Dealing With Current Account Deficit:

Sekretariat Jenderal Kementerian Keuangan

Ministry of Finance Republic of Indonesia

Dealing With Current Account Deficit: Indonesia’s Experience Policies for a Sustainable Current Account in Indonesia OECD Development Center Paris, 22 January 2014

Dr. Luky Alfirman Fiscal Policy Agency, Ministry of Finance

Ministry of Finance

! Indonesia is a country with rela6vely high yet stable economic growth. But as an open economy, slowing global growth has adversely impacted Indonesia’s economy; one of them is the widening current account deficit (CAD);

! Indonesia’s CAD is caused by both external factors (slowdown in major trading partner and significant decline in commodity prices) and domes6c factors (while import is s6ll strong in line with robust domes6c economic ac6vi6es) è external imbalances;

! CAD is a reasonable consequence of countries in the development stage like Indonesia, where savings can’t fulfill all investment needs, but it should be (i) managed at a reasonable level, (ii) supported by adequate financing, and (iii) free from structural problems, such as unhealthy fuel subsidy regime, too much reliance on commodity based export, etc.

! To manage CAD at a reasonable and sustainable level, government and the relevant authori6es have been and will be issuing a series of policy measures, both for short term and and long term.

ExecuNve Summary

2

Ministry of Finance

OUTLINE

3

Indonesia at Glance

Indonesia Current Account Deficit: Current and Structural Problems

Policy Packages to Deal with Current Account Deficit Problems

Recent Development on Indonesia’s Trade Balance

Medium Term Challenges and Policy DirecNon: ConNnuous Structural Reform

Indonesia at Glance

Ministry of Finance

Indonesia has demonstrated consistently strong and robust macroeconomic performance…

5

5.3%6.5% 6.1% 6.8% 6.3% 6.0%

4.6%6.2% 6.5% 6.2% 5.8% 5.7% 6.0%

4.6% 5.0%5.7% 5.5% 5.3%

3.6%(1.1)%

4.8% 4.1% 3.7%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q3 2013

2013 Outlook

2014 Budget

Indonesia Peers (Baa1 - Baa3)

Source: Ministry of Finance, Bank Indonesia, BPS, Moody’s

Source: Ministry of Finance Note: 2013 Total Debt / GDP from 2013 Revised Budget

GDP by Sector (% of total GDP) as of 30 Sep 2013

GDP by Expenditure (% of total GDP) as of 30 Sep 2013(1)

Source: BPS (1) Numbers do not add up to 100%

Source: BKPM Note: IDR/U$ exchange rate as at end of reporPng period. (1) CumulaPve up to 3Q 2013

(US$bn) 2011 Growth: 20.5%

2012 Growth: 24.6%

2013 Growth: 18.3%(1)

Total: US$27.9bn US$34.8bn US$30.2bn

Real GDP (yoy Growth)

2011 2012 2013

Strong and Consistent GDP Growth Well Diversified Economy

Favored by Investors With Increasing Direct Investments Manageable Debt PosiNon and Sustainable Fiscal Deficit

•  According to Moody’s, Indonesia’s peers will grow at 3.6% in 2013

Ministry of Finance 6

G-20s, Q3 2013 GDP Growth (%,yoy)

BRIC GDP Growth (%,yoy) compared to Indonesia

Source: WEO, Bloomberg,

Selected ASEAN Members GDP Growth (%,yoy)

* Q2-‐2013

China 7.8 USA 1.6 Indonesia 5.6 UK 1.6 Turkey 4.4 Mexico 1.3 India 4.8 Japan 2.7 Brazil 2.2 Canada 3,5 Argen6na 8.3* Germany 0.6 Saudi Arabia 3.2 France 0.2 Australia 2.3 EU -‐0.4 S. Korea 3.3 Italy -‐1.9 S. Africa 2.0*

0

2

4

6

8

10

12

14

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2010 2011 2012 2013

Brazil Rusia India China Indonesia

Indonesia economic growth is much stable compared to others…

Ministry of Finance

Indonesia trade relies heavily on Asian trading partners, whereas non-‐oil export desNnaNons are sNll dominated by Asian countries….

