Indonesia
Recent Economic Developments
Author:
International Monetary Fund
Search for other papers by International Monetary Fund in
Current site
Google Scholar Close
Publication Date:
29 Sep 1997
eISBN:
9781451818208
Language:
English
Keywords:
ISCR; CR; broad money; exchange rate; private sector; working capital; current account; foreign currency; capital outlay; natural resource; consumer goods
Download PDF (9.8 MB)

This paper reviews economic developments in Indonesia during 1996–97. The Indonesian economy continued to perform well in 1996, with real GDP growth of 7.8 percent. The rate of inflation fell to 5 percent in 1996/97, assisted by improved food supplies and generally subdued import prices. A budgetary surplus of 1 percent of GDP was estimated for 1996/97, reflecting higher-than-projected oil revenue and firm expenditure control. However, broad money and private sector credit growth were 27 percent and 24 percent, respectively, in the face of strong private capital inflows.

Abstract

This paper reviews economic developments in Indonesia during 1996–97. The Indonesian economy continued to perform well in 1996, with real GDP growth of 7.8 percent. The rate of inflation fell to 5 percent in 1996/97, assisted by improved food supplies and generally subdued import prices. A budgetary surplus of 1 percent of GDP was estimated for 1996/97, reflecting higher-than-projected oil revenue and firm expenditure control. However, broad money and private sector credit growth were 27 percent and 24 percent, respectively, in the face of strong private capital inflows.

Indonesia: Basic Data, 1991/92–1996/97 1/

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

Fiscal year starts on April 1.

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

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

Indonesia: Social and Demographic Indicators

article image
Sources: World Bank, Social Indicators of Development 1996; and staff estimates.

Indonesia: Structural Indicators, 1985/86–1996/97

(In percent, unless otherwise noted)

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

Rupiah and foreign currency time and savings deposits.

In December 1988, prior to liberalization.

For import-competing sector, relative to export sector.

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

I. Introduction and Overview1, 2

1. The performance of the Indonesian economy has been impressive since 1970, with real GDP growth averaging about 7 percent annually. The rate of inflation has been held persistently below 10 percent annually over the past two decades. These achievements have been based on prudent macroeconomic policies, high investment and saving rates, and reforms to liberalize markets. Official data indicate that poverty incidence has declined from 60 percent to 11 percent of the population since 1970, assisted by broad-based labor-intensive growth, improvements in primary education, and effective health care and family planning services. Developments in the recent past have continued this successful pattern.

A. Longer-Term Perspective

2. Indonesia achieved strong increases in agricultural production and benefited from rising oil prices during the 1970s but, when the world oil market weakened in the early 1980s, growth slowed, the fiscal deficit increased, and external debt rose. The authorities took decisive steps to reduce the budget deficit, including tax reforms, sharp cuts in current expenditure, and the cancellation or scaling down of large investment projects. External adjustment was supported by major devaluations of the rupiah in 1983 and 1986. Aid flows were directed to improving infrastructure, while tight controls were imposed on public sector foreign commercial borrowings. Extensive deregulation of trade, investment, and financial transactions was undertaken to encourage private sector expansion and diversification. Financial system liberalization facilitated private sector development, although it caused some concern about banking system soundness, especially because of the high level of nonperforming loans.

3. The adoption of a more market-oriented development strategy spurred rapid growth from the mid-1980s, led by non-oil manufactured exports. The authorities usually tightened macroeconomic policies promptly to deal with occasional bouts of excess demand and relieve strains on the external current account from unduly rapid import growth. However, they were not able to contain inflation to the stated long-term goal of 5 percent on an enduring basis and external debt indicators remained relatively high.

4. The central government’s underlying financial position strengthened over the past decade, primarily as a result of firm expenditure control. Small budget surpluses have been achieved lately and used for debt repayment. However, leakages through off-budgetary accounts, subsidized central bank lending, and the poor performance of state-owned enterprises have resulted in a less favorable overall public sector fiscal position.

5. Monetary policy, conducted in the context of an open capital account since 1970, has been complicated during the 1990s by large private capital inflows and the long-standing exchange rate policy of gradually depreciating the rupiah against the U.S. dollar with a view to maintaining external competitiveness. This strategy has resulted in rapid monetary and credit growth, well in excess of preannounced targets, that has limited progress in reducing inflation. Bank Indonesia has accumulated substantial official foreign reserves, partly because of market interventions to limit upward pressure on the exchange rate.

B. Recent Developments3

6. The Indonesian economy continued to perform well in 1996, with real GDP growth of 7.8 percent. The rate of inflation fell to 5 percent in 1996/97, assisted by improved food supplies and generally subdued import prices. A budgetary surplus of 1 percent of GDP is estimated for 1996/97, reflecting higher-than-projected oil revenue and firm expenditure control. However, broad money and private sector credit growth were 27 percent and 24 percent respectively, in the face of strong private capital inflows. Overall, the economy continued to operate at close to its productive capacity, although slower import growth and declining inflation indicated some lessening of the excessive demand pressures that had existed in the immediately preceding years.

7. The external current account deficit widened to an estimated 3.5 percent of GDP in 1996/97, although it remained below that in most ASEAN countries. Export growth moderated to 9 percent in U.S. dollar terms (7 percent in volume terms), despite an above-normal contribution from the oil sector. While Indonesia was less affected than other Asian countries by the downturn in world demand for electronics, the performance of the labor-intensive footwear, garment, and textile sectors weakened because of competition from lower-wage economies, including China and Vietnam.

8. Capital inflows remained large and official reserves increased to the equivalent of six months of imports in 1996/97. A more flexible exchange rate policy was adopted to help deal with the capital inflows; the central bank intervention band was widened three times from 2 percent to 8 percent between January and September 1996. While the authorities continued to depreciate the band against the U.S. dollar, the nominal effective exchange rate of the rupiah appreciated because of the strength of the dollar against other major currencies.

II. Real Sector4

A. Output and Expenditure

9. The Indonesian economy is estimated to have grown by 7.8 percent in 1996, slightly below the 8.2 percent increase recorded in 1995. Non-oil/gas GDP rose by an estimated 8.5 percent, while the oil/gas sector made a small positive contribution of 0.9 percent. Private consumption and investment both expanded rapidly, although net exports made a negative contribution to GDP. The economy’s potential output is estimated to have been increasing by 7–8 percent a year, reflecting the relatively high and well directed investment, although these estimates are typically subject to a relatively wide margin of uncertainty. 5 Overall, the economy has continued to operate at close to its productive capacity.

Aggregate demand

10. Real domestic demand growth was nearly 9 percent in 1996, slower than the very rapid expansion in 1995, but similar to the average rate of growth for this decade. The latest estimates show that consumption growth was the largest contributor to the expansion of domestic demand, although fixed investment growth was also rapid. Recent statistical revisions have raised estimated private consumption and export growth over the past several years and markedly reduced import growth and estimated stock building (which is treated as a residual). As a result, total investment in relation to GDP is several percentage points less than indicated by the previous national accounts series.

11. Total real consumption increased by 8.5 percent in 1996, with government consumption rising by 4 percent and private consumption by 9 percent. After declining for most of 1996, automobile sales rose sharply toward the end of the year. Few other direct indicators of consumption are available. The strong consumption growth has caused national saving to stabilize in relation to GDP.

12. Total real investment increased by 12 percent in 1996, reaching almost 33 percent of GDP. Investment in machinery and equipment rose by 22 percent. Investment in buildings and structures—representing three-quarters of capital formation—increased by 12 percent, with property investment growing much faster than the total.

13. Domestically financed investment approvals rose by over 40 percent above the record level of 1995, and surpassed previous levels in the primary, secondary, and tertiary sectors. Foreign investment approvals reached the highest level recorded, after adjusting for the extraordinary approvals of petro-chemical refineries in 1995. Large investments were approved in resource-based manufacturing (chemicals, basic metallic industries, and paper products), hotels, and public utilities. Actual foreign-financed expenditure increased by one-fifth, and comprised about 10 percent of total gross investment.

