Indonesia
Recent Economic Developments
Author: International Monetary Fund
Publication Date:
06 Sep 1996
eISBN:
9781451818192
Language:
English
Keywords:
ISCR; CR; exchange rate; broad money; working capital; private sector; real GDP; commercial bank; balance of payments; fiscal policy; economic growth
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This paper reviews economic developments in Indonesia during 1994–96. Following the easing of domestic demand pressures, the focus of monetary policy shifted in early 1993/94 to supporting economic growth, as concerns developed over an incipient weakening of export performance and output. At the same time, the fiscal position was strengthened. Reflecting the strong growth in non-oil/gas revenue, the overall central government deficit, excluding oil/gas revenue, declined by 2 percentage points of GDP. With the shift in monetary policy, interest rates declined rapidly, and there was a strong pickup in credit to the private sector.

Abstract

This paper reviews economic developments in Indonesia during 1994–96. Following the easing of domestic demand pressures, the focus of monetary policy shifted in early 1993/94 to supporting economic growth, as concerns developed over an incipient weakening of export performance and output. At the same time, the fiscal position was strengthened. Reflecting the strong growth in non-oil/gas revenue, the overall central government deficit, excluding oil/gas revenue, declined by 2 percentage points of GDP. With the shift in monetary policy, interest rates declined rapidly, and there was a strong pickup in credit to the private sector.

Indonesia: Basic Data

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Sources: Data provided by the Indonesian authorities; and staff estimates.

National accounts and CPI data are on a calendar-year basis (e.g., 1992/93 corresponds to 1992).

Reserve requirement was increased from February 1996, boosting reserve money growth.

Excludes financing receipts from asset sales of 0.4 percent of GDP in 1994/95 and 1995/96.

Inclusive of monetary movements of commercial banks and errors and omissions.

In months of the following year’s non-oil/gas imports.

In percent of exports of goods and nonfactor services.

1995/96 figure is for eleven months to February 1996.

Indonesia: Social and Demographic Indicators

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Source: The World Bank, Social Indicators of Development 1995; and staff estimates.

Staff estimate for 1995.

Proportion of the population 15 years of age or older who cannot both read and write a short simple statement

Percent of population below lower poverty line. Earlier estimate is for 1980-85.

Indonesia: Indicators of Structural Reform, 1985/86-1995/96

(In percent)

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Sources: Data provided by the Indonesian authorities, the World Bank, and staff estimates.

Share in fiscal year GDP.

Rupiah and foreign currency time and savings deposits.

As of end-1995.

Comprises Bank Indonesia, deposit money banks, and nonbank financial institutions.

End-1987.

As of October 1993.

Number of sectors completely closed to foreign investment. In addition, the number of sectors in which foreign investment is somewhat restricted (negative list) is 17, while a further 11 sectors are closed to both domestic and foreign investment.

I. Introduction and Overview1, 2

Indonesia’s impressive record of economic development, well established in the 1970s and 1980s, was sustained through the first half of the 1990s. With the help of market-oriented reform initiated in the 1980s, including significant liberalization of trade and investment and of the financial system, competition and efficiency were enhanced, private sector activity was substantially expanded and diversified, and there was broad-based improvement in most social indicators of development. During the period 1989/90-1995/96,3 average GDP growth exceeded 8 percent, inflation averaged less than 10 percent, real per capita income increased by almost half, the workforce expanded substantially, and the number of people living in absolute poverty fell to 15 percent of the population (Chart 1). All of this was accomplished at the same time that the economy’s dependence on the oil/gas sector was sharply reduced.

CHART 1
CHART 1

INDONESIA: DEVELOPEMENT AND STRUCTURAL INDICATORS, 1969-96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Sources: Data provided by the Indonesian authorities; and staff estimates.1/ GDP and inflation data refer to the calendar year.2/ Poverty is defined as the share of the population living below the lower poverty line.3/ Fiscal year begins April 1.

A. Developments Through 1994/95

Indonesia’s economic achievements have been greatly facilitated by the sustained pursuit of macro economic stability, even when this has required sizable adjustments in fiscal and monetary policy. The authorities’ balanced budget rule, although it has not prevented fluctuations in the fiscal policy stance, has in general helped to avoid significant recourse to domestic deficit financing. With the declining importance of oil/gas revenue, substantial fiscal adjustment has been undertaken. External borrowing has also been managed prudently in recent years—external debt peaked at 65 percent of GDP in 1987/88—so as to safeguard access to international credit markets. Following major devaluations in 1983 and 1986, the rupiah/U.S. dollar exchange rate has been managed to offset broadly the inflation differential vis-à-vis trade partners, thereby supporting a strong export performance. These policies, together with significant structural reforms, allowed Indonesia to weather the severe losses in its terms of trade following the collapse of oil prices in the mid-1980s, without any sustained deterioration in real economic performance.

Toward the end of the 1980s, new policy challenges arose. Following the 1988 financial sector and investment liberalization, economic growth accelerated owing to a boom in investment, both foreign and domestic. Initially, the quickening pace of activity did not produce strains on domestic resources, but broad money and credit growth soared during 1989/90-1990/91—increasing at an average rate of 36 percent and 53 percent, respectively—and demand pressures rapidly intensified, despite a fiscal tightening (Chart 2). Thus, in 1990, the growth of real domestic demand accelerated markedly to 14 percent, inflation rose to 10 percent, the external current account deficit in 1990/91 almost doubled to 3¼ percent of GDP, and external debt increased sharply. To counter this overheating, an adjustment effort was undertaken beginning in the second half of 1990, marked by a tightening of monetary policy and measures to curb new external borrowing. Interest rates rose sharply, as large amounts of central bank debt certificates (SBIs) were placed with the domestic banking system and Bank Indonesia (BI) sharply curtailed its foreign exchange swap operations. To redress weaknesses in commercial banks’ portfolios that had surfaced in the aftermath of the credit boom, new prudential standards were imposed. At the same time, controls were strengthened to contain offshore commercial borrowing by the public sector, including banks. After significant tightening in 1988/89-1990/91, fiscal policy provided little support to demand management during 1991/92-1992/93 and the overall deficit, excluding oil/gas revenue, remained broadly unchanged.

CHART 2
CHART 2

INDONESIA: SELECTED ECONOMIC INDICATORS, 1985/86-1995/96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Sources: Data provided by the Indonesian authorities; and staff estimates.

With the tightening of the monetary stance, credit growth to the private sector dropped rapidly to 11 percent in 1992/93 and the growth in real domestic demand fell sharply. As a result, inflation fell to 5 percent and the external current account deficit narrowed to 2 percent of GDP. However, with non-oil/gas exports increasing by some 30 percent, real GDP grew by 7¼ percent. Although demand pressures abated in 1992/93, maintaining control over liquidity growth remained difficult. Despite an easing of interest rates, the differential with offshore rates—some 12 percentage points—remained well in excess of the expected downward crawl of the rupiah. Thus, as surging capital inflows led to a large increase in official reserves—close to $5 billion—containing money growth required sizable and costly sterilization operations.

Following the easing of domestic demand pressures, the focus of monetary policy shifted in early 1993/94 to supporting economic growth, as concerns developed over an incipient weakening of export performance and output. At the same time, the fiscal position was strengthened. Reflecting the strong growth in non-oil/gas revenue, the overall central government deficit, excluding oil/gas revenue, declined by 2 percentage points of GDP. With the shift in monetary policy, interest rates declined rapidly and there was a strong pickup in credit to the private sector, while the pace of capital inflows slowed. Reserve money growth rose sharply as BI reduced its holdings of SBIs. Although there were significant fluctuations within the year, international reserves at end-March 1994 were broadly the same as a year earlier. Domestic demand strengthened, increasing in real terms by 8 percent in 1993, as both fixed investment—led by construction—and private consumption picked up. The growth of non-oil/gas exports, however, slowed, reflecting an adjustment from the very rapid growth enjoyed in 1991/92-1992/93. Despite the slowdown in exports, the strengthening in domestic demand was sufficient to keep GDP growth in 1993 at 7¼ percent. During 1993/94, inflation rose to 10 percent, although the external current account deficit remained below 2 percent of GDP.

The expansion in domestic demand gained momentum during 1994/95, rising in real terms by 9 percent. The continued rapid increase in private sector credit—which rose at an annual rate of 24 percent—contributed to this growth. A particular concern in this regard was the continuing rapid increase in private credit to the property sector. Reserve money grew strongly as BI reduced its holdings of SBIs sharply, and broad money growth, at 22 percent, was slightly higher than in 1993/94. This expansion occurred despite the gradual increase since March 1994 in BI’s interest rates (about 4-5 percentage points), which was somewhat higher than the increase in international interest rates during this period. The overall fiscal position in 1994/95 remained broadly in balance. Excluding oil/gas revenue, the overall deficit declined by almost 1 percentage point of GDP as total expenditure and net lending was reduced in relation to GDP. Based on strong growth in manufacturing and construction, real GDP grew by 7½ percent in 1994 (Chart 3). With the strong growth in domestic demand, inflation remained high (an annual rate of about 10 percent), and the current account deficit widened but remained broadly unchanged in relation to GDP.

CHART 3
CHART 3

INDONESIA: DEVELOPMENTS IN OUTPUT AND INFLATION, 1989-96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.

