL Total Assets/Total Loans WTV World Trade Volume
Tabama Food Crops yoy year on year
TB Current Account ZISWAF Zakat, Infaq, Shadaqah, and Waqf

EDITORIAL TEAM
Steering Committee Dody Budi Waluyo
Chief Editors Yoga Affandi, Reza Anglingkusumo, Firman Mochtar,

Wahyu Agung Nugroho, Bambang Pramono
Chief Authors Dian Prima Susiandri, Yayat Cadarajat, Syachman Perdymer
Authors Angsoka Yorintha P., Archi Hilmardhany, Atet Rizki Wijoseno,

Beny Okta Tutuarima, Darius Tirtosuharto, Evy Marya Deswita,
Fenty Tirtasari Ekarina, Ferry Kurniawan, Firman Darwis,
Gaffari Ramadhan, Hero Wonida, Indra Astrayuda, I Nyoman Agus,
Jardine A. Husman, Mario Sahala S., Mira Rahmawaty,
Natalia Susan, Nurkholisoh Ibnu Aman, Oki Hermansyah,
Olga Desiani, Robbi Nur Rakhman, Rolan Marulitua, Roris Daya Restu,
Woro Widyaningrum
Production and Strategic Coordination Handri Adiwilaga, Saraswati, Rio Khasananda, Illinia A. Riyadi,
Team Dewa Ayu KBDD, Andi Widianto, Anggita C.M Kusuma, Amelia Nurunnisa,
Sudirman, Khairul Ilmi
Contributors Department of Economic and Monetary Policy

Department of Macroprudential Policy
Department of Payment System Policy
Department of Statistic
Department of Currency Management
Department of Monetary Management
Department of International
Department of Financial System Surveillance
Department of Financial Market Development
Department of MSMEs Development
Department of Sharia Economic and Finance
Department of Regional I
Department of Regional II
Department of Regional III

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2017

To nurture an effective and efficient national financial system that can

To ensure a secure, efficient and smooth payment system that contributes

To build and maintain the organization and human resources of Bank

Diagrams and Figures xvi 1.1. Global Economic Dynamics 2

1.2. Global Policy Responses 9

General Review xxv

2.1. GDP by Expenditure 18

2.2. GDP by Economic Sector 24

2.3. Employment and Welfare 27

2.4. Regional Economic Dynamics 28

Box 2.1. Household Consumption

iv | Contents • 2017 ECONOMIC REPORT ON INDONESIA

3.1. Current Account 40 6.1. Fiscal Dynamics 84

3.2. Capital and Financial Account 47 6.2. State Revenue 85

3.3. External Resilience 50 6.3. State Expenditure 88

6.4. Deficit Financing 90

6.5. Regional Fiscal Policy 92

Box 6.1. The Impact of Infrastructure Development

4.1. Dynamics of the Rupiah Exchange Rate 56

4.2. Capital Flows on the Domestic

7.2. Exchange Rate Policy 106

7.3. Financial Market Deepening 109

7.4. Monetary Policy Transmission 112

Chapter 5 7.5. Monetary Policy Coordination 115

5.3. Administered Price Inflation 72

5.4. Regional Inflation 74

Box 5.1. Low Core Inflation Regime 79

2017 ECONOMIC REPORT ON INDONESIA • Contents | v

8.2. Loan-to-Funding Ratio 125 10.2. Economic Challenges 180

9.1. Non-cash Payment System Policy 148

9.2. Currency Management Policy 155

9.3. Payment System Performance 160

9.4. Currency Management Performance 162

Box 9.1. National Non-cash Movement and

vi | Contents • 2017 ECONOMIC REPORT ON INDONESIA

1. Global Economy 1 6. Fiscal Policy 83

2. Economic Growth 17 Table 6.2. State Revenues and Expenditure

Table 6.3. Tax Amnesty Program Developments 87

Table 6.4. Number of Taxpayers and

Table 3.1. Indonesia’s Balance of Payments 41

Primary Country of Destination 44

Table 3.5. Indicator of External Sector Resilience

Table 7.1. Swap Arrangement Cooperation 108

8. Macroprudential Policy 123

Table 8.1. Non-Bank Financing 137

Control Policy 73 Table 9.1. GPN Pricing Scheme 151

2017 ECONOMIC REPORT ON INDONESIA • Contents | vii

Table 9.3. Commercial Banks as Bank Indonesia

Table 9.4. Outflow and Inflow by Region 165

10. Outlook, Challenges,

Table 10.1. Global GDP Outlook 172

Table 10.2. GDP Outlook by Expenditure

Table 10.3. GDP Outlook by Industrial Origin

Table 10.4. Indonesian Economic Outlook

Table 10.5. Primary Objectives of Education 196

viii | Contents • 2017 ECONOMIC REPORT ON INDONESIA

1. Global Economy 1 Chart 1.21. Historical Pace of FFR Normalization 10

Chart 1.4. US Manufacturing PMI and