14. On a national accounts basis, the external trade balance weakened in 1996. Exports of goods and services (in constant prices) slowed to 6 percent, compared with 9 percent in 1995, partly because of weaker demand in Indonesia’s main markets. Competitiveness factors dampened sales of textiles, footwear, and wood products. Imports of goods and services (in constant prices) grew by 10 percent, also slower than the rise of 15 percent in 1995. The slowdown reflected smaller growth of consumer goods, especially food and raw materials. However, imports of capital goods continued to grow rapidly.

Sectoral developments

15. The diversification of the Indonesian economy has helped sustain rapid growth and provided resilience against weaknesses in individual commodity markets. On a sectoral basis, the main reason for slower GDP growth in 1996 was the performance of the agricultural sector, which comprised 16 percent of GDP, but most other sectors grew at very similar rates to those recorded in 1995. The manufacturing sector, now accounting for one-fourth of GDP, provided the largest sectoral contribution to overall growth. Non-oil/gas manufacturing output increased by 12 percent.

16. Agricultural, fishing, and forestry production increased by 2 percent in 1996, on top of the recovery in 1995. Rice production increased by 1.5 percent. Rice prices increased by 6 percent in 1996, compared with 15 percent in 1995, and 21 percent in 1994. The smaller rate of price increase reflected improved overall supply conditions, in contrast to the two preceding years, and historically high stocks. Bulog’s rice distribution for price stabilization purposes was the lowest for four years and its domestic procurement of rice the highest for three years. Production of cassava, copra, palm oil, and fisheries all showed solid increases.

17. Mining and quarrying output increased by 7 percent in 1996. Coal, gold, and nickel output continued to increase rapidly, but growth in copper production was lower. With oil/gas production essentially stable, other mining products constituted over one-third of mining output or 3 percent of GDP.

B. Development Plan

18. Substantial progress was made in 1996/97 toward achieving the government’s macro-economic objectives set out in the Sixth Five-Year Development Plan (1994/95–1998/99). The main targets of that plan are 7.1 percent for real GDP growth; 5 percent or less for annual inflation; 2 percent of GDP for the external current account deficit; gross international reserves equivalent to 6 months of imports; 17 percent annual growth in non-oil exports; an investment share in GDP at 30.5 percent; non-oil budget revenue reaching 16.9 percent of GDP, with non-oil taxes equal to 13.7 percent of GDP; and public debt declining to 30 percent of GDP by the end of the period.

19. Real GDP growth again exceeded the target rate in 1996/97, taking average growth to almost 8 percent during the first three years of the Plan. Per capita income has been rising by around 6 percent per year, and now exceeds $1,100. For the first time during this Plan, inflation declined to near the targeted level during 1996/97, although there is still some progress to be made to achieve low inflation on an enduring basis. International reserves strengthened sharply to their target level. The level of domestic investment has exceeded the target; foreign financing has also been higher than targeted investment. Public debt has fallen below the target.

20. In other areas, the achievement of macroeconomic objectives has been somewhat less successful. The current account deficit has increased beyond the target range, although the overall external position remains strong. Non-oil export growth has fallen below the targeted level, after being close to the target in the first two years. Non-oil budget revenue has leveled off at around 11–12 percent of GDP, although central government budget surpluses have been recorded in recent years.

C. Prices and Wages

21. The inflation rate was 6.6 percent for the year to December 1996, but the rate declined to 5.3 percent for the year ended March 1997. Food prices increased by 6.1 percent in 1996, but by only 3.8 percent over the fiscal year as supply conditions improved. Nonfood price inflation remained around 7 percent. Administered prices—which affect goods equivalent to about one-fourth of the weights in the basket—increased by 7.6 percent in the year to December 1996. Public transportation, electricity, and telephone charges were raised during 1996; fertilizer and unhusked rice prices were increased in February 1997. Domestic petroleum prices have remained unchanged since 1993.

22. Wholesale price inflation was 7.7 percent in 1996, lower than in recent years. Agricultural prices rose by 11 percent, but manufacturing prices increased by only 2 percent, confirming the moderation of domestic cost pressures. Wholesale import prices rose by 3.4 percent, while wholesale export prices increased by 20 percent, entirely due to world oil/gas price movements.

23. Wage increases in recent years appear to have been running above productivity growth, placing some firms under increasing competitive pressure, especially in the footwear and textile sectors. Civil service wages and salaries were increased by 10 percent in 1996/97, and a similar increase was provided in the 1997/98 budget. Rises in legislated minimum wages appear to have become an increasingly important influence on the general wage structure.

24. Minimum wages increased by about 9 percent in April 1996 (specific rates are set by the government for each of the 27 provinces), but the effective increase was much larger because of the concurrent change to determining monthly wages for daily workers on the basis of 30 paid working days rather than 25 days. Market-determined wages in the formal sector are usually above the legal minima. The government announced a further average minimum wage increase of 10.4 percent in April 1997. Minimum wages are now considered to be broadly sufficient to meet basic needs.

D. Poverty and Income Distribution

25. Rapid economic growth in Indonesia over the past three decades has brought about substantial reductions in poverty. The proportion of the population living below the official poverty line declined from 60 percent in 1970 to 15 percent in 1990 and 11 percent in 1996. The absolute number of people in poverty declined from 70 million in 1970 to 22.5 million in 1996. Gains in poverty reduction have been broadly equivalent across urban and rural areas, although the decline in the number of people officially in urban poverty has been smaller because of rapid urbanization. Other social indicators have improved—including infant mortality, life expectancy, and literacy—although their levels in Indonesia generally remain less favorable than those of Malaysia, the Philippines, and Thailand.

26. Indonesia’s income distribution has remained relatively stable over the past 25 years of rapid growth. The Gini coefficient (a measure of inequality) has been broadly constant at about 0.34 since 1970. While the share of consumption expenditure of the lowest two quintiles of the population has increased only marginally since the 1970s, its level of 20 percent is high compared with other countries at similar stages of development.

27. Indonesia’s strong record in reducing poverty and maintaining a relatively favorable income distribution can be attributed to rapid and sustained labor-intensive economic growth and supportive public expenditure programs. Increased primary and secondary education and improvements in health care, particularly primary and preventative services, have advanced human resource development and extended opportunities to earn higher incomes. Further expansion of these programs and improved targeting of resources to the poor is under way. The present development plan targets a reduction in poverty to 6 percent of the population by 1998/99. The government has indicated that the next Plan will have the elimination of poverty as a major objective.

28. Targeted assistance programs are focused on remaining areas of poverty, which are localized by geographical location, age, and gender. The INPRES Desa Tertinggal (IDT) program was launched in 1994 to increase productive capacity and employment opportunities in the least developed villages. Assistance is given in the form of grants to 20,000 selected villages (out of a total of 68,000 villages), identified on the basis of a survey of social and poverty indicators. Use of the funds in each village is decided by community groups, which have the responsibility for implementing projects. Projects have included small-scale infrastructure projects, the establishment of small business enterprises, and credit schemes operated by village residents.

29. An initiative to directly benefit the poor is contained in the presidential decree of August 1996, which requires high income tax payers—those with posttax incomes in excess of Rp 100 million (approximately $40,000)—to donate 2 percent of their after-tax income to finance a savings and loan program for poor households to start small enterprises.

E. Environmental Issues

30. Indonesia’s natural resource base has been important to its rapid economic growth, and sustaining it is a key development objective. The government has controlled the use of forestry resources through the tax on logs and sawn timber, which effectively prohibits log exports, limiting felling concessions to specific users, and the imposition of fees and royalties to finance replanting. Various initiatives have been taken to improve the management of water resources but further market-based incentives may be necessary to achieve environmental objectives. Urban pollution and land management also present challenges.

III. Public Finance6

A. Introduction

31. Indonesia’s public sector consists of the central government, 27 provincial governments, 368 municipal and local governments, and some 170 public enterprises. Central government transfers account for more than one-half of regional government revenue. A large share of public enterprise investment has been funded by loans from the central government, mainly in the form of on-lending of foreign borrowing undertaken for that purpose. In addition, Bank Indonesia undertakes quasi-fiscal activities in the form of lending at below-market terms to support agricultural marketing schemes and the banking system.