B. Summary of Developments in 1995/96

The focus of this report is on developments in 1995/96. Domestic demand grew faster than GDP for a third year, based on strong growth of both consumption and investment. Real GDP growth rose to 8 percent, above the rate of growth of potential output. These developments are described in Chapter II. Excess demand pressures were increasingly evident, with inflation remaining close to 10 percent and the external current account deficit almost doubling to 3.4 percent of GDP. With increased capital inflows during 1995/96, the wider current account deficit was financed, and foreign exchange reserves increased (Chapter III). Overall external debt indicators continued to improve. Fiscal policy (Chapter IV) exerted some dampening effect, despite the significant lowering of income tax rates in early 1995, and a central government surplus of 1 percent of GDP was achieved. Monetary policy (Chapter V) was marked by increased moral suasion to limit credit growth. The contractionary effect of the central government surpluses was offset by liquidity credits. Interest rates remained relatively unchanged, but the exchange rate intervention band was widened to 3 percent. Further measures were taken toward the end of the year, including an increase in reserve requirements from February 1996. However, both money and credit continued to expand rapidly and their growth exceeded the authorities’ targets. At year end, the overheating of the economy remained a major issue. Progress made so far toward the development goals set under Repelita VI, including those for poverty reduction, are very briefly reviewed (Chapter VI).

II. Real Sector

A. Output and Expenditure4

The Indonesian economy is estimated to have grown by 8.1 percent in 1995, an increase from 7.5 percent recorded in 1994. Non-oil/gas GDP rose by an estimated 9.0 percent, while the oil/gas sector made a small negative contribution. Domestic economic activity was particularly strong, with private consumption and investment both growing rapidly (Chart 4). Real domestic demand is estimated to have grown by almost 13 percent, the highest rate since 1990.

CHART 4
CHART 4

INDONESIA: GDP GROWTH, 1995

(In percent)

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Date provided by the Indonesian authorities.

With the growth in demand exceeding the estimated rate of growth in potential output of around 7¼ percent, and limited spare capacity indicating that output was at or above potential, excess demand pressures became evident.5 Imports surged and some production normally exported was diverted to meet domestic demand. Consequently, the contribution to GDP growth from net exports was significantly negative (-4.7 percent). Food shortages brought about by supply problems exacerbated the strong import demand for all categories of goods, contributing to a sharp deterioration in the current account deficit, especially during the first half of the fiscal year.

1. Aggregate Demand

After declining from its previous peak in 1990 to 6 percent in 1992, real domestic demand growth strengthened to an average of 8.4 percent in the two years 1993-94, before sharply rising to 12.9 percent in 1995. On the basis of preliminary data, growth in private consumption and gross fixed capital investment contributed in broadly equal amounts to the expansion of domestic demand, with stock building also playing an important role.6

The easing of monetary conditions through late 1993 and a substantial part of 1994, which was only gradually and partially reversed through the second-half of 1994 and 1995 (Charts 5 and 14), was a key factor behind the pickup in demand. Real interest rates-including the working capital rate, which applies to about three-quarters of private sector credit—were low in 1994/95 relative to rates of profit and output growth, but higher on average in 1995/96. Broad money growth was rapid for most of 1995/96, while private sector credit growth accelerated to nearly 30 percent in the middle of the year. Heightened moral suasion, and the impact of earlier interest rate rises, slowed credit demand at the end of 1995 and in the first quarter of 1996. However, at end-March 1996, money and credit aggregates were still growing at rates exceeding BI targets.

Total consumption growth increased to 6½ percent in 1995, with real government consumption rising by 3 percent (about the same as 1994). Despite the increase in private consumption by 7 percent—seen, for example, in a rapid increase in automobile sales—the large increase in national disposable incomes of about 18 percent,7 based on high wage increases and reduction in tax rates in January 1995, allowed room also for private savings to increase.8

The growth of real fixed capital formation increased slightly to about 15 percent in 1995. Housing and other property investment, which had grown very rapidly in 1994 and early 1995, later eased and, for 1995 as a whole, grew relatively slowly. Rapid growth in infrastructure activity, especially roads, bridges, and ports, contributed over two thirds of the growth in construction. Foreign investment approvals jumped over 50 percent, after nearly tripling during 1994, while actual foreign investment expenditure doubled, contributing around a third of total investment growth (Chart 6). Foreign direct investment, especially in the petro-chemicals and other services sectors, was a major contributor to an investment boom in the services, industrial, and mining sectors. Foreign portfolio equity investment and private debt flows increased. Domestically financed investment also grew rapidly, and approvals surpassed the high levels recorded in 1994.

CHART 5
CHART 5

INDONESIA: DOMESTIC GROWTH INFLUENCES, 1986-95

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.
CHART 6
CHART 6

INDONESIA: FOREIGN DIRECT INVESTMENT, 1987-95

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.

Demand expansion was, to a very large extent, domestically based during 1995. Despite strong growth in Indonesia’s export markets (Chart 7), the external sector contributed negatively to GDP growth during the year. On a national accounts basis, exports of goods and services increased in constant prices by only 5½ percent in 1995 (a decline from 9 percent in 1994), while imports of goods and services (in constant prices) grew by 25 percent, sharply higher than the 15 percent reached in 1994. The oil/gas sector made a negative contribution, with oil/gas exports declining in nominal and volume terms in 1995. Non-oil/gas export volume growth was hampered early in the year by specific problems in the plywood sector, while strong domestic demand competed for cement and manufacturing production. The very high growth of non-oil goods imports reflected rapid rates of growth of capital and intermediate goods, and high consumer spending that spilled over into rapid growth of consumer imports in the first half year (Chart 8).

CHART 7
CHART 7

INDONESIA: TRADE INDICATORS, 1990-95

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities. IMF, World Economic Output; and staff estimates.
CHART 8
CHART 8

INDONESIA: IMPORTS, 1988/89-1995/96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.1/ Non-oil imports as percent of gross national expenditure and non-oil exports.

2. Sectoral Developments

Output growth in the non-oil/gas sector accelerated during 1995 to around 9 percent, while oil/gas GDP declined slightly from its 1994 level. Primary sector production grew moderately, while growth was fastest in the manufacturing, construction and utilities sectors (Chart 4). The manufacturing sector, now accounting for one quarter of GDP, is becoming an increasingly important influence on the economy’s overall rate of growth, whereas the oil/gas sector has declined to only about 7.5 percent of GDP.

Agricultural, fishing and forestry production increased by 2½ percent, close to the trend growth rate, and a recovery from the depressed level in 1994. Food crops, particularly rice (up 4 percent on the low 1994 crop), estate crops, especially palm oil, and fisheries all showed higher production. The rise in rice production was insufficient to prevent continued domestic rice shortages in the first half of the year. Low growth in rice production in 1993 followed by a decline in 1994, coupled with rapidly rising food consumption, resulted in low stock levels. Consequently, rice imports were high in 1994 and 1995, and rice prices increased sharply. However by the end of 1995, stock levels increased to the equivalent of one month of consumption.

Mining and quarrying output increased by 6½ percent, slightly faster than in 1994. Copper and coal mining both continued to increase rapidly (at over 40 percent and 25 percent, respectively), increasing the importance of non-oil/gas mining in this category. Non-oil/gas manufacturing output grew by 14 percent, with food and beverage processing, electrical machinery and apparatus, pulp and paper, rubber, chemical products and plastics, and cement output increasing strongly (Chart 9). In contrast, the garments, footwear, and wood product industries increased little or declined, especially the significant plywood industry. Other sectors that posted higher-than-average growth in 1995 were construction (13 percent) and utilities (18 percent).

CHART 9
CHART 9

INDONESIA: MANUFACTURING EXPORT AND PRODUCTION GROWTH, 1991-95

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.

B. Prices and Wages9

The average rate of consumer price inflation increased slightly from 8.5 percent in 1994 to 9.4 percent in 1995 reflecting a continuation of strong demand pressures, together with some supply factors. The inflation rate, while remaining in the range of 9-11 percent, rose in the first half of 1995, and moderated slightly in the September and December quarters. Nonfood price inflation, in particular housing-related prices, was highest in the first-half of 1995 (Chart 10). In the second-half of the calendar year, nonfood price inflation, including housing, moderated to around 6½ percent. The rate of increase of administered prices (5.8 percent), representing about 26 percent of the CPI basket, broadly matched nonfood price movements through most of 1995. Food price inflation, reflecting continued shortfalls in rice supply and high import prices, remained substantial throughout the year and averaged 14 percent, underpinning the overall rate of inflation.

CHART 10
CHART 10

INDONESIA: INFLATION, 1991-96

(Annual percentage change)

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.

Inflationary pressures continued in early 1996. In the year to March 1996, the rate of consumer price inflation was 9.2 percent. Food price inflation peaked at 18 percent in the year to February 1996, reflecting flood-related shortages of red peppers, vegetables, and rice. However, with unchanged petroleum prices and delays in adjusting electricity prices (together comprising around 8 percent of the CPI), the growth of administered prices declined to around 3 percent by March 1996, substantially lower than general inflation.

Wholesale price inflation was significantly higher on average in 1995 than in recent years, and at 10 percent exceeded consumer price inflation. In particular, agriculture costs rose faster than average (up 13.5 percent), while the average level of manufacturing sector wholesale prices was nearly 11 percent above the 1994 level. Higher wholesale import prices (up to 8.2 percent in the year to December 1995)—after two years of significantly lower growth than domestic wholesale prices—raised costs in most sectors. In 1995, imported inflation accelerated, reflecting the sharp nominal effective exchange rate depreciation in the first-half of 1995.