7

Jepang15.68%

China18.09%

Korea S5.18%

India2.38%

Jerman2.75%

USA8.72%

Australia3.78%

lainnya21.34%

Malaysia4.13%

Singapura9.35%

Thailand6.96%

ASEAN Lainnya1.63%

ASEAN21,31%

Non Oil and Gas Import by Country of Origin Jan -‐ Nov 2010

China10.67%

Japan12.74%

South Korea5.39%

India7.51%

Australia1.85%

USA10.36%

United Kingdom1.33%

Germany2.29%

Others26.93%

Singapura7.49%

Malaysia5.90%

Thailand3.17%

other ASEAN 4.37%

ASEAN20,50%

Non oil and Gas Export by Destination Country Jan -‐ Nov 2010

Export to Asian Countries = US$68 billion Import from Asian Countries = US$64.6 billion

Export to Asian Countries = US$78.5 billion Import from Asian Countries = US$84.4 billion


Most non-‐oil & gas exports are commodity based products such as coal, palm oil, and rubber...

Agricultural Products 2.3%

Industrial Products 48.6%

Mining Products Excluding Petroleum & Gas 13.3%

Major CommodiNes Export (% of Total Non-‐Oil & Gas Export) Jan – Nov 2013

Agricultural Products Value % Shrimps: Fresh and Frozen 704 0.5 Coffee 671 0.5 Fish 625 0.5 Others Agricultural Products 271 0.2 Cocoa Beans 252 0.2 Spices 244 0.2 Fruits 112 0.1

Industrial Products Value % Vegetable Oil: Palm Oil 9,032 6.6 PreparaNon Rubber Products 5,720 4.2 Garments Products 4,666 3.4 Electrical Apparatus Products 4,096 3.0 Processed Food Products 3,079 2.3 Other TexNles Products 3,020 2.2 Paper and Paper Goods Products 2,242 1.6 Chemicals Products 1,989 1.5 Tin Products 1,429 1.0 Plywood Products 1,270 0.9

Mining Products Excluding Petroleum & Gas Value % Coal 14,866 10.9 Copper Ores and Concentrates 1,305 1.0 Nickle Ores and Concentrates 901 0.7 Bauxite 711 0.5 Other Mining Products 344 0.3

Source: World Bank 2013

Commodity Export by Value as a share of Total Export by Value, 2012

Note: Value in US$ millions, % of total non-‐oil & gas exports

Indonesia Current Account Deficit: Current and Structural Problems

Ministry of Finance

Various factors, both external and domesNc, have caused the recent pressures on Current Account deficit…

Current account deficits Trade Balace deficits Export : commodity prices, oil lihing Import of oil&gas, Raw materials and capital goods Service account deficits (Freight Insurance ) Income account deficits (Interest Dividend )

DomesNc Factors

Economic acNvity Investment

Global slowdown Liquidity risks

External Factors

Pressures on Financial Account

Foreign Capital

Reserves & Exchange rates

Direct investment

Porcolio investment

10

Ministry of Finance

Indonesia Balance of Payment has recorded deficit for three consecuNve quarters, but CAD began to narrow in Q3-‐2013…

§  The current account deficit began to narrow to a USD8.4 billion (3.8% GDP) compared to the previous quarter at USD10 billion (4.4% GDP). This is a deficit for the 8th consecu6ve quarter.

§  Goods trade deficit fell to USD7 million from USD0,7 billion due to non-‐oil trade balance improvement. §  The capital and financial account surplus fell to USD4.9 billion as weakening porcolio and other investments §  FX reserves at the end of Dec 2013 has improved to US$ 99,4 billion

(US$ billion) Source: Bank Indonesia, Kemenkeu

ITEM 2011 2012 2013 Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3

A. CURRENT ACCOUNT 2.9 0.3 0.8 -2.3 1.7 -3.2 -8.1 -5.3 -7.8 -24.4 -5.9 -10.0 -8.4 1. Goods Trade Balance 9.3 9.2 9.7 6.6 34.8 3.8 0.8 3.2 0.8 8.6 1.6 -0.7 0.007 a. Export, fob 45.9 51.8 52.4 50.7 200.8 48.4 47.5 45.5 47.1 188.5 45.2 45.6 44.1 b. Import, fob -36.6 -42.6 -42.7 -44.1 -166.0 -44.5 -46.7 -42.4 -46.3 -179.9 -43.6 -46.3 -44.2 2. Services -1.8 -3.1 -2.6 -3.1 -10.6 -2.0 -2.8 -2.4 -3.2 -10.3 -2.5 -3.1 -2.6 3. Income -5.5 -6.8 -7.4 -7.0 -26.7 -6.0 -7.1 -7.0 -6.7 -26.8 -6.1 -7.1 -6.7 4. Current Transfer 1.0 1.0 1.0 1.2 4.2 1.0 0.9 0.9 1.3 4.1 1.1 1.0 0.9