32. Consolidated public sector accounts are not prepared officially and published information does not enable them to be constructed. Central government budget data indicate small surpluses in recent years, although details of spending through off-budget accounts are incomplete. Provincial government transactions appear to be in approximate balance. However, the inclusion of quasi-fiscal activities and the operations of public enterprises would probably indicate an overall public sector deficit.

33. The balanced budget rule, which has been in effect since 1968, contributes to central government fiscal discipline. It requires that, each year, total budgetary expenditure should be equal to budgeted revenue, defined to include all external loans and grants. The rule also states that domestic revenue should be sufficient to cover current expenditure, including the amortization of government debt and a portion of development expenditure. This principle, by and large, prevents domestic private bank and nonbank financing of the central government. To the extent that development expenditure exceeds public saving, the gap can normally be filled only by external borrowing.

34. Central government revenue and grants has averaged 15–16 percent of GDP in recent years. Oil/gas revenue has accounted for about 3–4 percent of GDP, compared with 10 percent of GDP one decade ago. Non-oil/gas revenue, which had risen in the second half of the 1980s, has stabilized at 11–12 percent of GDP. Current expenditure has remained at about 9 percent of GDP, while development expenditure and net lending has fallen to about 6 percent of GDP, partly reflecting greater private sector participation in infrastructure. As a consequence of the improvement in the fiscal balance and continued strong output growth, external public debt has declined steadily to less than 30 percent of GDP.

B. Central Government Finances

Developments in 1996/97

35. The central government budget recorded an estimated surplus of Rp 5.5 trillion in 1996/97 (1 percent of GDP), owing to higher-than budgeted revenue collection and firm expenditure control. The balance excluding oil/gas revenue worsened by 0.5 percent of GDP to a deficit of 2.5 percent of GDP. Current expenditure slightly exceeded budget estimates, while estimated development expenditure and net lending was below budget. This outturn, together with the funds raised from the sale of shares in one state bank and the state telephone concern, permitted a further buildup in government deposits with the banking system and a reduction in external public sector debt.

36. Total revenue (including grants) in 1996/97 amounted to Rp 75.7 trillion (15 percent of GDP), exceeding the original budget estimates by about Rp 5.5 trillion. Revenue from the oil/gas sector increased by nearly one-third, as the average oil price was $20.70 per barrel compared with the budget assumption of $16.50 per barrel, and production volumes were slightly higher than assumed. Revenue from natural gas also benefited from higher prices and volumes. Non-oil/gas tax revenue increased by 19 percent, in line with budget estimates.

37. Non-oil/gas income tax collections increased by 24 percent to Rp 25.5 trillion (5 percent of GDP), well above budget estimates and equivalent to one-third of total tax revenue. Receipts were buoyant in relation to GDP growth because of more comprehensive tax withholding. A new law extended withholding to rental incomes from land and buildings, construction and consulting services, and international air transportation and shipping.

38. Value-added tax revenue increased by 11 percent to Rp 20.4 trillion (4 percent of GDP), and accounted for 27 percent of total tax revenue. This was below the budget forecast because net receipts were reduced by the one-time decision to make more rapid payments of refunds to exporters, the government’s assumption of liabilities on shipping and harbor affairs services, the previously introduced exemption for the national car, and the abolition of the tax on low-income housing leases. The coverage of the tax was expanded to include electricity in high usage residences.

39. Excise taxes grew at about the same rate as nominal GDP. The contribution of property tax continued to be limited by weaknesses in local government administration, where the tax is collected. Taxes on international trade declined to the equivalent of less than 4 percent of total tax revenue, well below the budget projection. Import duty fell owing to much lower volumes of high tariff items (especially automobiles), reductions in the average import tariff in line with ongoing trade liberalization, and the large share of import growth in categories that carried low duty rates (particularly machinery and equipment).

40. Nontax revenue rose by 17 percent to Rp 7.7 trillion (1.5 percent of GDP). Bank Indonesia met its target, despite the cost of exchange market interventions. Revenue from the reforestation fund, reimbursement of education and hospital costs, and other fees exceeded the budget. However, domestic oil operations resulted in unbudgeted net expenditure rather than the projected surplus. The budgetary impact from this item has become progressively less favorable since the last retail price adjustment in 1993.

41. Total expenditure and net lending increased by 19 percent to Rp 78.5 trillion (14 percent of GDP), almost equal to the budget estimates. Current expenditure reached Rp 49.2 trillion (9 percent of GDP) with personnel costs increasing by 17 percent, in line with budget. The government continued to bring on budget purchases of goods and services that were formerly financed by some agencies out of their own revenue. There was also the unbudgeted expenditure on petroleum subsidies and the refund to the national oil company.

42. Development expenditure and net lending increased by 12 percent to an estimated Rp 29.3 trillion (under 6 percent of GDP), somewhat below budgeted levels. Education and health spending rose in relation to total spending, in line with medium-term objectives. The shares of electric power, transportation, and tourism declined, partly reflecting the larger role of the private sector in the provision of infrastructure in those areas.

43. Net foreign financing of the budget was negative for the third consecutive year (0.5 percent of GDP). This reflected the use of privatization receipts of Rp 1.4 trillion and the fiscal surplus to prepay relatively expensive external debt of Rp 4 trillion. Domestic financing was also negative (0.5 percent of GDP), as the central government surplus permitted a further buildup of deposits in the banking system.

Budget for 1997/98

44. In accordance with normal practice, the budget for 1997/98, as officially presented, showed overall balance in the accounts. Total revenue and grants were budgeted to fall slightly in relation to GDP, because of lower oil/gas revenue on the conservative assumption of an average oil price of $16.50 per barrel. Non-oil/gas revenue was budgeted to remain constant in relation to GDP, although this was conservative in light of the passage of new tax legislation. The authorities stated their firm intention to maintain tight expenditure control.

45. Legislation was passed in April 1997 to strengthen tax enforcement and simplify the tax system in order to boost revenue. The law established a tax court for speedier and more effective resolution of disputes; replaced, with effect from January 1, 1998, a number of taxes and charges levied by local governments with new excises on gasoline and tobacco, which will be collected by the central government and transferred to them; established measures to better enforce the collection of tax arrears; and modified aspects of land and building taxation to boost property tax collections. In addition, tax administration is being strengthened through more comprehensive taxpayer registration, supported by data matching procedures and the development of tax compliance measures to assist audit strategies.

46. A more comprehensive nontax revenue law was also approved by parliament in April 1997. When fully operational in five years’ time, it will require inclusion in the budget of all nontax revenue—covering receipts from natural resource taxes, the management of investment funds, government services, court penalties, grants, and miscellaneous items in the form of royalties, levies, fines, fees, dividends, sales proceeds, and interest income. Previously, many of these revenues were omitted from the budget and spent for departments’ own purposes, without parliamentary scrutiny. Departments will still be allowed to pre-commit the use of some funds for defined purposes, including environmental conservation, education and training, research, and law enforcement.

47. Current expenditure is expected to rise moderately. The 17 percent increase in the wage and salary bill included an average 10 percent increase in civil service wages, salaries, and allowances, a small increase in employment, and wage drift. Civil service wages were restructured by converting a portion of allowances into the base salary structure. While the basic salary scale increased by 73 percent at the lowest grade level and 34 percent at the highest grade, the overall increases are consistent with budgetary allocations.

48. Development expenditure is budgeted to increase rapidly, especially with respect to education, health, and welfare. The shares of industry and transportation are budgeted to decline again as the private sector is projected to expand further in these areas. Regional governments will also receive a declining share of the budget from the central government.

C. Regional Governments and Public Enterprises

49. Central government revenue accounts for over 80 percent of general government spending in Indonesia’s highly centralized fiscal system; the largest part of provincial, municipal, and local government revenue comes from central government transfers. The remainder is obtained from shared revenue sources (property tax and natural resource royalties) and own-source revenues (user fees, local taxes, and profit transfers from certain state enterprises). Total provincial government expenditure for 1996/97 was budgeted at close to 2 percent of GDP, of which two-thirds was current expenditure (no outturn data are available). Budgeted figures for 1997/98 are very similar in relation to GDP.