Limited data suggest that wage growth was rapid during 1995. Government-determined wage increases contributed to the strong consumer demand and excess demand pressures in the economy. For the most part, wage movements in Indonesia reflect market outcomes, but rises in legislated minimum wages and civil service pay increases are becoming increasingly important influences on the general wage structure. The Government sets minimum wages separately for 27 provinces. Over the period 1990 to 1995, average minimum wages across all provinces increased by 150 percent as the Government sought to bring minimum wages to a level judged sufficient for meeting basic human needs (Chart 5). In 1995, minimum wages were increased by 18.6 percent on average, taking them above the defined minimum living standard. Over the same five-year period, consumer prices increased by 70 percent. While market-determined minimum wages in the formal sector are usually above the legal minima, there is increasing evidence of significant effects of large minimum wage increases on average wages, investment, and employment.10

The Government announced an average minimum wage increase of 10.6 percent for 1996/97, in excess of targeted inflation. Moreover, the actual increase would be significantly larger for those workers whose monthly minimum wages were henceforth to be calculated on the basis of 30 paid working days rather than 25 days. There was a sharp increase in the number of enterprises asking to delay introduction of the new minimum wages. Civil service salary rates were increased by 10 percent for the fiscal year 1996/97.

III. Balance of Payments and External Debt11

The balance of payments is estimated to have registered a surplus of $3.4 billion in 1995/96, a substantial turnaround from the deficit ($1.4 billion) a year earlier, and a return to the marked surpluses observed in the period 1990/91-1992/93. The current account deficit widened from $3¼ billion (1.8 percent of GDP) in 1994/95 to $6.9 billion (3.4 percent of GDP) in 1995/96, largely reflecting a sharp deterioration in the trade balance as imports increased rapidly in response to demand pressures (Charts 7 and 8). Both the oil/gas and non-oil/gas balances worsened, though the overall deterioration was largely driven by the non-oil/gas account.

  • The oil/gas current account surplus declined from $3.8 billion in 1994/95 to $3.4 billion in 1995/96, largely reflecting lower oil export volumes.

  • The non-oil/gas trade deficit is estimated to have expanded from around $2 billion in 1994/95 to $4½ billion in 1995/96. Combined with a deterioration in the services balance of around $0.75 billion, the overall non-oil/gas current account widened by over $3 billion.

The current account widening was associated with strong capital inflows—both portfolio and fixed investment—over the year as a whole, though the pattern was somewhat variable through the year. These inflows financed the expanding current account deficit without significant pressure on the exchange rate or outflow of reserves; in fact, official foreign assets increased by $3.4 billion in the year to March 1996.

A. Current Account

Analyzed from a savings-investment point of view, the current account widening in 1995/96 of 1½ percentage points of GDP reflected strong investment growth outstripping a continuing rise in national savings.

  • Total investment as a share of GDP is estimated to have risen by 4 percentage points—to 38 percent, with private investment rising by 5½ percent of GDP and public investment falling 1½ percent of GDP.

  • National savings rose from 32½ percent to 35½ percent of GDP. Public savings declined by over ½ percent of GDP, although with lower public investment the overall fiscal balance is estimated to have improved. As noted earlier, initial estimates of private savings indicate a jump by 3½ percentage points of GDP.

Total exports, in U.S. dollar terms, grew by 10 percent to $46.2 billion in 1995/96, and in volume terms rose by 6 percent. The overall outturn masked divergent trends between falling oil/gas exports, relatively flat “traditional” non-oil/gas exports, and rapid growth for some increasingly important “nontraditional” categories of exports.

Oil/gas exports fell by about 4 percent in 1995/96, with oil exports, in particular, declining quite sharply from their high 1994/95 levels. Oil exports totaled around $6 billion, 13 percent of total exports (Chart 11). Lower volumes than in 1994/95, which declined to about the average level recorded over the previous six years, accounted for the decline in oil receipts, with prices firmer than in the previous year. Despite slightly higher production, higher domestic consumption lowered export volumes. The fall was concentrated in crude oil exports, with exports of oil products marginally lower. Gas exports (largely LNG) were stable. LNG export volumes declined, while a slightly higher price maintained receipts. In contrast, the LPG price declined from a high point in 1994/95 toward the average level recorded over the previous six years. Gas exports totaled around $4.1 billion.

CHART 11
CHART 11

INDONESIA: EXPORT SHARES, 1995

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.

In 1995/96, non-oil/gas exports grew by 14 percent in U.S. dollar terms and 10 percent in volume terms. (At $36.1 billion, non-oil/gas exports represented about 18 percent of GDP and over 75 percent of total exports.) Industry-specific factors significantly affected overall export developments. Agriculture exports increased markedly—rubber exports grew strongly (up 63 percent), but coffee exports fell as coffee prices declined from their peak recorded in 1994. Mining exports grew by nearly 20 percent, with tin and copper exports up by around 50 percent, and aluminum by about one third. In contrast, coal and nickel exports were relatively flat or declining. Manufactured exports increased by 9 percent, more slowly than other categories of non-oil/gas exports. Electrical appliance exports continued their rapid growth (up 60 percent, Chart 9), and paper exports also surged by 70 percent, with pulp/paper prices high for much of the year. Chemical-related exports rose 40 percent. These latter three categories explained more than three-quarters of the total growth in manufactured exports. By contrast, wood products and plywood exports declined by 3 percent in 1995/96.

In the first-half of the year, non-oil/gas exports were held down by supply problems in the textiles and wood product industries—the two largest industrial categories, comprising 40 percent of manufactured exports. In addition, strong domestic demand appears to have diverted sales to the domestic economy. For example, cement exports fell from $100 million in 1992/93 and $37 million in 1994/95 to only $9 million by 1995/96. However, rapid growth was maintained in a number of industries, such as electrical and chemical goods. In the second-half of the year, a resumption of textile exports and strong growth in mining exports supported overall export growth, although plywood sales remained weak and declines in some other major categories (e.g., palm oil) resulted in a similar rate of total export growth as in the first half year.

Imports jumped sharply in 1995/96, increasing by 17 percent in U.S. dollar terms to $44.5 billion. Oil and gas imports declined marginally, while non-oil/gas imports increased by 20 percent. The rate of growth was particularly strong in the first-half of the year, exceeding 30 percent. High investment and consumption growth, rice shortages, and increasing openness to trade were key factors. Import growth abated to less than 10 percent in the second-half of the year.

Consumption goods imports, which form merely 6 percent of total imports, increased by over 50 percent, with virtually all sub-categories growing rapidly (Chart 8). Exceptionally rapid growth in consumption imports was recorded in the first half year, but this mostly reflected the rice shortages. Car imports were the fastest growing sub-group, but these account for a very small fraction of imports (0.3 percent). By far the largest category of imports (approximately three-quarters) was raw materials, which increased by 19 percent in U.S. dollar terms in 1995/96, partly reflecting food shortages (processed food and beverage imports doubled), and demand for intermediate goods that are processed to the finishing stage in Indonesia (e.g., car components), which grew by 23 percent.

Selected Non-Oil/Gas Import Categories 1/

(Percent change on year earlier)

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Data provided by Bank Indonesia.

Percent of total 1995/96 non-oil/gas imports.

Cereal imports include a portion classified as intermediate goods imports.

While higher demand was the dominant influence in 1995/96, gradually rising import penetration has also contributed to the rapid import growth in recent years. Import penetration (defined as the ratio of non-oil imports to domestic expenditure plus non-oil exports) increased from 16 percent in 1994/95 to 17 percent in 1995/96. Partly a cyclical phenomenon, this marked a resumption of a longer-term trend—penetration has increased since 1988/89, when it was 13 percent (Chart 7). Declining tariff and nontariff barriers and some shifts in demand in favor of foreign goods are factors in the trend increase in import growth.

B. Trade Policy

Indonesia extended trade liberalization measures during 1995/96, following important commitments under multilateral and regional trade agreements. In May 1995, the Government introduced a substantial package of rules-based, across-the-board tariff reforms, scheduled to be introduced in stages to 2003. The package lowered tariffs on 6,000 items and resulted in a significant and immediate reduction in the average tariff rate from 19½ percent to 15 percent (12.5-9.5 percent on an import-weighted basis). The dispersion of rates was also reduced. Further reductions in tariffs were also scheduled over the period to 2003, in line with the accelerated ASEAN Free Trade Area (AFTA) Common Effective Preferential Tariff (CEPT) scheme, that would reduce the average (unweighted) tariff rate to 7 percent.12 In addition, there was a minor reduction in nontariff barriers with quantitative import restrictions replaced by tariffs on some manufacturing items. However, 35 percent of agricultural production and 30 percent of manufacturing production remained protected by import licensing restrictions. Foreign investment limitations were eased and a negative list introduced.