B. CAPITAL & FINANCIAL ACCOUNT 4.8 11.6 -3.1 0.2 13.6 2.1 5.1 5.9 12.1 25.2 -0.3 8.4 4.9 1. Capital Account 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.0 2. Financial Account 4.8 11.6 -3.1 0.2 13.5 2.1 5.1 5.9 12.1 25.1 -0.3 8.4 4.9 a. Direct Investment 3.8 2.5 2.1 3.1 11.5 1.6 3.7 4.5 4.1 14.0 3.9 3.8 5.1 b. Portfolio Investment 2.9 5.2 -4.6 0.2 3.8 2.6 3.9 2.5 0.2 9.2 2.8 3.4 1.9 c. Other Investment -1.9 3.9 -0.7 -3.2 -1.8 -2.1 -2.5 -1.2 7.7 1.9 -6.9 1.2 -2.1

C. TOTAL (A + B) 7.8 11.9 -2.3 -2.1 15.3 -1.1 -3.1 0.6 4.3 0.7 -6.2 -1.5 -3.5 D. NET ERRORS AND OMISSIONS -0.1 0.0 -1.6 -1.6 -3.4 0.1 0.2 0.2 -1.1 -0.5 -0.4 -1.0 0.9 E. OVERAL BALANCE (C + D) 7.7 11.9 -4.0 -3.7 11.9 -1.0 -2.8 0.8 3.2 0.2 -6.6 -2.5 -2.6 Reserve Assets Position 105.7 119.7 114.5 110.1 110.1 110.5 106.5 110.2 112.8 112.8 104.8 98.1 95.7 (In months of imports & official debt repayment) 7.5 7.9 7.1 6.5 6.5 6.2 5.8 6.1 6.1 6.1 5.7 5.4 5.2 Current Account (% GDP) 1.5 0.1 0.3 -1.1 0.2 -1.5 -3.7 -‐2.4 -‐3.6 -‐2.8 -‐2.6 -‐4.4 -‐3.8 Debt Service Ratio (%) 18.4 21.9 19.8 26.2 21.7 30.3 35.0 35.2 39.4 34.9 34.8 41.5 39.1

11

Ministry of Finance

Current Account turned to deficit starNng at the end of 2011 due to declining export while import is sNll solid…

•  CA turned to be deficit due to deficit in goods trade balance.

•  Export was slowdown, mostly because of declining price, while export volume was quite stable

•  As domes6c market expanded, import has been increasing, especially raw materials (76% of total import) and capital goods (17% of total import)

Source: Bank Indonesia, Kemenkeu

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Ministry of Finance


13

The widening of current account deficit is mainly due to deterioraNon of goods trade balance, especially oil and its products, combined with other accounts (Service and Income Accounts)...

•  Extensive trade balance deficits are mainly caused by higher imports growth than export growth, par6cularly in oil and gas.

•  Increasing fuel subsidy in 2013 was caused by increased oil and gas import and consump6on. 30000

35000

40000

45000

2006 2007 2008 2009 2010 2011 2012 2013*

Oil Subsidy Volumes (thousand KL)

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Nov 2013

Import Oil & Gas Volume (miliion Kg) Price Index (LHS) Value (million US$)


•  The service account tends to move in line with export-‐import. •  Freight services deficit à increasing payments to foreign shipping and airline companies due to lack domesNc

capacity •  Insurance services deficit à the use of foreign insurance services in trade and transportaNon sectors, most of the risk

from domesNc insurance company is absorbed by foreign reinsurers

The service account has been deficit for years, that is in line with deficit in the transportation sector (freight) caused by the increasing trends in import-export activities and insurance business...

-‐10632.2 -‐10330.8

-‐8220.1

377.53 380.08

274.38

-‐100.00

0.00

100.00

200.00

300.00

400.00

500.00

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Royalties and License Fees

Insurance Services

Transport

Total Services Account Deficits

X+M

Indonesia Service Account Deficits(USD Billion)

2013* as of September/Q3

10.63 10.33

8.22


Rising income deficit due to growing FDI income (growing profitability) as a result of increase in FDI à This is partly funded by reinvested earnings of foreign-‐owned companies

The income account has also been deficit for years...