50. Comprehensive public enterprise accounts are not available, although selected data are published. The estimated net return on total assets was 6 percent in 1996. With a view toward reducing the size of the public sector, the government has initiated an ambitious public enterprise restructuring and divestiture program in recent years. The program has focused to date on the private provision of telecommunications, international satellite, electricity distribution, and toll-road services. The government sold 25 percent of the largest and most successful state bank in 1996. It has announced its intention to partially divest a mining company, electricity generating enterprises, toll-road operations, a real estate holding company, plantations, and part of the national airline in the next few years. Further sales are planned of other state banks and port companies, along with additional share tranches in previously privatized enterprises.

IV. Financial Sector7

A. Introduction

51. The financial system is dominated by the banking sector. However, in contrast to the 1988–94 period when the number of commercial banks increased from 111 to 240, the number of institutions has since remained broadly constant. This mainly reflects higher capital requirements and more stringent licensing standards. Within the banking sector, private commercial banks have grown faster than the state banks, which now account for about 30 percent of total banking system assets. There are also 9,300 rural banks which are limited in the geographical area of operations and in banking activities. Over the last year, the nonbank financial sector—including savings banks, mutual funds, pension funds, insurance companies, and leasing companies—has continued to develop, although it is still much smaller than the banking sector. There has also been a marked rise in stock market capitalization.

52. The return on assets of commercial banks averaged 1.2 percent and the return on equity over 16 percent in 1996, which exceeds the rates of profitability in many other comparable countries. Large private sector banks are generally well managed and competitive but there are some concerns about the soundness of the banking system, especially with regard to state banks and smaller private banks. While the average share of nonperforming loans (those classified as substandard or doubtful) has declined consistently over the last three years from over 14 percent in December 1993 to about 8 percent in December 1996, it remains high at over 15 percent for state banks. The average capital adequacy ratio of the banking system has reached 12 percent, but several banks have not met the 8 percent minimum ratio. A number of banks continue to violate legal limits on loan-to-deposit ratios and lending to connected parties. There has been a rapid expansion in lending to the property sector, which accounted for 20 percent of total outstanding loans in February 1997, compared with 12 percent at the end of 1993.

53. In these circumstances, Bank Indonesia has taken further steps over the past year to strengthen bank soundness. Efforts have been intensified to improve compliance with prudential regulations, including ensuring that bank supervisors have sufficient authority to undertake the comprehensive and timely evaluation of bank assets. Bank Indonesia has placed greater emphasis on moral suasion to restrain overall credit growth, including the increasing use of limits for individual banks based on their level of capital and the riskiness of their lending portfolios. A more active policy is to be adopted to liquidate problem banks, including state banks, through the firm application of the December 1996 presidential regulation.

B. Recent Monetary Developments

54. Recent financial market developments have been dominated by the buoyancy of foreign capital inflows—both direct investment and portfolio flows—which have boosted monetary and credit growth, limited the ability of the authorities to reduce inflation, and given rise to upward pressure on the exchange rate. The authorities have continued to set targets for monetary and credit growth in accordance with the objective of reducing and maintaining inflation at around 5 percent per anum, as outlined in the five-year development plan. However, concern about exchange rate appreciation and external competitiveness has, in practice, led to reduced emphasis on monetary targets. Over the last two years, targeted and actual growth rates for broad money and private sector credit have diverged.

55. Broad money increased by nearly 27 percent in 1996/97, slightly lower than in 1995/96, but well above the official target of 17 percent. The substantial increase in net foreign assets of the banking system was a major source of monetary growth. This contributed to an acceleration in the growth of narrow money to 22 percent, despite the relatively high interest rates on time deposits. The growth of quasi-money was 29 percent, including rupiah time and savings deposits, as well as foreign currency deposits. These rapid rates of growth occurred notwithstanding large-scale open market operations which contained reserve money growth to 14 percent in 1996/97.

56. Private sector credit growth accelerated to almost 24 percent in the year to March 1997, compared with the official target of 16 percent. The increase in lending was widespread across all sectors, although lending to the property sector was the most rapid. The increase in government deposits with the banking system helped to offset some of the private sector credit growth.

C. Monetary Policy Operations

57. Monetary control and short-term liquidity management in 1996/97 was conducted mainly through open market operations using central bank certificates, especially to neutralize the monetary impact of capital inflows. There was a substantial increase in outstanding central bank certificates (over Rp 10 trillion) although this was not sufficient to fully offset the effect of the increase in net foreign assets (over Rp 16 trillion). The authorities reinforced this strategy by limiting the growth in central bank subsidized credits that are made available primarily to state banks and the food importing and distribution agency (Bulog).

58. Open market operations were supplemented by greater resort to moral suasion and reserve requirements. As in 1995/96, banks were asked to submit their credit plans and to adhere to credit limits set by Bank Indonesia. In September 1996, Bank Indonesia announced that banks’ reserve requirements would be increased from 3 percent of deposit liabilities (the level set in February 1996) to 5 percent with effect from April 1997. The use of these additional policy instruments in part reflected the limitation on additional sterilization of capital inflows in the absence of further rises in domestic interest rates.

59. Interest rates remained relatively high in real terms during 1996/97, as the authorities sought to restrain monetary growth. The discount rate on 30-day central bank certificates, a representative short-term money market interest rate, was broadly unchanged at 14 percent from April to September 1996. The authorities were able to reduce the rate gradually to just under 11 percent by March 1997 and still increase their sales of certificates, because of the decline in domestic price inflation. This decline, however, had only modest impact on commercial banks’ deposit and lending rates. Three-month deposit rates at private national banks declined from 17 percent in the fourth quarter of 1997 to 16.3 percent in May 1997. Rates on bank advances for working capital were in the range of 18–20 percent, and rates on investment loans remained broadly unchanged at 16.5 percent.

D. Exchange Rate Developments

60. The long-established framework for exchange rate policy seeks to safeguard external competitiveness by the gradual depreciation of Bank Indonesia’s intervention band for the rupiah against the U.S. dollar to broadly offset the inflation differential between Indonesia and its main trading partner countries. However, in the face of the strength of private capital inflows, the authorities have increased nominal exchange rate flexibility to enhance the effectiveness of monetary policy. The authorities widened the exchange rate intervention band on three occasions in 1996, from 2 percent to 3 percent in January, to 5 percent in June, and to 8 percent in September. On each occasion, the rupiah moved to the appreciated end of the band immediately following the change.

61. In response to the persistent upward pressure on the exchange rate stemming from capital inflows, Bank Indonesia slowed the pace of depreciation of the nominal rupiah/ U.S. dollar exchange rate to 3.5 percent in the year to March 1997, whereas in the previous year the rupiah had depreciated by 5.6 percent. Movements in the real effective exchange rate (measured by relative consumer price inflation vis-à-vis trading partner countries) were also influenced by the U.S. dollar/Japanese yen rate, but most of the appreciation of 7.6 percent in 1996/97 stemmed from the slower nominal exchange rate. From a slightly longer-term perspective, the appreciation of the real effective exchange rate since the middle of 1995 effectively reversed much of the depreciation that occurred in 1994–95, as a result of the strength of the yen vis-à-vis the U.S. dollar.

E. Capital Market Developments

62. The development of Indonesia’s equity markets, particularly the Jakarta Stock Exchange, has been bolstered by the surge in portfolio capital flows in recent years. In 1996, capital inflows again contributed to strong increases in market capitalization, trading volumes, and share prices. Market activity was also boosted by improvements in clearing and settlement systems, the privatization of state-owned enterprises, and the growth of mutual funds.

63. Market capitalization of the Jakarta Stock Exchange increased by over 40 percent in 1996 to Rp 215 trillion (40 percent of GDP). Higher stock prices—the index rose by 24 percent over the year—accounted for over one-half of the increase in capitalization, with the remainder due to new issues and an expansion in the number of companies listed on the exchange. Market sentiment remained strong throughout most of the year, except during July-August when political uncertainties contributed to a sharp downturn in share prices. Share prices continued rising during most of the first half of 1997, and reached new record levels following the parliamentary elections in late May, with the index about one-third higher than at the beginning of 1996. The number of listed companies increased from 248 to 267 during 1996, including the partial privatization of one state bank in November which raised Rp 0.9 trillion. The government also released a further 25 percent tranche of shares in the state-owned telephone company, which yielded Rp 1.35 trillion.