In January 1996, the Government introduced a further deregulatory package, aimed at enhancing the competitiveness of exports. The main elements of the package were: (i) tariff reductions of between 5 percent and 15 percent (predominantly 5 percent) on 428 products, mostly capital goods, and simplification of the tariff code with the removal of 1,100 items; (ii) reductions in import licensing on 80 products, mostly steel; (iii) an extension of the import duty drawback facility to goods supplied by existing exporters to firms in export processing zones; (iv) provision for wholly-owned foreign firms to export manufacturing, forestry, farm, fish and mining goods, and for foreign firms to import capital goods and raw materials for exports from export-processing zones; and (v) removal of export taxes on processed animal leather, aluminum scrap alloy, and sandalwood.

The scope of this second package was relatively small, with the average tariff rate estimated to fall to 14.2 percent. In February 1996, there were also two measures adopted that increased protection for individual companies: additional tariff protection was granted to PT Chandra Asri through a 20 percent tariff surcharge on propylene and ethylene imports, and preferential tax and duty arrangements were established for approved national car manufacturers.

C. Capital Account and Official Reserves

Strong private capital inflows were registered in 1995/96, with foreign direct investment more than doubling and portfolio and other private capital flows also rising sharply. A small net outflow of official capital was recorded, as the Government prepaid high interest-bearing external debt. Total net capital inflows were estimated at $10.3 billion (inclusive of errors and omissions)-5 percent of GDP—generating a surplus over the current account deficit, which was reflected in the increase in gross official assets of $3.4 billion.

All categories of private sector capital flows showed strength in 1995. High levels of investment approvals in both 1994 and 1995 were reflected in a sharp increase in foreign direct investment from $2½ billion in 1994/95 (1.4 percent of GDP)—and from an average of $2½ billion (1 percent of GDP) over the previous four years—to $5½ billion of investment (2.6 percent of GDP) in 1995/96. Foreign direct investment was buoyed by the relaxation of foreign investment controls, trade liberalization, and Indonesia’s strong economic performance, and represented approximately 9 percent of fixed capital investment by 1995 (Chart 6). Large increases in investment approvals were recorded from the United Kingdom, Germany, Australia, and the United States, and industrial country investment increased sharply in the petro-chemicals, manufacturing and services sectors. Asian investment remained at high levels in 1995, with Malaysian and Japanese investment rising while approvals for investment from Hong Kong and Taiwan Province of China declined sharply.

Private foreign borrowing, including through the nonbank sector (e.g., commercial enterprise borrowing via commercial paper and nonbank financial institutions (NBFIs)), rose sharply, with a net inflow of approximately $8 billion (4 percent of GDP) recorded. Substantial increases in financing were extended to the property, industrial and service sectors. Lenders may have been attracted partly by the increased interest differential in the second-half of 1994 which was sustained through 1995, at around 8 percentage points above LIBOR.13 Portfolio equity investment inflow also increased, especially in the second-half of the year and was associated with the stock market index rising by about 20 percent from September 1995 to March 1996.

Official capital flows were maintained at similar levels to those prevailing in 1994/95. With the central government recording an overall surplus and making further asset sales, the public sector reduced its borrowing from abroad for the second consecutive year; a net official capital outflow of $0.5 billion was recorded. Outflows—resulting from the debt prepayment and rising routine amortization costs-reached $6½ billion, up $0.5 billion on 1994/95. Drawings declined in 1994/95-1995/96 relative to the early 1990s.

Gross official foreign assets (including contingent assets) stood at $20.6 billion at end-March 31, 1996 compared with $17.1 billion one year earlier. Movements in reserves can be separated into three distinct periods (Chart 12). In the period from June through mid-August 1995, the rupiah was at the appreciated limit of the rupiah/U.S. dollar band, and there was a substantial rise in official foreign assets. Reserves—including valuation effects, as the yen depreciated against the U.S. dollar—were then broadly stable until February 1996, when they again increased significantly as capital flows accelerated, and reached the equivalent of 5.2 months of imports by end-March 1996.

CHART 12
CHART 12

INDONESIA: EXCHANGE RATE AND RESERVE MOVEMENTS, 1995-96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities and Reuters.1/ Until January 2, 1996, when the band was increased to three percent, the upper (lower) band was also Bank Indonesia’s announced buying (selling) rate for transactions with government, as well as with commercial banks during the late afternoon squaring sessions.2/ From January 2, 1996, these conversion rates (with two percent spread) apply only to transactions of Bank Indonesia with the government and supranational organizations, and for export drafts.

D. External Debt

The stock of external debt is estimated to have risen from $96 billion as of end-1994 to an estimated $101 billion by March 1995, and to an estimated $108 billion by end-March 1996. Although the U.S. dollar value of the debt increased by $7 billion in 1995/96, and debt levels remained high relative to some other Asian countries, the external debt burden declined further in relation to both GDP and exports. External debt as a ratio of GDP declined from 57 percent at end-March 1995 to 55 percent at end-March 1996, and from 215 percent of exports of goods services to 209 percent over the same period. Public debt servicing (amortization plus interest payments including prepayments) declined slightly as a share of exports in 1995/96 to below 20 percent, continuing the trend over the last five years. Exclusive of prepayments, the debt service/exports ratio was 18.5 percent.

Public sector external debt is estimated to have declined by $4½ billion to $63 billion (32 percent of GDP) in 1995/96, while private sector debt increased by nearly $12 billion, to $45 billion (23 percent of GDP). Since the public debt is predominantly of medium to long maturities, the increasing proportion of private debt in the total is reducing the average maturity of outstanding obligations. Two reinforcing effects were at work in 1995/96:

  • Public sector net borrowing declined during the year, acting to reduce debt. Movements in central government debt largely explain overall public sector movements, since public enterprise debt at around $4.9 billion has been broadly constant in U.S. dollar terms since 1992/93. The sale of shares in PT Telkom and PT Timah in addition to a central government surplus allowed the Government to make prepayments of some $725 million during 1995/96, in addition to routine (public sector) amortization payments of $5.9 billion.

  • Valuation effects associated with the appreciation of the U.S. dollar against the yen by 20 percent (from 89 yen/US$ at end-March 1995 to 107 yen/US$ at end-March 1996) are estimated to have reduced overall public debt by $4.3 billion in 1995/96. The debt is predominantly yen (41 percent) and U.S. dollar (40 percent) denominated, with the yen share decreasing and the U.S. dollar share correspondingly increasing during 1995/96. Valuation effects have added around $2½ billion, per year, to public debt on average since 1990.

IV. Public Finance14

A. Introduction

The conduct of fiscal policy15 in Indonesia is strongly influenced by a balanced budget rule. Since the late 1960s, the Guidelines for State Policy require that in each fiscal year total central government expenditures be equal to revenues as defined in the budget. However, some short-run flexibility in fiscal policy has been achieved in recent years, within the context of the balanced budget rule16 (Box 1). For example, since the onset of rapid economic growth in the late 1980s, fiscal policy has often acted in a counter-cyclical fashion-both through the impact of automatic stabilizers on the revenue side as well as deliberate policy decisions by the Government—with the fiscal position moving into surplus during periods of rapid economic growth and emerging overheating pressures, and weakening during periods of slower economic growth. The tightening in the fiscal position during 1995/96, when the overall balance improved by almost 1 percent of GDP, was consistent with this pattern, and helped mitigate demand pressures.

The Balanced Budget Rule

The conduct of fiscal policy in Indonesia follows a balanced budget principle. Total budgeted expenditure in any given fiscal year must be equal to projected revenue as defined in the budget The national presentation of the budget defines revenue to include foreign borrowing, and expenditure to include all debt service payments (interest and amortization). This policy also requires that domestic revenues be sufficient to cover routine expenditure (which includes amortization payments) and a portion of development expenditure. In addition, to the extent that development expenditure exceeds public savings, the gap can only be filled by foreign borrowing. The balanced budget rule aims to prevent recourse to domestic bank and nonbank financing. Deficits and surpluses on the national presentation can exist, but generally only on an ex-post basis.

In practice, however, there are leakages from the balanced budget rule. Deficits and surpluses can exist according to standard Fund classification of fiscal accounts depending, for example, on the level of net foreign financing. Moreover, the rule gives some incentive to record transactions outside the formal budget, including through the use of “nonbudgetaiy” government deposit accounts. Net spending from these accounts has been limited in the last several years, but in earlier years movements in the nonbudgetary accounts were substantial.

The fiscal outturn in 1995/96 was substantially stronger than originally budgeted. The overall central government balance improved to a surplus of 1 percent of GDP, while the balance excluding oil/gas revenue improved to a deficit of 2 percent of GDP. Both oil/gas revenue as well as non-oil/gas revenue exceeded budget estimates, with total revenue and grants remaining at about 15 percent of GDP. Current expenditure in 1995/96 also exceeded budget estimates and increased to an estimated 9 percent of GDP. Accordingly, the improvement in the overall central government position reflected a reduction in estimated development expenditure and net lending to 5¼ percent of GDP.17

Fiscal Policy Stance, 1988/89-1995/96 1/

(Percent of GDP)

article image

Staff estimates.

Calculated from the ratio of revalue and expenditure relative to GDP in 1989 applied to actual GDP and potential GDP, respectively, in the current year.

Difference between actual and cyclically neutral position (negative value implies contractionary outturn or surplus).

Difference between the cyclically neutral balance and the actual overall balance.

Change in fiscal stance (negative value implies a contractionary impulse).