-‐26675.82

-‐26799.77

-‐19960.15

19.24 19.40

5.43

-‐30.00

-‐20.00

-‐10.00

0.00

10.00

20.00

30.00

1000

6000

11000

16000

21000

26000

31000

36000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Compensation of EmployeesInvestment IncomesTotal Income Account DeficitsFDI

Indonesia Income Account Deficits(USD Billion)

2013* as of September/Q3

26.68

26.80

20.0

Ministry of Finance

CAD Financing Sustainability through FDI needs to be improved…


-‐12,000

-‐10,000

-‐8,000

-‐6,000

-‐4,000

-‐2,000

0

2,000

4,000

6,000

8,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008 2009 2010 2011 2012 2013

Basic Balance CA Direct Investment Basic Balance = Net FDI + Current Account Balance

16

Direct investment (net FDI) has increased while CA deficit started to worsen, resulNng in the widening basic balance deficit

Ministry of Finance


17

Average annual porcolio investment in 2012-‐2013 is around USD9.0 billion, although it is s6ll rela6vely vola6le. On the other hand, the annual average basic balance deficits is USD11.0 billion, implying there is s6ll financing deficit to support CAD

Although the recent trend of pormolio investment is sNll increasing, but it sNll can’t fully support the financing needs for CAD…

9,206

-‐10,000

-‐5,000

0

5,000

10,000

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3

2008 2009 2010 2011 2012 2013

Portofolio Investment Average Annual Portfolio


-10 -8 -6 -4 -2 0 2 4 6 8 -8

-6 -4 -2 0 2 4 6 8

10

FDI Portfolio CAB (LHS)

Share of GDP

Share of GDP

-10 -8 -6 -4 -2 0 2 4 6 8 -8

-6 -4 -2 0 2 4 6 8

10

FDI Portfolio CAB (LHS)

Share of GDP

Share of GDP

Emerging economies, including Indonesia, are sNll vulnerable, with the risks mostly coming from external side...

Source: World Bank 2012 2013f

3Q 2013 Brazil Indonesia India Afrika Selatan Turki

GDP (% yoy) 2.2 5.8 5.3 1.8 4.7

Inflation (% yoy) 6.1 8.6 10.8 6.3 8.3

Unemployment Rate (%) 5.3 6.3 4.7 24.7 9.9

Fiscal Deficits (% PDB) (2.5) (1.9) (7.0) (5.2) (3.0)

Current Account (% PDB) (3.7) (3.8) (1.2) (6.8) (7.7)

Exc. Rates (% QtoQ)

(15.9) (16.9) (15.0) (5.2) (10.4)

Foreign Reserves 364.5 97.0 277.2 49.3 134.2

Debt to GDP 19.4 24.0 49.6 40.0 45.9

Sources: IMF December 2013, World Bank, EIU, Kementerian Keuangan RI, BPS, Biro StaPsPk Brazil India, Afrika Selatan dan Turki Note: Data adalah untuk 3Q2013 kecuali for fiscal balance, exchange rate dan Rasio Utang PDB yang merupakan angka 2013.

Cadangan devisa merupakan angka terakhir di bulan Desember 2013

Some Emerging Economies Indicators •  In 2012, the Indonesia CAD could s6ll be financed by FDI and porcolio ac6vi6es, while in 2013, those sources couldn’t catch up with the CAD

•  The problem is not unique for Indonesia, other countries such as S. Africa, Thailand, and Turkey also experienced CAD together with its financing

•  Due to current financial turbulence, most emerging economies mostly face the infla6on pressure, CAD, Fiscal Deficits, and/or vola6lity of exchange rates.

Policy Packages to Deal with Current Account Deficit Problems

Ministry of Finance

To deal with the CAD problems, the government of Indonesia has taken some fiscal policy measures…

20

December Policy Package

AddiNonal budget for social protecNon and infrastructure: l  Condi6onal Cash Transfer (“PKH”): IDR0.7tn l  Uncondi6onal Cash Transfer (“BLSM”): IDR9.3tn l  Poor Students Aid (“BSM”): IDR7.5tn l  Addi6onal alloca6on of rice for the poor (“Raskin”):

IDR4.3tn l  Basic infrastructure development: IDR7.2tn l  Implemen6ng higher deficit for expansionary reason.

Deficit is revised from 1.7% to 2.4%

1.  Addi6onal income tax for selected goods. The criteria includes:

l  Goods not used for domes6c industries l  Household consump6on goods l  Non-‐infla6onary goods.