64. The domestic bond market remained relatively small in comparison with the equity market, although activity also increased markedly in 1996, with new issues raising over Rp 11 trillion, an increase of over 26 percent. Mutual funds expanded their operations rapidly in 1996, largely owing to the deregulation measures introduced in the Capital Market Law of 1995. The legislation permitted these institutions to be wholly foreign owned and granted them exemptions from income tax for investments in the domestic bond market. The number of mutual funds increased from only 1 in 1995 to 18 at the end of 1996, which collectively mobilized Rp 1.9 trillion.

V. Balance of Payments and External Debt8

65. The external current account deficit rose from $6.8 billion (3.3 percent of GDP) in 1995/96 to $8 billion (3.5 percent of GDP) in 1996/97, mainly owing to the slower growth of non-oil exports. The surplus on the oil/gas account increased to $4.7 billion, but the non-oil/ gas deficit increased to $12.7 billion. Oil/gas exports expanded by 18 percent because of higher world prices. However, non-oil/gas exports grew only by an estimated 6.7 percent in value terms, as Indonesia was affected like other ASEAN countries by the weaker world export demand and competitive pressures from lower-wage regional economies. Imports grew by 10.3 percent because of continued buoyant overall economic activity, including high investment. Capital inflows were large throughout the year, the overall balance of payments was estimated to have registered a surplus of $6.1 billion in 1996/97, compared with $3.4 billion in 1995/96, and this was reflected in the rise in gross official foreign assets to $27 billion (6 months of imports).

A. Current Account

66. The slowdown in Indonesian exports accounted for a substantial part of the widening of the current account deficit. Total exports grew by 9.4 percent in 1996/97, substantially below the increase of 13.5 percent recorded in 1995/96, despite the strong rise in world oil prices. Higher-technology exports continued to perform well but overall manufactured exports were held down by the poor performance of labor-intensive goods.

67. Oil exports totaled $7.6 billion in 1996/97. An increase in domestic consumption of 9 percent lowered export volumes of crude oil, despite slightly higher oil/gas production than in the previous year. Exports of refined oil products—which account for just over 20 percent of the total volume of oil exports—increased marginally. Gas exports—mainly liquefied natural gas (LNG), which constitutes more than 90 percent of gas exports—expanded by 26 percent. In contrast, liquefied petroleum gas (LPG) exports decreased by more than 10 percent in 1996/97 and now represent only 3 percent of total oil/gas exports.

68. Non-oil/gas exports totaled $39.6 billion in 1996/97, equivalent to about four-fifths of total exports. Manufactured exports increased by 8 percent, the slowest growth recorded in the last five years. Exports of wood products, textiles, and footwear showed negligible growth because of increased regional competition. However, exports of electrical appliances—which constitute 10 percent of non-oil/gas exports—expanded by nearly 46 percent. Exports of processed food, plastics, optical lenses, and other high-technology goods also rose strongly. Mining exports grew by only 5 percent, with copper exports increasing by 8 percent, and coal, tin, nickel, and aluminum exports remaining relatively flat. Agricultural exports did not increase. The absence of growth in natural rubber exports reflected weak demand from tire producers in the United States, Indonesia’s principal market. Coffee exports picked up in the last quarter, as a result of higher world prices.

69. Imports were $50.8 billion in 1996/97. Much of the import growth was attributable to capital goods—which make up 25 percent of total imports—that are closely associated with the expansion of foreign direct investment. Raw material and intermediate goods imports grew moderately, partly because of weaker demand from the export sector. Imports of consumer goods, which are 6 percent of total imports, expanded by only 3 percent, following an unusually large expansion in the previous year. The growth of passenger car imports slowed from 326 percent in 1995/96 to 24 percent in 1996/97. The slower growth in food imports was attributable to reduced purchases of rice, in contrast to the large quantities obtained in the previous year, because of improved domestic supplies and high stocks.

70. The principal destination of exports in 1996/97 was other Asian countries (63 percent), particularly Japan (26 percent). The bulk of the remaining exports were shipped to Europe (17 percent) and the United States (14 percent). Indonesia obtained just over one-half of its imports from other Asian countries, especially Japan (20 percent). Most of the remaining imports came from Europe (25 percent) and the United States (12 percent).

71. The deficit in the services balance increased to $9.5 billion in 1996/97, comprising $3.1 billion for oil/gas services and $6.4 billion for other services. The largest receipts came from tourism, but tourism outflows also increased and the resulting surplus from travel was $3.9 billion. Most other services sectors are in deficit. Transportation recorded a deficit of $0.9 billion, primarily freight for imports carried by foreign ships. Investment income recorded a deficit of $6.5 billion. Private sector interest payments amounted to $2.9 billion, 15 percent higher than in the previous year.

B. Trade Policy

72. Trade policy measures implemented in 1996/97 continued the liberalization strategy that has been pursued for the past decade. In June 1996, the government announced a trade deregulation package that included tariff reductions to lower the unweighted average tariff rate from about 14 to 12 percent. The package also included measures to simplify export procedures, including elimination of export inspections and reduction of documentation requirements. In January 1997, Bank Indonesia introduced new rediscount facilities on market-related terms to exporting companies and suppliers of export-related goods. Further reductions in tariffs are scheduled over the period to the year 2003, in line with the WTO commitments and the accelerated ASEAN Free Trade Area (AFTA) Common Effective Preferential Tariff scheme. At the end of this period, most tariff rates will be either zero, five, or ten percent, with an estimated average unweighted tariff rate of seven percent.

73. Precise timetables have not yet been established for the elimination of other trade distortions. Export taxes and bans exist on a range of commodities. The export tax on crude palm oil was raised, in an effort to alleviate the domestic shortage of cooking oil, from $34.16 per ton in September 1996 (7 percent of the export price) to $35.28 per ton in October 1996 and $46.80 per ton in January 1997 (10 percent of the export price). Nontariff barriers affect about one-fourth of imports and production and marketing monopolies and other privileges exist in some industries. Indonesia’s national car project is the subject of formal complaints to the WTO about discriminatory trade practices. The scheme exempts car manufacturers from duties on imported components and luxury sales tax (averaging 20 percent), provided that the local content of the vehicle is 20 percent in the first year of production, 40 percent in the second year, and 60 percent in the third year. To date only one company qualifies for this privileged tax treatment, which will not be extended to any other manufacturer until at least 1999.

C. Capital Account and Official Reserves

74. Net capital inflows were relatively high at $11.4 billion in 1996/97. Private sector inflows amounted to $12.6 billion, while there were net official capital outflows of $1.2 billion. Foreign direct investment increased to $6.5 billion, and portfolio investment from stocks sold to foreign investors in the Jakarta Stock Exchange reached $1.7 billion. The remaining net private capital inflows of $4.3 billion included foreign debt of financial institutions, state enterprises, and private companies. Gross official foreign assets (including contingent assets) increased in 1996/97 as a result of large capital inflows. Official foreign assets increased from $20.6 billion (5.3 months of non-oil/gas imports) at the end of 1995/96 to $26.6 billion (6.2 months of non-oil/gas imports) at the end of 1996/97. Bank Indonesia has also negotiated swap arrangements with several central banks in the region.

75. Indonesia’s relative long-term macroeconomic stability has been influential in attracting private capital flows. During 1990–96, foreign direct investment flows accounted for about one-third of net private capital flows, while over the last two years, this proportion has risen to about one-half or 3 percent of GDP. Portfolio equity investment flows have been limited, partly because of the small size of the stock market. However, other short-term flows, including bank deposits and commercial paper, have increased recently.

76. The capital account is generally free of controls, except for the following restrictions: the purchase of shares by nonresidents is limited to a maximum of 49 percent of total shares issued by any individual company listed on the Indonesian stock exchange; domestic financial institutions are not allowed to grant loans to nonresidents; and foreign portfolio investment by domestic financial institutions is controlled. Commercial banks are permitted to lend locally in foreign exchange, subject to the requirement that 80 percent of the foreign exchange loans must be provided for export activities.

