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Indonesia: Staff Report for the 2016 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
February 2017
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Fund Relations

(As of November 30, 2016)

Membership Status: Joined February 21, 1967; Article VIII

General Resources Account

SDR MillionsPercent of Quota
Quota4,648.40100.00
Fund holdings of currency3,860.6083.05
Reserve tranche position in Fund787.8216.95

SDR Department

SDR MillionsPercent of Allocation
Net cumulative allocation1,980.44100.00
Holdings1,118.5656.48

Outstanding Purchases and Loans: None

Financial Arrangements

Approval DateExpiration DateAmount Approved (SDR Millions)Amount Drawn (SDR Millions)
EFF02/04/0012/31/033,638.003,638.00
EFF08/25/9802/04/005,383.103,797.70
Stand by11/05/9708/25/988,338.243,669.12

Projected Payments to Fund (SDR millions; based on existing use of resources and present holdings of SDRs):

Forthcoming
20162017201820192020
Principal
Charges/Interest2.012.052.052.052.05
Total2.012.052.052.052.05

Exchange Arrangements

The rupiah has had a de jure free floating exchange arrangement since August 14, 1997, and the current de facto arrangement is floating. The market exchange rate was Rp 13,555 per U.S. dollar as of November 30, 2016. Indonesia has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on payments and transfers for current international transactions.

Article IV Consultation

The last Article IV consultation report (IMF Country Report No. 16/81) was discussed by the Executive Board on February 24, 2016.

Resident Representative

Mr. John Nelmes took over from Mr. Benedict Bingham as Senior Resident Representative since September 2016.

World Bank-IMF Collaboration

The working relationship between the IMF and the World Bank in Indonesia is very strong, with joint working programs in a number of areas and close coordination through frequent meetings between resident offices and headquarters missions, including during the Article IV consultation.

Key Areas with Joint Programs

Budget Reforms

  • The reform agenda for budget and treasury remains a high priority for both institutions. Currently, the World Bank’s support is being provided through the Government Financial Management and Revenue Administration Project (GFMRAP) program, trust funds, and development policy loans (DPLs), with elements in support of (a) efficient treasury operations, including accounting reforms, improved in-year budget disbursement, and regulatory reform; (b) improved linkages between planning and budget preparation through the implementation of a medium-term expenditure framework, performance budgeting, and the enhancement of budget flexibility at the service delivery level; and (c) improved capacity for budget oversight through systems and organizational reform. Indonesia’s Ministry of Finance launched SPAN in April 2015. SPAN, a financial management information system supported by GFMRAP, is designed to improve transparency, efficiency, and accountability of the government’s financial transactions. An updated Public Expenditure review and further analysis in 2017 are informing the efficiency and effectiveness of government budgets. An ongoing Development Policy Loan (DPL) on fiscal reforms also supports reforms to enhance the allocative efficiency and effectiveness of public spending. The IMF has complemented this work through recent technical assistance (TA) on subsidy reform and social safety nets aimed at ensuring longer-run fiscal sustainability.

Taxation Issues

  • Revenue (tax and nontax revenue) issues are a priority for the IMF and the World Bank, with broadening the revenue base and increasing revenues an important issue for both macro-fiscal stability and the investment climate. The Fund conducted a mission on tax policy and administration in September 2014 to identify key reform options in each of these areas. The Bank provides tax policy (including international tax) and administration support through trust funded TA to the Fiscal Policy Agency and DG Tax and an ongoing DPL on fiscal reforms. The Bank has also been providing analytical support on nontax revenue administration.

Asset-Liability Management

  • The World Bank and IMF have been leading an effort to improve asset-liability management, including at the Treasury and Debt Management Office of the Ministry of Finance and at Bank Indonesia, with continued collaboration envisaged, as needed.

Crisis Preparedness

  • In recent years, the World Bank has focused on supporting the authorities in Indonesia to create a robust crisis prevention and management framework. Most recently, this support has included analysis of the financial sector stability framework through the 2010 FSAP and a series of crisis simulation exercises. Preparation is underway for the next FSAP. Between 2012 and 2015, the Bank’s Program for Economic Resilience, Investment and Social Assistance in Indonesia (PERISAI) DPL, now disbursed and closed, has also supported the authorities in this area. The IMF has supported work in this area through past TA on reviewing the legal framework underpinning Indonesia’s financial stability architecture and in its current surveillance dialogue with the authorities and exchange of views with the Bank.

Financial Sector

  • The World Bank has focused on broad monitoring of the financial sector. Through its Financial Sector and Investment Climate Reform and Modernization DPL, the Bank supported the implementation of reforms aimed at maintaining stability, increasing diversification, and enhancing financial sector inclusion in Indonesia. The IMF has concentrated on the banking system, with emphasis on regulation and supervision, with a resident advisor placed at the Financial Services Agency (OJK) in January 2015. It has also embarked on TA in financial deepening, focused initially on money and foreign exchange market development and more recently on monetary operations and the transmission mechanism. In addition, the Fund has provided recent TA on the macro prudential policy framework and bank stress testing. A joint World Bank-IMF FSAP was completed in 2010 and some recommendations have been followed through by the authorities. The Bank is to provide TA to implement select FSAP recommendations concerning the nonbank financial sector.

Statistics

  • The World Bank has a major program of capacity building with the statistics agency that was launched in 2011. The Statistical Capacity Building-Change and Reform for the Development of Statistics (STATCAP-CERDAS) program is designed to focus on improvements in key statistical series that should improve the ability to understand the Indonesian economy, executed through an institution-wide approach, which includes significant business, IT and HR/organizational reforms. The IMF has focused recent training and TA on government finance statistics, monetary and financial statistics, and sectoral balance sheets.

Macroeconomics

  • The IMF continues to take the lead in macroeconomic areas, with the Article IV mission and staff visits, focusing on fiscal, monetary, and exchange rate policies; macro-financial linkages, financial sector reforms, and crisis management, as well as the external position and spillover effects. The Fund also updates the Debt Sustainability Analysis at the time of the Article IV consultation, with inputs from the World Bank and other development partners. The Bank has also taken on a larger role, including on macroeconomic monitoring, public policy dialogue, and capacity building, with ongoing coordination with the Fund. The Bank continues to assist the Ministry of Finance’s Fiscal Policy Office to improve capacity for macroeconomic monitoring, forecasting, and evidence-based macroeconomic and fiscal policy analysis.

These threads of work are expected to be continued by both institutions, with periodic meetings aimed at keeping each other informed about ongoing work and joint areas of interest. Issues being addressed by the IMF include domestic and external vulnerabilities, exchange rate management, medium-term external and fiscal sustainability, and macrofinancial linkages and financial stability risks; and by the Bank the link between macrofiscal policy and real economic outcomes, including growth and poverty, resource-sector fiscal revenues, and longstanding problems in the implementation and effectiveness of government spending.

Indonesia: Joint Managerial Action Plan, 2015–16
TitleProductsProvisional Timing of MissionsExpected Delivery Date (Tentative)
A. Mutual Information on Relevant Work Programs
Bank work program for next 12 monthsIndonesia Economic Quarterly

World Bank follow-up work related to WB/IMF Financial System Assessment Program missions (October 2009 and February-March 2010)

Energy DPL Fiscal reform DPL
Launched in April 2012; the latest issue published in December 2015

Ongoing

Ongoing

Ongoing
IMF work program for next 12 monthsMacroeconomic surveillance

2015 Article IV consultation

2016 staff visit

2016 Article IV consultation

Technical assistance

Financial deepening and market development

Tax policy and revenue administration

Statistical policies

Consolidated supervision (resident advisor)
December 2015

August 2016

November 2016

Ongoing

Ongoing

Ongoing

Ongoing
Board discussion took place in February 2016

Board discussion will take place in January 2017

Periodic visits
B. Request for Work Program Inputs
Fund request to BankAssessment of economic developments and structural policies

Information sharing
Ongoing

Ongoing
Bank request to FundAssessment of macroeconomic developments and policies

Information sharing
Ongoing

Ongoing
C. Agreement on Joint Products and Missions
Joint work programCoordination of a follow-up FSAP starting in 2016Mid-2016 February 20172016-2017

Relations with the Asian Development Bank

(As of October 2016)

Asian Development Bank (ADB) loans to Indonesia have totaled US$31.5 billion since 1969.1 The ADB approved a total of US$1.4 billion in loans to Indonesia in 2015. The sectors with the largest shares in cumulative lending are public sector management (18.9 percent), energy (14.4 percent), agriculture and natural resources (14.1 percent), and finance (13.4 percent).2

Between 1969 and 2015, the ADB provided TA grants to Indonesia amounting to US$437 million. The TA grants were financed from the ADB’s TA Special Fund, the Japan Special Fund and other sources.

The ADB has completed a new Country Partnership Strategy (CPS) 2016–2019 for Indonesia, aligned with the government’s medium-term development plan for 2015-2019. The CPS is closely attuned to the needs of Indonesia as a large middle-income country and guided by the government’s commitment on development. The CPS will also maintain consistency with the priorities set out in ADB’s Mid-Term Review of Strategy 2020.

ADB’s new partnership with Indonesia will be working toward inclusive and environmentally sustainable growth through improved infrastructure services, better economic governance, and enhanced human resource development.

Table 1.Sovereign and Nonsovereign Loan Approvals and Disbursements to Indonesia(In millions of U.S. dollars)
20082009201020112012201320142015
Loan approvals1,085.02,184.2785.0580.01,232.81,013.9554.41,375.0
Loan disbursements949.6739.31,079.8631.9862.5588.1543.71.401.8
Source: Indonesia Resident Mission, Republic of Indonesia.
Source: Indonesia Resident Mission, Republic of Indonesia.
Table 2.Cumulative Lending, Grant and Technical Assistance to Indonesia(As of December 2015)
LoansAmount
Sector(No.)(US$ millions)Percent 1/
Agriculture and natural resources2734,299.4013.46
Education802,455.757.69
Energy844,416.2916.88
Finance684,111.4314.13
Health and social protection451,104.763.46
Industry and trade39660.582.07
Public sector management1085,800.4618.16
Transport and information and communications technology893,701.0011.59
Water supply and other municipal922,208.896.92
Infrastructure and services
Multisector281,797.205.87
Source: Asian Development Bank, Indonesia Fact Sheet 2015.

Total may not add up because of rounding.

Source: Asian Development Bank, Indonesia Fact Sheet 2015.

Total may not add up because of rounding.

Statistical Issues

Assessment of Data Adequacy for Surveillance
General: Indonesia’s macroeconomic statistics are broadly adequate to conduct effective surveillance.
National accounts: Statistics Indonesia (BPS) disseminates annual and quarterly GDP (QGDP) by economic activity and expenditure components at current prices and in volume terms at 2010 prices regularly. In general, GDP estimates are based on the latest international methodologies following the System of National Accounts 2008. The QGDP estimates are based on a limited set of indirect indicators. Some sectors are influenced strongly by seasonality, with seasonally adjusted data prepared but not published. BPS has been leading the work on developing sectoral accounts and balance sheets jointly with Bank Indonesia (BI) with TA from STA. BPS and BI expect to finalize the annual nonfinancial accounts, financial flows, and stocks for the year 2010, and quarterly financial flows and stocks starting from Q1:2015 in 2017. A TA mission on Sectoral Accounts and Balance Sheets will be fielded in January 2017.
Price statistics: Price statistics are broadly adequate for surveillance. In October 2013, BPS released the new Producer Price Index (PPI) covering agriculture, mining and quarrying, and manufacturing with 2010 as the base period, and has published the PPI index quarterly. BPS has also expanded the mining sample to include oil and natural gas extraction, coal, and gold, and starting or completing work to further expand PPI coverage to include 15 service industries. There is a need to increase dissemination frequency and update the weights. Bank Indonesia and BPS have jointly begun work to expand the coverage of the residential property price index (RPPI) to include resales (the current RPPI includes only the sales of newly constructed units). It is planned that the new index will be released later in 2016.
Government finance statistics (GFS): The Ministry of Finance (MOF) is committed to keeping the requirements of fiscal statistics at the forefront of ongoing fiscal reforms, with better statistical monitoring one of the goals of the current efforts. The authorities are continuing their efforts to adopt the GFSM 2001/2014 standards, with assistance from STA as part of a regional GFS project. Significant progress has been made in these areas and, in 2013, Indonesia reported for the first time to STA general government data (including balance sheet data) covering the period 2008 onwards. Aggregated data on the budget of the central government are available with a one-month lag. Annual general government GFS are currently available 12 months after the end of the reference period and these data are published on the GFS website: http://www.gfs.djpbn.kemenkeu.go.id/en. The timeliness of the annual data will improve once all systems are in place.
The authorities have started to compile quarterly general government data in 2015. Quarterly general government GFS (operations statement) are available 6 months after the end of the reference quarter. The quarterly general government data are yet to be published on the GFS website because the authorities are planning to improve these data in terms of coverage of local governments and timeliness with the development of new regional financial information system.
In late 2015, the authorities have started to develop methodology to compile quarterly general government data based on estimates of local government data.
The coverage and timeliness of public debt statistics are generally adequate.
Monetary and financial statistics (MFS) and financial soundness indicators (FSIs): Good quality monetary statistics are compiled by BI on a timely basis. BI compiles and reports monetary data using the Standardized Report Forms (SRFs), from which an integrated database and alternative presentations of monetary statistics can be drawn to meet the needs of BI and the IMF. Additional challenges include timely revisions of published banking sector data after supervisory verification. With the support of a Fund TA mission in October 2014, BI expanded the coverage of the OFCs survey, which since January 2015 includes finance companies, insurance companies, pension funds, the state owned pawn shop (PT Pegadaian), and the Indonesian export financing institution (Eximbank); achieving almost full coverage of the subsector. OFC data are reported on a monthly basis. The mission also assisted BI in advancing the production of flow-based monetary statistics and quarterly financial accounts. BI compiles and reports to the Fund all (12) core and 12 encouraged financial soundness indicators (FSIs) for deposit takers, all (two) encouraged FSIs for OFCs, two encouraged FSIs for nonfinancial corporations, one encouraged FSI for households, two encouraged FSIs for market liquidity, and three encouraged FSIs for the real estate sector, which are published quarterly on the Fund’s FSI website.
Balance of payments (BOP): Trade data have been improved in recent years. Import and export transactions of free trade zones and bonded warehouses are captured in goods data of BOP statistics.
For the capital and financial account, the methodological basis for the compilation of FDI data needs substantial improvement. Inflows are currently calculated based on loan disbursements to companies that have foreign equity using a fixed ratio to estimate equity inflows. Surveys conducted by BI to collect FDI data have improved the coverage of the directory of enterprises in recent years. Other areas that need improvement include the recording of trade credits and the asset data for portfolio investment and other investment transactions. The magnitude of the errors and omissions item in the BOP has been large at times and appears to be related to the under coverage of assets in the financial account. Financial transactions data are reconciled with changes in the International Investment Position (IIP), except data on direct investment.
Annual and quarterly IIP data are compiled and published, but the underlying data are weak in several areas, notably for FDI. External debt statistics have improved considerably with the introduction of an External Debt Information System (EDIS) in 2002 and the recent initiative to publish monthly indicators. Also, as a result of the ongoing reconciliation of data conducted by BI, the IIP and external debt data are fully consistent. However, improvements are still needed with respect to components of private corporate sector data, particularly in distinguishing between scheduled and actual debt service, in estimating the accumulation/reduction of private sector payments arrears, and in estimating reschedulings/debt reductions received by the private sector from external creditors.
Data Standards and Quality
Subscriber to the Special Data Dissemination Standard (SDDS) since September 1996, observing most of the SDDS requirements. Indonesia uses the SDDS flexibility options for the timeliness of the labor market categories (employment, unemployment, and wages/earnings) and general government operations.Data Reports on the Observance of Standards and Codes (ROSC) completed in 2005.
Indonesia: Table of Common Indicators Required for Surveillance(As of November 21, 2016)
Date of Latest ObservationDate ReceivedFrequency of Data1Frequency of Reporting1Frequency of Publication1Memorandum Items:
Data Quality—Methodological Soundness2Data Quality—Accuracy and Reliability3
Exchange rates11/21/1611/21/16DDD
International reserve assets and reserve liabilities of the monetary authorities411/1610/16MMM
Reserve/base money11/169/16W/MW/MW/MO, LO, O, OLO, O, O, LO, O
Broad money11/169/16MMM
Central bank balance sheet11/1610/16MMM
Consolidated balance sheet of the banking system11/169/16MMM
Interest rates511/21/1611/21/16DDD
Consumer price index11/1610/16MMM
Revenue, expenditure, balance and composition of financing6— central government11/169/16MMMid-yearLNO, LNO, LO, LNOLNO, LO, LO, LO, LNO
Stocks of central government and central government-guaranteed debt11/169/16QQQ
External current account balance11/169/16QQQLO, LO, LO, LOLO, O, LO, O, O
Exports and imports of goods and services11/1610/16MMM
GDP/GNP11/169/16QQQLO, LO, O, LOLO, LO, LO, LO, LNO
Gross external debt711/169/16QQQ
International investment position811/166/16QQQ

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); NA: Not Available.

Reflects the assessment provided in the data ROSC published on July 20, 2005 (based on the findings of the mission that took place during March 28-April 11, 2005), for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Including currency and maturity composition, except referring to international standards concerning source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

Including currency and maturity composition.

Includes external gross financial assets and liability positions vis-à-vis nonresidents.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); NA: Not Available.

Reflects the assessment provided in the data ROSC published on July 20, 2005 (based on the findings of the mission that took place during March 28-April 11, 2005), for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Including currency and maturity composition, except referring to international standards concerning source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

Including currency and maturity composition.

Includes external gross financial assets and liability positions vis-à-vis nonresidents.

Through the last quarter of 2015.

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