2. Addi6onal relaxa6on of goods imported for export ac6vity

The package is to be fully implemented by January 2014

A.  Policy to improve current account and exchange rate performance: l  Increase mandatory level of biodiesel in diesel oil to reduce oil imports l  Addi6onal luxury tax on luxury cars and branded products l  Increase mineral exports by relaxing procedures related to quotas and Clean & Clear

B.  Provision of incen6ves to maintain economic growth and people’s purchasing power l  Deduc6on / deferring of income tax for specific industries l  Improve tax holidays & tax allowance provisions

C.  Policy to curb infla6on l  Improve the meat and hor6culture trade system to sa6sfy demand

D.  Policy to promote investment l  Streamline permit process and improve the Na6onal Single Window for Investment (“NSWi”) service l  Accelerate the revision of the Presiden6al Decree pertaining to the Nega6ve Investment List (“DNI”) l  De-‐bopleneck problems in strategic investment projects

2013 Revised Budget

August Policy Package 2014 Budget

October Policy Package

Subsidized Fuel Price Adjustment

2014 Key Government Policies l  Government capital expenditure to support economic growth l  Support of infrastructure development guarantees l  Government incen6ves with respect to investments l  Price stabiliza6on policies to maintain purchasing power l  Improvements to the Nega6ve Investment List (DNI) l  Increase produc6vity through incen6ves for R&D ac6vity and training

as well as Social Security and Labor Policy

Support of Small and Medium Enterprise: l  Simplifica6on of Business License applica6on process l  Easier access to electricity l  Improved access to loans l  Support for the simplifica6on of regula6ons regarding

Bankruptcy Seplement, Recording of Land & Building Rights and Recording of Land & Building Ownership

Subsidized fuel prices increased by 44.4% per liter for gasoline and 22.2% per liter for

diesel

Macroeconomic AssumpNon 2013 Revised Budget 2014 Budget

Growth (%) 6.3 6.0 Infla6on (%) 7.2 5.5 Exchange Rate (IDR / US$) 9,600 10,500 Interest Rate (SPN 3 months) (%) 5.0 5.5 ICP (US$ / barrel) 108 105 Oil and gas Liqing

a. Oil Liqing (MBCD) 840 870 b. Gas Liqing (MBOEPD) 1,240 1,240

June July August September October November December


Central Bank (BI) has also issued some monetary policies…

Source: Bank Indonesia

Source: Bank Indonesia

l  Deposit Facility (“DF”) Rate h by 25bps to 4.25%

Jun 11, 2013

l  FX Swap ini6al offering

Jul 18, 2013

l  Extension of FX TD maturity l  Relaxa6on of FX purchasing by

exporter selling export proceed l  Revision of regula6on regarding FX

Swap transac6on between commercial banks and BI

l  Relaxa6on of regula6on regarding external debt

l  Issuance of Bank Indonesia Deposit Cer6ficate (SDBI)

Aug 23, 2013

l  Maintain BI Rate at 7.25%

l  Establish a bilateral KRW/IDR swap arrangement worth US$10bn

Oct 8, 2013 l  BI Rate h by 50bps to 7.00%, DF

Rate h by 50bps to 5.25%, LF Rate h by 25bps to 7.00%

l  Shorten MHP of SBI from 6 months to 1 month

l  Calcula6ng SDBI as part of Sharia Reserve Requirement (GWMS)

l  Extend BSA between BI and BoJ worth US$12bn

Aug 29, 2013

l  BI Rate h by 25bps to 6.00% maintaining DF Rate at 4.25% and Lending Facility (“LF”) Rate at 6.75%

Jun 13, 2013

l  BI Rate h by 50bps to 6.5%, DF Rate h by 50bps to 4.75% and maintain LF Rate at 6.75%

l  Revising regulaNon regarding LTV for property sector

Jul 11, 2013

l  Maintain BI rate at 6.5% l  Issuance of SDBI l  Rising Reserve Requirement (RR) and – LDR to 78% -‐ 92% (starNng on Dec 1,

2013) l  Rising GWMS by 1.5% (gradual increase by 0.5% each month un6l Dec 1, 2013) l  Supervisory acNon to banks with credit growth >20% l  Extending BSA with Japan

Aug 15, 2013

l  BI Rate h by 25bps to 7.25%, DF Rate h by 25bps to 5.5% and maintain LF Rate at 7.25%

Sep 12, 2013

l  BI Rate h by 25bps to 7.50%, DF Rate h by 25bps to 5.75% and LF Rate to 7.50%

Nov 12, 2013

l  Extend BSA between BI and BoC worth US$15bn

Oct 1, 2013

l  Expand BSA between BI and BoJ to US$22.76bn

Dec 13, 2013

Pre-‐EmpNve and Bold Measures in Policy Rate to help Drive Down Current Account Deficit…