D. External Debt

77. The stock of external debt is estimated to have risen from $107 billion (53 percent of GDP) at end-March 1996 to $113 billion (49 percent of GDP) at end-March 1997. Although a substantial part of capital inflows was in the form of non-debt-creating investment, private sector debt increased by $10 billion to $53 billion (23 percent of GDP). Public sector debt declined by $4 billion to $60 billion (26 percent of GDP). Repayments amounted to $1.7 billion, primarily to the World Bank and the Asian Development Bank. Valuation effects associated with the appreciation of the U.S. dollar against the Japanese yen are estimated to have reduced public debt by $3.6 billion. External debt service amounted to $13.5 million (33.9 percent of exports of goods and services) in 1996/97 compared with $12.4 million (33.2 percent of exports of goods and services) in 1995/96. Public debt service (including prepayments) declined to 18 percent of exports, continuing the trend over the last five years.

CHART 1
CHART 1

INDONESIA: DEVELOPMENT AND STRUCTURAL INDICATORS, 1969–97

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

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

INDONESIA: SELECTED ECONOMIC INDICATORS, 1985/86–1996/97

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Sources: Indonesian authorities; and staff estimates.1/ GDP, inflation, investment, and savings data refer to the calendar year.
CHART 3
CHART 3

INDONESIA: REAL SECTOR DEVELOPMENTS, 1990–1996

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Source: Data provided by the Indonesian authorities.
CHART 4
CHART 4

INDONESIA: GDP GROWTH, 1996

(In percent)

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Source: Data provided by the Indonesian authorities.
CHART 5
CHART 5

INDONESIA: INFLATION, 1994–1997

(Annual percent change)

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

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

INDONESIA: FISCAL INDICATORS, 1986/87–1996/97

(In percent of GDP)

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Sources: Data provided by the Indonesian authorities; and staff estimates.1/ Derived from the sum of the current balance and net financing.
CHART 7
CHART 7

INDONESIA: MONEY AND CREDIT GROWTH, 1991/92–1996/97

(Percent change on year earlier)

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Source: Data provided by the Indonesian authorities.
CHART 8
CHART 8

INDONESIA: MONETARY CONDITIONS, 1993–97

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Sources: Data provided by the Indonesian authorities; and IMF Information Notice System.1/ 30-day SBI interest rate less LIBOR.2/ 3-month interest rate less 12-month interest rate.
CHART 9
CHART 9

INDONESIA: EXCHANGE RATE DEVELOPMENTS, 1992–97

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Sources: Data provided by the Indonesian authorities; and staff estimates.
CHART 10
CHART 10

INDONESIA: STOCK MARKET DEVELOPMENTS, 1992–97

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Source: IFC, Emerging Markets Database.
CHART 11
CHART 11

INDONESIA: EXTERNAL SECTOR INDICATORS, 1971/72–1996/97

(In percent of GDP)

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Sources: Data provided by the Indonesian authorities; and staff estimates.
CHART 12
CHART 12

INDONESIA: EXPORT SHARES, 1996

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Source: Data provided by the Indonesian authorities.
CHART 13
CHART 13

INDONESIA: EXTERNAL TRADE INDICATORS, 1991/92–96/97

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Sources: Data provided by the Indonesian authorities; and IMF World Economic Outlook database, and staff estimates.
CHART 14
CHART 14

INDONESIA: MANUFACTURING EXPORTS AND IMPORT GROWTH, 1992/93–1996/97

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Source: Data provided by the Indonesian authorities.
CHART 15
CHART 15

INDONESIA: FOREIGN DIRECT INVESTMENT, 1989–96

Citation: IMF Staff Country Reports 1997, 075; 10.5089/9781451818208.002.A001

Source: Data provided by the Indonesian authorities.
Table 1.

Indonesia: Developments in Gross Domestic Product by Sector of Origin and by Expenditure, 1991–96 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.

Excludes oil refining and gas processing.

Residual.

Table 2.

Indonesia: Gross Domestic Product by Sector of Origin at Current Market Prices, 1991–96 1/

article image
Source: Data provided by the Indonesian authorities.

Reflects revised national accounts statistics based on 1993 prices and 1990 Input-Output Tables.

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, 1991–96 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.

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, 1991–96 1/

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

Reflects revised national accounts statistics based on 1993 prices and 1990 Input-Output Tables.

Residual.

Table 5.

Indonesia: Agricultural Production, 1991–96

article image
Source: Data provided by the Indonesian authorities.
Table 6.

Indonesia: Indices of Non-Oil/Gas Manufacturing Production, 1991–95 1/

(1993=100)

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

Covering large- and medium-sized industries, accounting for about 80 percent of total manufacturing production of which about 70 percent is shown in the table.

Table 7.

Indonesia: Production, Domestic Use, and Exports of Petroleum, 1991–96

article image
Source: Data provided by the Indonesian authorities.

Natural gas condensates.

Million barrels per day.

Includes liquified petroleum gas.

Table 8.

Indonesia: Production, Use, and Domestic. Pricing of Natural Gas, 1991–96 1/

article image
Source: Data provided by the Indonesian authorities.

Components may not add to totals owing to rounding.

Mainly for industrial use (fertilizer, steel, and cement industries); also includes some home distribution in Jakarta and Bogor.

Table 9.

Indonesia: Indicators of Oil Exploration and Development Activity, 1991–96

article image
Source: Data provided by the Indonesian authorities.

Budget data for seismic activity in 1996 is not available.

Sesmic activity and company expenditure data up to September.

Exploration activity data to October.

Excludes Pertamina. Spending on exploration and production facilities by production-sharing contractors is technically nondirect foreign investment, since Pertamina assumes title to all equipment when it enters Indonesia; the contractor, however, possesses contractual rights to beneficial use.

Table 10.

Indonesia: Non-Oil/Gas Mining Production, 1991–96

article image
Sources: Data provided by the Indonesian authorities; and staff estimates.
Table 11.

Indonesia: Domestic Rice Prices, 1991–96

(In rupiah per kilogram)

article image
Source: Data provided by the Indonesian authorities.

Monthly national average retail price for medium-quality rice.

Price at which BULOG sells rice in the open market. The price shown here is for medium-quality rice in Java.

Paddy prices paid by cooperatives to farmers and rice prices paid by BULOG to cooperatives. Prices are adjusted once a year, effective February 1.

Price that the Government pays BULOG for its rice deliveries to civil servants and the military.

Table 12.

Indonesia: BULOG Rice Program, 1991/92–1996/97

(In thousands of metric tons)

article image
Source: Data provided by the Indonesian authorities.

Includes repayment of loans in kind.

On a calendar year basis.

Table 13.

Indonesia: Approvals of Domestic Investment Projects by Economic Sector,1992–96 1/

(In billions of rupiah)

article image
Source: Data provided by the Indonesian authorities.

Includes new projects and extensions of existing projects, but excludes investment in petroleum, banking, insurance, and leasing sectors.

Table 14.

Indonesia: Approvals of Foreign Investment Projects by Economic Sector, 1991–96 1/

(In millions of U.S.dollars)

article image
Source: Data provided by the Indonesian authorities.

Includes new projects and extensions of existing projects, but excludes investment in petroleum, banking, insurance, and leasing sectors. Components may not add to totals owing to rounding.

Table 15.

Indonesia: Approvals of Foreign Investment Projects by Country of Origin, 1991–96

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.
Table 16.

Indonesia: Indices of Inflation, 1991–96

(Percentage change from previous year)

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

Average retail price for medium-quality rice.

Table 17.

Indonesia: Consumer Price Index, 1993–97

(1988/89 = 100)

article image
Source: Data provided by the Indonesian authorities.
Table 18.

Indonesia: Wholesale Price Index, 1993–96

(1983 = 100)

article image
Source: Data provided by the Indonesian authorities.
Table 19.

Indonesia: Nominal Wages and Labor Force, 1991–95

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

Figures are based on periodic surveys of primarily urban-based business establishments and include transportation, meal, and attendance allowances.

Calculated from minimum daily figure for 30 days per month. Increased by 9 percent to Rp122,000 in 1996 and by 10 percent to Rp 135,000 in 1997.

Ages ten and over.

Table 20.

Indonesia: Domestic Sales and Prices of Oil Products, 1985/86–1995/96

article image
Source: Data provided by the Indonesian authorities.

Prices do not include 10 percent value-added tax.

Table 21.

Indonesia: Summary of Central Government Operations, 1991/92–1997/98

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

Derived as the sum of the current budget balance and net financing.

Change in net government deposits with the domestic banking system.

As derived from balance of payments accounts.

Table 22.

Indonesia: Central Government Revenue, 1991/92–1997/98

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

Excludes privatization receipts.

Profits transferred from public enterprises; includes Bank Indonesia.

Table 23.

Indonesia: Details of Nontax Receipts, 1991/92–1997/98

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

Excludes proceeds from the privatization program, which are treated as financing.

Includes education and hospital fees, and transfer of Rp 400 billion from the Reforestation Fund in 1996/97.

Includes self financing receipts before 1995/96.

Table 24.

Indonesia: Central Government Expenditure, 1991/92–1997/98

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

Recurrent spending on goods and services only.

Derived as the sum of the current budget surplus and net financing.

Table 25.

Indonesia: Import and Export Taxation of Non-Oil/Gas Trade, 1991/92–1996/97

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

As published by the Directorate of Customs and Excises.

Table 26.

Indonesia: Functional Classification of Development Expenditure and Net Lending, 1991/92–1997/98 1/

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

Excludes defense and national security, and fertilizer subsidy.

Excludes fertilizer subsidy.

Derived as the difference between Fund definition and authorities’ estimates of development expenditure and net lending.

Derived as the sum of the current budget surplus and net financing (Fund definition).

Excludes the residual.

Includes water supply and religion.

Table 27.

Indonesia: Summary of Provincial Finances, 1991/92–1997/98

article image
Source: Data provided by the Indonesian authorities.
Table 28.

Indonesia: Consolidated Balance Sheet of Nonfinancial Public Enterprises, 1991–96

(In billions of rupiah)

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

Current assets less current liabilities as percent of total assets.

Long-term debt as percent of capital plus reserves.

Table 29.

Indonesia: Consolidated Income Accounts of Nonfinancial Public Enterprises, 1991–96

(In billions of rupiah)

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

Operating income less the direct cost of goods sold.

Profits after depreciation and interest and before taxes as percent of total assets.

Table 30.

Indonesia: Structure and Growth of the Organized Financial Sector, 1991–96

(End of period)

article image
Source: Data provided by the Indonesian authorities.

Includes seven state banks; the remainder are national private banks.

National private banks undertaking only domestic currency business. Includes one state saving bank.

Nine investment finance, three development finance, and two other finance companies.

Two private savings banks.

Gross assets for multi-use companies.

Village banks, rural paddy banks, and government-owned pawnshops, 1996 value is at September 1996.

Table 31.

Indonesia: Monetary Survey, 1992–97

article image
Source: Data provided by the Indonesian authorities.

Claims on public enterprises exclude claims on financial public enterprises by Bank Indonesia.

Table 32.

Indonesia: Factors Affecting Reserve Money, 1992–97

article image
Source: Data provided by the Indonesian authorities.
Table 33.

Indonesia: Bank Indonesia Liquidity Credits, 1991–96 1/

(In billions of rupiah; outstanding credits at end of period)

article image
Source: Data provided by the Indonesian authorities.

Since January 1990, liquidity credit has been provided only to farmers for working capital, cooperatives for food procurement, development banks and nonbank financial institutions for general investment, BULOG for maintaining supplies of food and sugar, and commercial banks for state investment credit

Consists of credits for Kupedes, national contractors, KMK, and Keppres No. 29.

As of April 1993, includes commercial banks and excludes nonbank financial institutions.

Table 34.

Indonesia: Liquidity Credits of Bank Indonesia and Credits of Commercial Banks, 1992–96 1/

(In billions of rupiah; end of period)

article image
Source: Data provided by the Indonesian authorities.

Includes credit to central government to finance smallholder plantations; excludes special credit facility, BI = Bank Indoensia; CB = commercial banks.

Table 35.

Indonesia: Bank Indonesia Facilities, 1991/92–1996/97

(Amounts outstanding at end-period; in billions of rupiah)

article image
Source: Data provided by the Indonesian authorities.

Includes emergency credits provided to banks recorded as liquidity credits.

Table 36.

Indonesia: Assets and Liabilities of Deposit Money Banks, 1991–97

(In billions of rupiah; end of period)

article image
Source: Data provided by the Indonesian authorities.
Table 37.

Indonesia: Liquidity Position of Commercial Banks, 1991–96 1/

(In billions of rupiah; end of period)

article image
Source: Data provided by Bank Indonesia.

Includes state banks, local development banks, and the State Development Bank (BAPINDO).

Current liabilities comprise call money, transfer drafts, and all time, saving, and demand deposits.

From October 1988 to January 1996, 2 percent of current liabilities. From February 1996, a minimum of 3 percent of current liabilities.

As issued by Bank Indonesia.

Commercial banks’ net foreign assets less their foreign currency liabilities to domestic residents.

Table 38.

Indonesia: Commercial Bank Credit, 1991–96

(In billions of rupiah; outstanding at end of period)

article image
Source: Data provided by the Indonesian authorities.

Includes mainly credit for housing, transportation, and household items. As of April 1993, includes commercial banks and excludes nonbank financial institutions.

Includes credits for real estate.

Table 39.

Indonesia: Maturity Structure of Bank Deposits and Credits, 1991–96 1/

(In billions of rupiah)

article image
Source: Data provided by the Indonesian authorities.

Includes state banks, private national banks, foreign banks, and local development banks, commercial banks. Excludes nonbank financial institutions, and foreign currency credits and deposits.

Bank credits above one year are classified as investment credits.

Table 40.

Indonesia: Average Interest Rates Paid on Outstanding Deposits at Commercial Banks, 1991–96

(In percent per annum)

article image
Source: Data provided by the Indonesian authorities.

Weighted average.

Midpoint of range for six-month rate.

Table 41.

Indonesia: Interest Rates on Nonpriority Credits of Deposit Money Banks, 1991–96 1/

(In percent per annum)

article image
Source: Data provided by the Indonesian authorities.

Based on weighted average of all outstanding loans of deposit money banks since 1991.

Table 42.

Indonesia: Bank Indonesia Foreign Exchange Swaps, 1991–96

(End of period)

article image
Source: Data provided by the Indonesian authorities.

Nonbank financial institutions.

Effective October 27, 1988, the swap premium is set daily as the difference between the domestic deposit rate and the U.S. dollar LIBOR for the corresponding maturity. The rates shown time here are three-month swap premiums until December 1991 and twelve-month swap premiums thereafter.

Data on swap premiums is not available since July 1995.

Table 43.

Indonesia: Short-Term Interest Rates and Interbank Transactions, 1991–96

article image
Source: Data provided by the Indonesian authorities.

Average of rates at which transactions were conducted, weighted by volume of each transaction.

At end of period.

Table 44.

Indonesia: Issues of Shares and Bonds on the Jakarta Stock Exchange, 1989–96

article image
Source: Data provided by the Indonesian authorities.

At offering price.

End of period.

Table 45.

Indonesia: Summary Balance of Payments, 1991/92–1996/97

(In millions of U.S. dollars)

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

Includes prepayments.

Includes unrecorded private capital flows.

Includes official assets held as a contingency reserve by Bank Indonesia.

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

Table 46.

Indonesia: Summary of Oil and Gas Current Account, 1991/92–1996/97

(In millions of U.S. dollars unless otherwise noted)

article image
Source: Data provided by the Indonesian authorities.
Table 47.

Indonesia: Oil Balance of Payments, 1991/92–1996/97

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.

Recorded as net oil receipts in current account of balance of payments.

Table 48.

Indonesia: Gas Balance of Payments, 1991/92–1996/97

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.
Table 49.

Indonesia: Non-Oil/Gas Exports, 1991/92–96/97 1/

(In millions of U.S. dollars)

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

Since 1994/95, several commodities such as palm oil, other foodstuffs and copra cakes are recorded in Manufactured goods (previously in Agricultural products).

Mainly exports of shrimp.

Mainly coal.

Mainly plywood.

Table 50.

Indonesia: Non-Oil/Gas Imports, 1991/92–1996/97

(In millions of U.S. dollars)

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

Imports for certain Pertamina (national oil company) and Garuda (national airline) projects financed by foreign loans.

Table 51.

Indonesia: Non-Oil/Gas Services Account, 1991/92–1996/97

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.

Includes hire purchase, charter hire, repair, and dockings.

Interest on foreign exchange holdings.

Interest payments on medium- and long-term debt of the central government and public enterprises, including those related to the oil sector.

Estimated interest payments based on recorded debt to banks abroad only; coverage of private sector debt may not be complete.

From employment in the Middle East only.

Includes expenditures for embassies.

Comprises subscriptions, consulting fees, communications, film rentals, life insurance, advertisements, licenses, and patents.

Table 52.

Trade Indices, 1991/92–1996/97 1/

(Base 1983/84 = 100; in U.S. dollar terms)

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

Unit value estimates for non-oil/gas imports based on the price index for the manufactured exports of industrial countries; and for non-oil/gas exports based on respective international commodity prices

Staff projections.

Respective export price indices divided by the price index for non-oil/gas imports.

Table 53.

Indonesia: Exports by Country of Destination, 1991/92–1996/97 1/

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.

Includes oil and gas exports.

Indonesian classification.

Table 54.

Indonesia: Imports by Country of Origin (c.i.f.), 1991/92–1996/97 1/

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.

Includes oil and gas imports.

Indonesian classification.

Data refer to the former Czechoslovakia.

Table 55.

Indonesia: External Debt-Service Payments, 1991/92–1996/97

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

Excludes estimated private sector amortization payments.

Includes prepayments.

Estimated interest based on recorded debt to banks abroad only.

Includes estimated private sector amortization.

As a percentage of exports of goods and nonfactor services.

Table 56.

Indonesia: External Debt Outstanding, 1991/92–1996/97

article image
Sources: Data provided by the Indonesian authorities, World Bank Debtor Reporting System, and BIS, International Banking and Financial Market Developments; and staff estimates.

Until 1993/94, based on BIS data. From 1994/95, new staff estimates for private nonbank debt are based on improved coverage of private debt by Bank Indonesia.

Based on recorded debt to banks abroad only.

Public debt at variable rates or on concessional terms in percent of total public debt; calendar year.

Table 57.

Indonesia: Public Sector External Debt Transactions, 1991/92–1996/97 1/

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.

Excludes loans of maturity up to of one year and transactions with to the IMF.

As recorded in debt records of Bank Indonesia. Excludes drawings made in connection with prepayments.

Includes prepayments.

Mainly reflects valuation adjustments owing to changes in exchange rates, and an adjustment for the estimated grant component of public sector drawings.

Table 58.

Indonesia: Net Foreign Assets of the Banking System, 1991/92–1996/97

(In millions of U.S. dollars)

article image
Source: Data provided by the Indonesian authorities.

National valuation.

Includes use of Fund credit (under the compensatory financing facility).

Largely represents official assets held as a contingency reserve.

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

References

  • Bank Indonesia, 1996, Report for the Financial Year, 1995/96 (Jakarta).

  • Bank Indonesia, 1997a, Governor, “Speech to the Annual Bankers’ Association Meeting,” (Jakarta).

  • Bank Indonesia, 1997b, Indonesia Financial Statistics (Jakarta).

  • Bascand, G.N., and A. Razin, 1996, “Indonesia’s Fiscal Position: Sustainability Issues,” paper presented at the Bank Indonesia-International Monetary Fund Conference on Macro-economic Issues Facing ASEAN Countries (Jakarta).

    • Search Google Scholar
    • Export Citation

  • Central Bureau of Statistics, 1997, Indikator Ekonomi (Jakarta).

  • Dekle, R., and M. Pradhan, 1996, “Financial Liberalization and Money Demand in ASEAN Countries: Implications for Monetary Policy,” paper presented at the Bank Indonesia-International Monetary Fund Conference on Macroeconomic Issues Facing ASEAN Countries (Jakarta), and issued as IMF Working Paper 97/36.

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund, 1996, “Indonesia: Recent Economic Developments,” IMF Staff Country Report No. 96/92 (Washington).

  • Montgomery, J.D., 1996, “The Indonesian Financial System: Its Contribution to Economic Performance and Key Policy Issues,” paper presented at the Bank Indonesia- International Monetary Fund Conference on Macroeconomic Issues Facing ASEAN Countries (Jakarta).

    • Search Google Scholar
    • Export Citation

  • Partner, S., and P. Hutabasat, 1996, “Survey of Recent Developments,” Bulletin of Indonesian Economic Studies, Vol. 32, No. 3 (December), pp. 3–32.

    • Search Google Scholar
    • Export Citation

  • President of the Republic of Indonesia, “Government Statement on the Draft State Budget for 1997/98 to the House of the People’s Representatives,” (Jakarta).

    • Search Google Scholar
    • Export Citation

  • Sarel, M., 1996, “Growth and Productivity in ASEAN Economies,” paper presented at the Bank Indonesia-International Monetary Fund Conference on Macroeconomic Issues Facing ASEAN Countries (Jakarta).

    • Search Google Scholar
    • Export Citation

  • World Bank, 1997, “Indonesia: Sustaining High Growth with Equity,” Report No. 16433- IND (Washington).

1

This report forms part of the documentation for the 1997 Article IV consultation. It is based on data provided to a staff team which visited Jakarta in March/April, and on updated information where available.

2

It should be noted that the term “country” as used in this report, does not in all cases refer to a territorial entity that is a state as understood by international law and practice. The term also covers some territorial entities that are not states but for which statistical data are maintained and provided internationally on a separate and independent basis.

3

National accounts data are available only on a calendar-year basis. The fiscal year is April–March.

4

See Tables 1–20 and Charts 1–5.

5

Fund staff estimates, and Sarel (1996).

6

See Tables 21–29 and Chart 6. The fiscal data for 1991/92 to 1994/95 have been revised from the previous report on Recent Economic Developments. The fiscal outturn is provisional until audited final figures are released about 15 months after the end of the fiscal year; the revisions may be substantial.

7

See Tables 30–44 and Charts 7–10.

8

See Tables 45–58 and Charts 11–15.

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Indonesia: Recent Economic Developments
Author:
International Monetary Fund
Volume/Issue:
Volume 1997: Issue 075
Publisher:
International Monetary Fund
ISBN:
9781451818208
ISSN:
1934-7685
Pages:
99
DOI:
https://doi.org/10.5089/9781451818208.002
CHART 1

INDONESIA: DEVELOPMENT AND STRUCTURAL INDICATORS, 1969–97
CHART 2

INDONESIA: SELECTED ECONOMIC INDICATORS, 1985/86–1996/97
CHART 3

INDONESIA: REAL SECTOR DEVELOPMENTS, 1990–1996
CHART 4

INDONESIA: GDP GROWTH, 1996

(In percent)
CHART 5

INDONESIA: INFLATION, 1994–1997

(Annual percent change)
CHART 6

INDONESIA: FISCAL INDICATORS, 1986/87–1996/97

(In percent of GDP)
CHART 7

INDONESIA: MONEY AND CREDIT GROWTH, 1991/92–1996/97

(Percent change on year earlier)
CHART 8

INDONESIA: MONETARY CONDITIONS, 1993–97
CHART 9

INDONESIA: EXCHANGE RATE DEVELOPMENTS, 1992–97
CHART 10

INDONESIA: STOCK MARKET DEVELOPMENTS, 1992–97
CHART 11

INDONESIA: EXTERNAL SECTOR INDICATORS, 1971/72–1996/97

(In percent of GDP)
CHART 12

INDONESIA: EXPORT SHARES, 1996
CHART 13

INDONESIA: EXTERNAL TRADE INDICATORS, 1991/92–96/97
CHART 14

INDONESIA: MANUFACTURING EXPORTS AND IMPORT GROWTH, 1992/93–1996/97
CHART 15

INDONESIA: FOREIGN DIRECT INVESTMENT, 1989–96