Following a weakening of oil revenues in the early 1980s, the strong program of fiscal adjustment that was initiated involved significant changes in the structure of the fiscal accounts. Reductions in development expenditure (relative to GDP), tax system reform, and improvements in tax administration contributed to an improvement in the overall balance relative to GDP by around 6 percentage points, and by 15 percentage points in the non-oil/gas balance between 1982/83 and 1995/96 (Chart 15). While oil revenues have declined substantially relative to GDP, non-oil/gas revenues have increased and, as a result, total revenue and grants have been maintained at about 15 percent of GDP. Even in 1995/96, a year of higher-than-expected prices, oil/gas revenue accounted for only 23 percent of total tax revenue (3 percent of GDP). At the same time, income taxes and taxes on goods and services have continued to increase in importance as revenue sources, although income taxes fell slightly relative to GDP in 1995/96 owing to the full-year impact of a reduction in income tax rates that took effect in January 1995. Substantial changes in expenditure patterns have also occurred since the mid-1980s. Current expenditure has trended down, but increased slightly to nearly 9 percent of GDP in 1995/96. The level of development expenditure and net lending has varied in relation to GDP, but has declined steadily in recent years, a trend which continued in 1995/96.

CHART 13
CHART 13

INDONESIA: EXCHANGE RATES AND OIL PRICE INDICES, 1980-96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Sources: International Monetary Fund, Information Notice System; international Financial Statistics; and staff estimates.1/ Deflated by consumer price index as measured in U.S. dollars.
CHART 14
CHART 14

INDONESIA: MONETARY CONDITIONS, 1992-96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Sources: Data profited by the Indonesian authorities; and IMF. Information Notice System.1/ SBI minus LIBOR.2/ 3-month rate less 12-month rate.
CHART 15
CHART 15

INDONESIA: FISCAL INDICATORS, 1980/81-1995/96

(In percent of GDP)

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.1/ Derived from the sum of the current balance end net financing.

B. Central Government Finances

1. Developments in 1995/96

The overall central government budget recorded a surplus of Rp 4.5 trillion (1 percent of GDP), owing to higher-than budgeted revenue collections and expenditure restraint (especially with respect to development expenditure and net lending). This outturn, together with the funds raised from the sale of shares in PT Telkom and PT Tambang Timah, allowed for a further significant buildup in government deposits with the banking system, and a reduction in external public sector debt (Chart 15).

Total revenue collections (including grants) in 1995/96 amounted to Rp 70.3 trillion (15 percent of GDP), exceeding the original budget estimates by about Rp 3.6 trillion (½ percent of GDP). Both oil/gas and non-oil/gas revenues were stronger than expected, but most of the increase in revenues came from higher non-oil/gas taxes that was partially offset by a shortfall in nontax revenue. Income tax collections from the oil/gas sector were Rp 14.8 trillion (3 percent of GDP) as the average oil price was $17.30 per barrel compared to the original budget assumption of $16.50, and production volumes were slightly higher than assumed in the budget. Revenue from natural gas also benefited from slightly higher prices and volumes than expected. Against the background of an estimated 17½ percent growth in nominal GDP, total non-oil/gas tax revenue increased by 19 percent in 1995/96 to Rp 48 trillion (10½ percent of GDP), and was Rp 3.5 trillion above original budget estimates. All categories of taxes, except taxes on international trade, were significantly higher than original budget estimates, reflecting higher-than-projected economic growth, relatively conservative estimates in the original budget, and some ongoing improvements in tax administration (see below).

  • Non-oil/gas income tax collections increased by 12 percent to Rp 20.5 trillion (4½ percent of GDP)18 and accounted for about one-third of total tax revenue. Income tax collections fell slightly relative to GDP owing to the full-year impact of income tax reductions that took place with effect from January 1,1995.

  • Taxes on goods and services increased very rapidly, reflecting robust economic growth, as well as some impact from improvements in tax administration. Revenue from value-added taxes grew by 30 percent in 1995/96 to Rp 18.4 trillion (4 percent of GDP), 29 percent of total tax revenue.

  • Excise taxes and property taxes (about ¾ percent and ¼ percent of GDP, respectively) grew strongly in 1995/96. While property tax revenues increased, their contribution to federal revenue continued to be limited by weaknesses in administration at the local government level, where the tax is collected. (Moreover, the fact that 91 percent of property tax collections is shared with local governments means that the net impact on the overall fiscal position is limited.)

  • Taxes on international trade amounted to Rp 3.4 trillion (¾ percent of GDP), and 5 percent of total taxes, slightly lower than the budget projection and below the amount recorded in 1994/95. Import duty collections declined, despite the large increase in import volumes during the year, owing to reductions in import tariffs and the fact that a large share of imports was in categories that carried low duty rates (e.g., food, capital, and intermediate goods).

Nontax revenue amounted to Rp 6.6 trillion (1½ percent of GDP), an increase of 18 percent over 1994/95, but lower than budget estimates. Profit receipts (including from BI) totaled only Rp 1.5 trillion. Dividends received were below budget forecast, and significantly lower in relation to projected public enterprise after-tax profits than in 1994/95, as some large public enterprises retained more of their profits to finance investment expenditure. Other nontax revenue (including revenue from the reforestation fund, repayments associated with two-step loans, self-financing generated from education and hospitals, and other fees) remained constant at about Rp 4.6 trillion.19 The surplus on domestic oil operations declined in 1995/96 to Rp 490 billion, substantially below budget estimates. Revenue from this item has declined since the last retail price adjustment in January 1993, despite large increases in the volume of domestic sales, owing to increases in international prices (measured in rupiah).20 Taking into account the repayment made to Pertamina following the audit of their 1993/94 accounts (which is treated as an expenditure item), the impact on the budget of domestic oil operations was negative in 1995/96 for the first time since 1992/93.

Tax measures introduced in 1995/96 included a reduction in income tax rates and a widening of tax brackets, an expansion in the coverage of the VAT to include intangible goods and self-constructed homes, increased tax withholding, higher luxury taxes on some items, and taxes on property and stock transactions.21 Despite efforts to broaden the tax base there remain major exemptions. Exemptions from the VAT include agricultural and mining products, essential commodities such as rice and salt, some utility services, and other services (e.g., medical, education, art, banking). For the income tax, major exemptions that still exist include: (i) profits earned on contracts awarded from foreign aid funds; and (ii) longer periods of loss carry forward and accelerated depreciation for foreign investments in certain sectors or geographical areas. Efforts to improve tax administration also continued in 1995/96. The monitoring of VAT compliance improved with the introduction of a negative list, so that all sectors are subject to the VAT except those specially mentioned in the negative list. In addition, efforts to improve tax reporting, tax collections, and tax enforcement that were initiated in earlier years were continued.

Total expenditure and net lending in 1995/96 increased by 8 percent to Rp 65.8 trillion (14 percent of GDP), and was less than the budget estimates (by Rp 2.3 trillion) owing to shortfalls in estimated development expenditure and net lending which more than offset higher-than-budgeted current expenditure. Development expenditure and net lending declined by about 3½ percent of GDP during the period 1992/93-1995/96, and was the main factor behind the decline in total expenditure and net lending from 17½ percent of GDP to 14 percent of GDP during this period.

  • Current expenditure exceeded budget estimates owing to two main factors: (i) the original budget projections for materials expenditure were underestimated by Rp 1.1 trillion, partly reflecting a move to bring on budget spending formerly financed by own-revenue of some government agencies, as well as some expenditure that was previously classified as development expenditure; and (ii) there was an unbudgeted repayment of Rp 1.5 trillion to Pertamina, the national oil company. The payment of Pertamina followed the audit of Pertamina’s accounts for 1993/94 which showed higher than assumed costs, requiring a reimbursement from the Government. As a result, current expenditure reached Rp 41.6 trillion (9 percent of GDP).

  • Development expenditure and net lending in 1995/96, estimated at Bp 24.2 trillion (5¼ percent of GDP) was substantially below budgeted levels owing to lower-than-expected development expenditure, as well as an increase in the balances in government deposit accounts, which are reflected in the IMF presentation as part of estimated development expenditure and net lending.22

Net foreign financing of the budget in 1995/96 was negative for the second consecutive year (¼ percent of GDP) and reflected the use of privatization receipts to repay relatively expensive external debt to multinational regional institutions. Total domestic financing was also negative (¾ percent of GDP), as overall central government operations provided room for a further buildup of government deposits in the banking system.

2. The Budget for 1996/97

While the 1996/97 budget conformed to the tradition of presenting a balanced budget, the President’s budget speech on January 7,1996 recognized the role that fiscal policy can play (especially through the mobilization of additional revenue) in reducing overheating pressure and containing import demand. It was also stated that any fiscal surplus generated would be used to continue the process of repaying expensive external debt.

The budget for 1996/97 included an increase of 19 percent in both revenue and expenditure from the 1995/96 budget. However, in IMF format—and against the background of an increase in nominal GDP of 17 percent—the budget implied only an 11 percent increase in revenue, but a 19 percent increase in total expenditure and net lending from the estimated 1995/96 outturn, moving the overall fiscal position into a small deficit (0.1 percent of GDP). The loosening of the budgetary position relative to 1995/96 could be avoided as in both 1994/95 and 1995/96, the outturn proves better than budgeted.23 No new specific revenue measures were introduced with the 1996/97 budget. Efforts at improving tax administration are to continue, especially to improve VAT and income tax collections. Total revenue and grants were budgeted to fall to about 14½ percent of GDP in 1996/97 from 15 percent in 1995/96. Oil/gas revenue was expected to continue its trend decline and fall to 2½ percent of GDP (assuming an average oil price of $16.5/barrel for 1996/97), while non-oil/gas revenue was budgeted to remain at about 12 percent of GDP.

Current expenditure was programmed to increase by 10 percent (above the 1995/96 outturn), but after adjusting for the unbudgeted payment to Pertamina in 1995/96, the implied increase is 14 percent. The budget for current expenditure provided room for a further increase in domestic materials expenditure and a 19 percent increase in the wage and salary bill.24 Development expenditure in 1996/97 was budgeted to increase from the 1995/96 outturn by 35 percent to Rp 32.8 trillion (6 percent of GDP). Within this amount, there were no major shifts in allocation from recent years. It had been expected that budgetary allocations for telecommunications and energy could be reduced as a result of the partial privatization of PT Telkom and increased private provision of electric power. While budgetary allocations to these two sectors continued to increase in nominal terms, their share of the overall development budget declined. In addition, regional development also received a lower share of the development budget than in recent years, while shares allocated to education, health, housing, agriculture, and transportation were budgeted to increase.

C. Provincial Governments and Public Enterprises

Indonesia has a highly centralized government with central government expenditures accounting for about 90 percent of general government expenditures, with provincial governments making up most of the remainder. The central government also raises about 90 percent of general government revenue, and the largest part of provincial and local government revenue comes from transfers from the central government, with the remainder coming from shared revenue sources (property tax and natural resource royalties) and own-source revenues (user fees and profit transfers from certain state enterprises). Total provincial government expenditure for 1995/96 was budgeted at about 2 percent of GDP of which two-thirds was current expenditure. This expenditure was financed mostly by transfers from the central government (about 1¼ percent of GDP) and supplemented by own revenue sources (¾ percent of GDP), leaving the overall position of provincial finances in broad balance.

The public enterprise sector consists of some 180 enterprises. Public enterprises had a total equity value of about Rp 143 trillion ($66 billion) at end 1994, accounted for about 15 percent of GDP, and employed about 1½ percent of the labor force. While complete consolidated public sector accounts are not available, until recently the overall public sector position was largely determined by the central government and a few major public enterprises such as Pertamina and Garuda. However, with the acceleration of the program of partial divestiture, major public enterprises, including PT Indosat, PT Telkom, and Perusahaan Listrik Negara (PLN, the state owned electricity company), are retaining part of the receipts from share sales, as well as from equity and bond issues. Central government activities will therefore increasingly understate the impact of the public sector on the economy in future years.

The total external debt of public enterprises was estimated at $4.9 billion at end-March 1996, placing total public sector debt at $63 billion (30 percent of GDP). The external borrowing of state enterprises has been controlled since 1991 by the Commercial Offshore Loan Team (COLT). Regulations set ceilings on commercial foreign borrowings by BI, state banks, private banks, state-owned companies, and private companies for the five fiscal years ending in 1995/96. Ceilings, at reduced levels, were issued for 1996/97. The ceilings on private companies are only indicative and private borrowings have substantially exceeded the indicative “ceilings.” However, the regulations have restrained offshore borrowing by state banks and state-owned companies as well as improving BI’s ability to monitor external borrowing.

With a view toward reducing the scope of the public sector, the Government initiated an ambitious public enterprise restructuring and divestiture program in 1989. Progress was very slow until 1994, with only one public firm offered for divestment. However, since 1994 the public enterprise reform program has been speeded up through divestitures and increased private provision of services mainly in telecommunications, energy, and transportation. PT Indosat was partially divested in 1994 through the sale of 25 percent of its equity in New York and the parallel increase of capital by 10 percent locally that raised $1.16 billion in total. In 1995, Indonesia sold 20 percent of PT Telkom’s capital for $1.68 billion through listings in New York and London (7.5 percent) and in Jakarta and Surabaya (12.5 percent). At the same time, project-linked private investments were also undertaken in telecommunications, energy, and transportation. In addition, PT Tambang Timah (a tin mining company) was also partially divested in 1995 through the sale of 25 percent of its capital in overseas markets, and increased its capital by 10 percent through a parallel listing on the domestic market, raising about $200 million in total. The Government also announced its intention to partially divest Krakatau Steel, PLN, Bank Negara Indonesia, Jasa Marga (a toll road operator), Aneka Tambang (a mining company), and Garuda Indonesia in the near future. Plans are also under way to further consolidate the publicly owned plantations prior to their divestiture.

V. Financial Sector25

The financial system in Indonesia is dominated by the banking sector, and since the 1988 deregulation, the number of commercial banks has more than doubled to about 240. There are seven state banks, including the state development bank (BAPINDO). In recent years the role of private banks has increased rapidly and the share of total bank assets accounted for by private banks has increased from one fourth in 1988 to more than one half in 1995. There are also some 8,000 rural banks, a number of nonbank financial institutions, and a capital market that is still at a relatively early stage of development.

The growth in money and credit aggregates, which began in mid-1993 following the shift in policy focus to supporting economic growth, continued into 1995/96. Broad money growth increased in 1995/96, while growth in narrow money eased a little. The continued rapid expansion of credit to the private sector contributed to the substantial rise in domestic demand and the pressures on inflation and the external current account. Moreover, the continued development of financial markets provided additional sources of funds including lending by nonbank financial institutions, as well as commercial paper and equity markets. The rupiah/U.S. dollar exchange rate continued to depreciate steadily during 1995/96, reflecting the inflation differential with partner countries, while at the same time BI moved to increase the short-run flexibility of the exchange rate by widening the intervention band. There was improvement in some overall indicators of the financial position of banks—although important areas of risk remained—and BI moved to strengthen bank regulation and supervision in 1995 by issuing several new regulations.

A. Monetary Policy Objectives

Repelita VI established the objective of reducing the annual inflation rate to no more than 5 percent on average over the period 1994/95 to 1998/99. While no formal annual inflation target exists, policy has been geared to maintaining inflation below 10 percent, and to restraining money and credit growth accordingly. Money and credit targets were set for 1995/96 at 20 percent for broad money and 19 percent for bank credit, while for 1996/97, the targets are 17 percent and 16 percent, respectively.

Monetary policy has also been set against the background of maintaining a broadly stable real exchange rate. Although there have been fluctuations over short time periods, the authorities have succeeded in keeping the real effective exchange rate broadly constant since 1987 (Chart 13). In practice, the implementation of monetary policy has allowed a depreciation of the rupiah against the U.S. dollar by about 5 percent per year, reflecting, on average, the inflation differentials between Indonesia and partner countries.

In the face of internationally mobile capital flows, the inflation, money growth and exchange rate objectives have at times come into conflict. As a partial remedy, Indonesia has progressively widened its exchange rate band. The most recent widening was in January 1996, when the band was widened from 2 percent to 3 percent around the middle rate (Box 2). Although still narrow, the band provides some limited scope for enhancing the effectiveness of monetary policy.

Exchange Rate Policy Developments

Indonesia instituted a managed float on November 15,1978. The initial rate established for the rupiah on that date was Rp 625 per U.S. dollar. On March 30,1983 the rupiah was devalued by 28 percent, and on September 12,1986 it was devalued by a further 31 percent BI sets a central rate for the rupiah based on a basket of foreign currencies and intervenes in the foreign exchange market to buy or sell rupiah at an intervention band around the central rate. As of end-March 1996 the central rate was Rp 2,344 per U.S. dollar and the market rate Rp 2,338 per U.S. dollar.

The rupiah/U.S. dollar exchange rate band was widened twice during 1995/96—to Rp 44 per U.S. dollar in June 1995 (about 2 percent), and then to Rp 66 per U.S. dollar (3 percent), effective January 2 1996. This followed previous widenings from Rp 6 per U.S. dollar to Rp 20 in January 1994 and to Rp 30 (about 1½ percent) in September 1994.

A distinction is now made between the “intervention band” (now at 3 percent) within which the interbank market rate fluctuates freely, and the “conversion band” (with a 2 percent spread) which BI applies to transactions with the government, supranational institutions, and to export drafts. The widening of the exchange rate band was intended to enhance the effectiveness of monetary policy.

The intervention band and conversion rates are determined daily by BI, and announced to the market BI usually intervenes in the foreign exchange market only when the market rate threatens to breach the intervention band.

B. Overall Monetary Developments

The rate of growth of broad money increased from an average of 22 percent in 1993/94 and 1994/95 to 28 percent in 1995/96. As in 1994/95, the expansion in domestic assets in 1995/96 was the main source of broad money growth, although in contrast to the previous year, the contribution of net foreign assets was also positive (Chart 16). The growth of broad money in 1995/96 exceeded the 18 percent growth in narrow money as large increases in time-deposit rates encouraged a shift out of narrow money. Correspondingly, the growth of quasi-money—which includes rupiah time and savings deposits as well as foreign currency deposits—increased by 31 percent in 1995/96, compared with 23 percent in 1994/95.

CHART 16
CHART 16

INDONESIA: MONEY AND CREDIT GROWTH, 1990/91-1995/96

(Percent change on year earlier)

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: Data provided by the Indonesian authorities.

Reserve money growth declined substantially in the first half of 1995/96 (falling to 12 percent in September 1995), before accelerating again at the end of the fiscal year, following the increase in the reserve requirement (see below) which substantially increased bank reserves in the central bank. The growth of currency outside banks showed a similar pattern during 1995/96. After increasing at rates in excess of 30 percent in 1994, the growth in currency declined to 11 percent in September 1995 before increasing slightly to 15 percent in March 1996. In contrast to 1994/95, the increase in reserve money in 1995/96 was fully accounted for by an increase in net foreign assets. Net domestic assets declined in 1995/96 owing to a substantial decrease in net claims on the government by Rp 4.4 trillion and an increase in the outstanding SBI/SBPU position by Rp 1.4 trillion, which was more than sufficient to offset a large expansion (by Rp 3.4 trillion) in BI liquidity credits.

Credit expansion was also rapid for most of the year, growing at rates similar to overall broad money growth until November 1995, when credit growth began to moderate. With the central government’s position in surplus during the year, the increase in government deposits helped moderate domestic credit growth. Total private sector credit grew at an annual rate of 27 percent for the first half of the year before declining to an annual growth rate of 22 percent by end-March 1996. The increase in bank credit was evident in all sectors, although the increase was especially sharp in the housing/real estate sectors (up 38 percent in the year ended December 1995). Part of the increase in domestic credit has been sustained by the issuance by banks of certificates of deposit (CDs), many of which are believed to be held by nonresidents. Given the widening interest rate differentials between onshore and offshore borrowing, CD issuance expanded rapidly during 1995-from Rp 2.5 trillion in December 1994 to Rp 7.8 trillion in December 1995, and Rp 9.2 trillion in February 1996.

C. Monetary Operations During 1995/96

Open market operations using SBIs remained the main instrument of money management for BI. Discount operations on SBPUs, and the issuance of liquidity credits, at times, also provided important monetary influences. In addition, in December 1995, the central bank announced that reserve requirements would be increased from 2 percent to 3 percent with effect from February 1996.26 In addition, the influence of fiscal policy on monetary policy and reserve money growth was particularly evident in 1995/96, as steady rises in government deposits, due to the tightening fiscal position, were the largest single influence in moderating reserve money growth.

Over the course of the fiscal year, open market operations reduced money growth—after having boosted it substantially in the first quarter of 1995. Outstanding SBIs declined very sharply during the March quarter of 1995 at a time when there were some moderate capital outflows. However, the volume of SBI purchases by BI exceeded movements in net foreign assets and contributed to an increase in reserve money growth. In response, SBI sales were increased in June-July as BI endeavored to sterilize a resumption of foreign asset growth. For the remainder of 1995/96, changes in the SBI/SBPU position (on a net basis) made only a moderate contribution to reserve money growth. Partially offsetting these SBI operations, BI increased the provision of liquidity credits significantly in the second-half of 1995/96 in order to support the banking system, and for BULOG operations. Liquidity credits outstanding were 30 percent higher in March 1996 than a year earlier, contributing substantially to reserve money growth.

In addition to market-based instruments of monetary control, owing to concern over the impact of credit growth on inflation and excess aggregate demand, BI placed greater emphasis on restraining bank credit through moral suasion. The target announced at the beginning of 1995/96 for domestic credit growth was to be met in part by asking banks to submit their credit plans to BI and to keep the growth of credit to within reasonable limits. In the event, credit growth in 1995/96 still exceeded the target range. As a result, bilateral consultations between the central bank and commercial banks were further intensified in early 1996 with a view to holding credit growth within the targeted range for 1996/97.

The combined effect of monetary operations in 1995/96—defined to include claims on government and liquidity credits—was a negative contribution to liquidity growth over the year. However, monetary conditions remained relatively unchanged from March 1995 to March 1996, as government operations were offset by net foreign asset growth. As a result, money market interest rates were broadly stable over the fiscal year. Interest rates rose in January to March 1995, before stabilizing and then softening slightly in the period December 1995 to March 1996. The discount rate on 30-day SBIs, a representative short-term money market interest rate, which had risen by 350 basis points the previous year, rose from 12½ percent in December 1994 to 14¾ percent at end-June 1995, but declined to 14 percent by the end of December 1995. Real short-term interest rates (measured by the 30-day SBI rates less consumer inflation) increased by about 1 percentage point over the second-half of 1994 and a further 2 percent in the first-half of 1995. However, at approximately 4½ percent on average during 1995, they remained well below the levels of earlier periods of monetary policy tightening. The differential with interest rates abroad increased over the 12-month period to June 1995, before easing back marginally. LIBOR fell during the year, which contributed to raising the interest rate differential between Indonesia and partner countries (Chart 14).

Long-term interest rates also rose by around 1 percentage point in 1995/96, after having declined through 1993 and 1994. The cost of credit to businesses increased less than wholesale market rates. The cost of working capital began edging up in December 1994 and rose by about 1.5 percent during 1995. On average, though, real working capital rates were very similar to 1994 levels and near their recent historical lows. Investment rates showed a similar pattern, contributing to the continued strong investment demand.

Interest Rates, 1990/91-1995/96

(In percent)

article image

To December.

Commercial money banks.

Real interest rates are defined as (1 + r)/(1 + π), where r is the nominal interest rate and π is the inflation rate.

D. Exchange Rate Developments

While exchange rate policy continued to be formulated with a view toward maintaining competitiveness and avoiding undue fluctuations in the rupiah, policy has been oriented toward gradually increasing the short-run flexibility of the exchange rate in order to enhance the effectiveness of monetary policy. In 1995/96, BI widened the spread within which the interbank market rate may fluctuate at first to 2 percent and then, in January 1996 to 3 percent. BI generally intervenes only if necessary to maintain the market rate within the intervention band.

The nominal rupiah/U.S. dollar exchange rate depreciated steadily throughout 1995/96. At the end of March 1996, it was 5.6 percent below the March 1995 level.27, 28 However, with sharp swings in the yen/U.S. dollar rate, the nominal effective exchange rate was more volatile. In the period from May 1994 to April 1995, there was a sharp depreciation in the nominal effective rate by 15 percent. However, from April 1995 until February 1996 as the U.S. dollar strengthened, the rupiah in nominal effective terms appreciated by 6 percent.

Movements in the real exchange rate (measured by relative consumer inflation) showed a similar pattern to the nominal effective rate, at first depreciating and then appreciating later in the fiscal year largely reflecting fluctuations in the yen/U.S. dollar rate. While the traded goods sector was subject to these fluctuations, the real exchange rate for the year ended February 1996 was, on average, 1½ percent lower than one year previously.

E. Bank Regulation and Supervision

Since 1988 the financial system has grown rapidly both in terms of the number of the banks and in total assets. While the number of state-owned commercial banks has remained at seven, their share in total banks assets has declined from 70 percent in 1988 to 45 percent in February 1996. At the same time, the number of private banks expanded rapidly with close to 130 new private commercial banks being established since 1988.

The rapid expansion of the financial sector has been accompanied by the emergence of bad debts and problem banks in both the public and private sectors. Five large state banks faced a marked deterioration in the quality of their assets in the early 1990s and a restructuring scheme was initiated in August 1992 with the financial and technical support of the World Bank. In addition, the state-owned development bank, BAPINDO, was assisted in 1995 by contributions from both the Government and BI. Furthermore, the financial situation of a number of private banks also began to deteriorate in the early 1990s.

In several respects, the aggregate financial position of Indonesian banks continued to improve in 1995; the share of nonperforming loans (i.e., those classified as substandard, or doubtful), after having declined from 14.2 percent at end-1993 to 12.1 percent at end-1994, edged down to 11.6 percent by September 1995, and 10.8 percent (Rp 29 trillion or 6.5 percent of GDP) by January 1996, and the number of problem banks was reduced. Capitalization of the commercial banks was also on an upward trend since 1993. As of January 1996, the overall capital adequacy ratio (CAR) for the system was 12.5 percent. However, there is a considerable range across banks with several banks still below the minimum 8 percent. Finally, the banking system as a whole appears to be profitable with return on assets averaging 1.8 percent and return on equity of 14.2 percent at end-1995.

Despite the recent progress, there remain important areas of risk. The number of banks exceeding their legal lending limit has increased and the channeling of credit through the NBFIs may have added to the effective circumvention of the lending limit. The return on assets of the state banks was negative and continued to deteriorate in 1995, and the condition of some private banks remained fragile. Under new regulations, by the end of 1996, banks will be required to make full provisions for their classified assets, implying the need for further capitalization.

In 1995, BI continued to take steps to strengthen bank regulation and supervision (Box 3), in part in response to concerns about the growth of NBFIs, whose assets totaled 7 percent of broad money at end-1995, as well as increasing exposure by banks to the property sector. The Ministry of Finance took several initiatives in 1995 including placing limits on NBFIs outstanding indebtedness to other financial institutions (onshore or offshore), barring NBFIs from issuing CPs or negotiable promissory notes, tightening reporting requirements, and authorizing BI to assist the Ministry of Finance in the supervision of these institutions.29

Summary of Main Regulations Issued by Bank Indonesia in 1995

In January 1995, regulations were imposed concerning the provision of financial statements and the submission of annual business plans and implementation reports to BI. In addition, criteria for precluding persons from holding positions as bank shareholders or managers were established.

In March 1995, banks were required to establish guidelines with respect to credit policy formulation and standards for the implementation of an internal credit function, and submit credit reports to BI.

In August 1995, regulations were imposed for the trading of commercial paper by banks, which were aimed at slowing an excessively rapid growth of banks’ contingent liabilities.

In September 1995, there was an increase in capital requirements for foreign exchange banks, which is expected to encourage small and less well capitalized banks to merge with stronger institutions. The application of the legal lending limit to companies trading shares on the stock exchange was also tightened.

In October 1995, regulations were issued empowering BI to take over cm a temporary basis the management of problem banks.

In December 1995, the reserve requirement was increased, restrictions were placed on banks’ activities with derivatives transactions, and the exchange rate band was widened.

Total exposure of the banks to the property sector has increased significantly in recent years. The share of total domestic bank credit to the property sector increased from 12 percent at end-1993 to 16 percent in January 1996. The annual growth rate of property credit peaked at nearly 60 percent in the first quarter of 1995 and has since been on a downward trend, but remained close to 30 percent in the year to February 1996. Among other things, this decline may reflect increased moral suasion, rising material costs, and declining demand in the upper end of the housing market.

F. Capital Market Developments

The Indonesian equity markets have developed significantly in recent years. The stock exchange capitalization value increased rapidly in the past five years from Rp 12.4 trillion in 1990 (6.4 percent of GDP) to Rp 151.9 trillion (40.1 percent of GDP) at the end of 1995 (Chart 17). During the same period, the number of listed companies increased from 144 to 270. A new development in 1995 was the rapid expansion of commercial paper—liabilities by NBFIs and business enterprises. In October 1995, the stock of commercial paper totaled Rp 5 trillion or 2.5 percent of the stock of broad money.30

CHART 17
CHART 17

INDONESIA: STOCK MARKET DEVELOPMENTS, 1992-96

Citation: IMF Staff Country Reports 1996, 092; 10.5089/9781451818192.002.A001

Source: IFC, Emerging Markets Database.

The Jakarta Stock Exchange price index, which fell by 20 percent in 1994, recovered in 1995, increasing by 9.4 percent. During the first-quarter of 1996, the index rose by a further 14 percent, in line with developments in many other regional markets. The stock exchange saw several important developments in 1995—the introduction of computerized trading on the Jakarta Stock Exchange; the merging of the Surabaya Stock Exchange and the over-the counter (OTC) market in order to encourage the participation of small investors in the stock market; and the enactment of a new capital market law. The new law replaces the 1952 Bourse Law and has four substantial components: (i) along with banks, securities companies are permitted to act as custodians offering full administrative services to clients; (ii) mutual funds are now allowed to be established; (iii) the capital market supervisory agency, BAPEPAM has been given criminal investigatory powers and sanctions; and (iv) simpler trading and book-entry settlement are guaranteed by the Clearing Guarantee Institution.

VI. Development Plan, Poverty, and Environmental Issues

In the Sixth Five-Year Development Plan (Repelita VI; 1994/95-1998/99), the Government specified a number of macroeconomic targets, and social and environmental objectives. The main macroeconomic objectives were: (i) GDP growth at 7.1 percent per annum (on the new national accounts basis);31 (ii) inflation averaging 5 percent per year; (iii) containing the external current account deficit below 2 percent of GDP; and (iv) maintaining gross international reserves equivalent to six months of imports. Additionally, some structural objectives were established, with further expansion of the non-oil/gas sector projected in production, exports and revenues. Higher non-oil/gas revenues were also targeted to provide for an increase in public savings to finance the continued need for large capital outlays in the areas of infrastructure and human resource development. Accordingly, GDP growth was expected to lead to an increase in per capita income to $1,020 by the end of the Plan (1998/99). In addition, there were also important social and environmental objectives in the development program.

In the first two years of the Plan, substantial progress was made with continued development of the non-oil/gas sector, an overall GDP growth rate that significantly exceeded the target, and per capita income that has already reached about $1,000. While, as documented in this report, in most respects overall macroeconomic performance has been good, achievements have fallen somewhat short with respect to some of the objectives. Inflation has remained at close to 10 percent; the current account deficit in 1995/96 was in excess of 3 percent of GDP; and gross international reserves have increased, but have fallen somewhat below six months of import coverage. In addition, while non-oil revenues have grown rapidly and increased their share in total financing, they have not increased substantially relative to GDP. Moreover, estimated development expenditure declined in relation to GDP during the first two years. Therefore, in order to achieve Repelita VI targets, the current role assigned under the Plan to fiscal policy will become even more important in the next three years.

The rapid growth in income and employment observed over the last 25 years has been accompanied by a broad improvement in poverty and most social indicators of development. Above all, Indonesia has been able to achieve a dramatic reduction in poverty through rapid, sustained, and labor intensive growth, initially through development of the agricultural sector and then through rapid growth of manufactured exports. Estimates of the extent of poverty have fallen sharply during this period. The proportion of the population below the poverty line fell from about 60 percent in 1970 to about 29 percent in 1980 and to about 15 percent in 1993. The rate of population growth has slowed to about 1.7 percent per year, so that the absolute number of people in poverty has also declined dramatically from 70 million in 1970 to about 26 million in 1993.

Recent work, including by the World Bank, indicates that the benefit of the growth have been widely dispersed—both demographically and regionally.32 From 1983-93, per capita income and social indicators improved and poverty was reduced in all provinces. Differences among provinces were largely in the rate of improvement. In the poorest provinces, growth in per capita incomes was faster than most of the developing world. In addition, the available evidence indicates that growth rates of per capita GDP are converging, implying that the relative gap between rich and poor provinces is narrowing, albeit slowly. However, major challenges remain, and it is increasingly recognized that the achievement of the Repelita VI target—of a further reduction in poverty to 6 percent of the population by 1998/99—will require not only continued rapid economic growth but also targeted programs to assist the poor, including by extending compulsory education and continuing poverty alleviation programs for specific regions. These will help deal with the pockets of deprivation that continue to exist. For example, dealing with the urban poor still remains a policy challenge. While poverty rates for the urban poor have improved, owing to the migration of the population to urban centers, the number of the urban poor below the poverty line has remained high and was estimated at 9.4 million as of 1990. There are substantial numbers of the poor remaining in some of the lesser developed regions. Under Repelita VI there is an emphasis on geographic targeting of resources and services. Examples of such targeting are the ambitious village mid-wives’ program, the program for providing free health to needy families, and the programs to target infrastructure to Inpres Desa Tertinggal (IOT) villages.

Indonesia’s growth has been heavily dependent on its natural resources. In recent years, the Government has given increased importance to ensuring that economic policies are consistent with the objective of maintaining the quality of the environment. Policies have focused on improving water resource allocation and quality control, abatement of urban pollution, and the conservation and management of land and forest resources. Policies that have been initiated include: (i) the Clean River Program introduced in 1980 that set limits on industrial waste flows into 24 rivers in 11 regions; (ii) the expansion of the reforestation program; (iii) the establishment in 1990 of a national Environmental Impact Management Agency (BAPEDAL) and the opening of three regional offices (Sumatra, Bali and Sulawesi) in 1994; and (iv) an intensification of the effort to integrate environmental concerns more directly into development policies with the launching in November 1994 of the National Coordination Meeting on Environmental Management and Sustainable Development (Rakornas).

Under Repelita VI the pursuit of environmental objectives will be continued, in particular related to the control of water pollution and water shortages, land degradation, and deforestation. This would be accomplished through further strengthening of the regulatory framework and increasing use of market-based incentives through proper pricing and taxation. Much of this agenda remains to be accomplished. Arguably, resource quality is deteriorating as air and water quality are pressured by rapid urbanization, while forestry logging remains above sustainable rates. In each of these areas much needs to be done to improve the incentives and ownership and management regimes that govern resource use.

Table 1.

Indonesia: Developments in Gross Domestic Product by Sector of Origin and by Expenditure, 1990-95 1/

article image
Sources: Data provided by the Indonesian authorities; and staff estimates.

Reflects revised national accounts statistics based on 1993 prices and 1990 Input-Output Tables. As a result, estimates have been significantly revised.

Excludes oil refining and gas processing.

Table 2

Indonesia: Gross Domestic Product by Sector of Origin at Current Market Prices, 1990-95 1/

article image
Source: Data provided by the Indonesian authorities.

Reflects revised national accounts statistics based on 1993 prices and 1990 Input-Output Tables. As a result, estimates have been significantly revised.

Includes textiles, consumer goods, steel, fertilizers, and chemicals.

Includes business services.

Comprises oil and natural gas mining, oil refining, and gas processing.

Table 3.

Indonesia: Gross Domestic Product by Sector of Origin at Constant 1993 Prices, 1990-95 1/

(In billions of rupiah)

article image
Source: Data provided by the Indonesian authorities.

Reflects revised national accounts statistics based on 1993 prices and 1990 Input-Output Tables. As a result, estimates have been significantly revised.

Includes textiles, consumer goods, steel, fertilizers, and chemicals.

Includes business services.

Comprises oil and natural gas mining, oil refining, and gas processing.

Table 4.

Indonesia: Expenditure on Gross Domestic Product, 1990-95 1/

article image
Source: Data provided by the Indonesian authorities.

Reflects revised national accounts statistics based on 1993 prices and 1990 Input-Output Tables. As a result, estimates have been significantly revised.