… Supported by a Comfortable Foreign Exchange Reserve Cushion

June July August September October November December

Some Results of Recent IniNaNves

Ministry of Finance

Recent IniNaNves have so far shown some promising results…

23

StabilizaNon of Onshore Yields StabilizaNon of Foreign Exchange Market

(IDR tn) Yield (%)

DMO buyback 20 June 2013



BI buyback 12 June 2013

12,269

12,220

Source: Bank Indonesia, Bloomberg Source: Bank Indonesia

(IDR/US$) Convergence between offshore NDF and spot rate

2010 2011 2012 2013

(US$mm)

Source: Bank Indonesia Source: Bank Indonesia

2011 2012 2013

11.8%

5.0%

16.7%

8.3% 8.4% 8.8% 8.6% 8.4%

Source: BPS

(US$mm)

Surplus Trade Balance in November – Highest in 20 Months

Rebounding Financial Account Capital Flows

InflaNon StabilizaNon Following Fuel Price Adjustment Policy

776.8

8.4%

Ministry of Finance

•  With the issuance of policy measures by the government and BI as well as beper global economic condi6on, the 2013 CAD is es6mated to be 3.3%-‐3.6% of GDP and for 2014 will be 2.5% -‐ 3.0% of GDP.

•  Short term 2014 policies in pipeline : –  Trade Account Deficit à improving the fuel subsidy through price adjustments or

applying the fixed subsidy policy, and controlling fuel consump6on through (i) fuel restric6on/ra6oning policy, (ii) implemen6ng gas-‐fuel conversion program, (iii) and encouraging the use of alterna6ve energy à the mandatory level of biodiesel policy in diesel fuel

–  Service Account Deficit à merging a number of insurance SOEs to create a more powerful and well capitalized local insurance company

–  Income Account Deficit à providing tax incen6ve for companies that reinvest their profit (retained earnings) in Indonesia

•  Up side risks à the raw (ore) minerals export ban policy –  In the short term, this policy may increase the trade balance deficit, but in the

medium/long term, it is expected to increase the value of export

24

Outlook of 2013/2014 Current Account Deficit and short term policy direcNon…

Medium Term Challenges and Policy DirecNon: ConNnuous Structural Reform

Ministry of Finance

Global Challenges

• Risks from global and major trading partner uncertainty

• Liquidity pressures • Price volaNlity

DomesNc Capacity

• DomesNc Economy performances below its potenNal growth

• ProducNon capaciNes constraint • Supply bovleneck • OverheaNng risks

Economic Resiliency

• Import dependency à capital goods and raw materials

• CommodiNes export à price volaNlity • Food and energy security

Global CompeNNveness

• Infrastructure faciliNes (energy, roads and port) • Human resources capacity • Technology and innovaNon • Bureaucracy systems and procedures, and interlinkage regulaNons

26

Current Account Deficits

• Decreasing in oil liGing and external demand • Increasing trend of oil and gas import to support investment acNviNes

• The widening of trade balance deficits • Current account deficits and exchange rates pressures

Financial Stability

• RelaNvely high foreign ownership à vurnerable to negaNve senNments and sudden reversal risks

• Private sector’s foreign debt is increasing as a result of financing needs à debt risks increases

• RegulaNon frameworks to encounter these issues.

Fiscal

• Limited fiscal space – too much mandatory pending • Narrowed tax base • Quality spending • SensiNve to external shocks • Large porNon of energy subsidy.

Other Relevant Issues

• Poverty • Unemployment •  Inequality • Health and educaNon faciliNes

Medium Term Development Challenges

Ministry of Finance

•  Increase produc6vity •  Increase domes6c goods compe66veness •  Improve ins6tu6onal capacity and human resources quality • Maintain macro stability and fiscal sustainability •  Assure food and energy security

Strengthening domesNc economy

•  Improve investment climate •  Increase na6onal produc6on capacity •  Improve infrastrcutures facili6es •  Support development of technology and innova6on •  Enhance financial deepening and financial inclusion

Increasing producNon capacity and managing supply sides

•  Improve health and educa6on facili6es •  Improve financial support for SME’s •  Provide social security for all people

Reducing poverty and improving income disNbuNon

27

Medium Term Policy DirecNons

Ministry of Finance

Documents

Dealing With Current Account Deficit: