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LIST OF CONTENT

CH AP TER I TH E P ROGR ESS ON B ASIC ASS UM PTIONS

AND PRINCIPLES OF FISCA L POLICIES OF

THE REVISED BUDGET FOR THE FISCAL YEAR

2010

1.1 Introduction .............................................................................................

1.2 Global Economy ......................................................................................

1.3 General Remarks in The Indonesian Economy .........................................

1.4 Growth in Macroeconomic Indicators in 2010 ....................................

1.4.1 Economic Growth ....................................................................................

1.4.2 Inflation .........................................................................................................

1.4.3 Rupiah Exchange Rate ............................................................................

1.4.4 Three-Month SBI Interest Rate .................................................................

1.4.5 Indonesia Crude Price (ICP) ........................................................................

1.4.6 Lifting ............................................................................................................

1.4.7 Balance of Payment ...................................................................................

1.5 Principles of Fiscal Policy of APBN 2010 ...................................................

CHAPTER II REVENUES AND GRANTS IN THE REVISED

INDONESIAN BUDGET 2010

2.1 Introduction .............................................................................................

2.2 Changes in Revenues and Grants 2010 .................................................

2.2.1 Domestic Revenues ..................................................................................

2.2.1.1 Fundamental Changes in Tax Revenue .................................................

2.2.1.2 Tax Revenues in The APBN-P 2010 .......................................................

2.2.1.3 Fundamental Changes in Non-Tax Revenues .......................................

2.2.1.4 Non-Tax Revenues in APBN-P 2010 .....................................................

2.2.2 Grants in 2010 ...........................................................................................

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CHAPTER III REVISIONS IN EXPENDITURE

3.1 Introduction .............................................................................................

3.2 Fundamental Revisions in Policy And Central GovernmentsExpenditure 2010......................................................................................

3.2.1 Revision of Central Government Expenditure by EconomicClassification .............................................................................................

3.2.2 The Revision in Education Budget ..........................................................

3.2.3 The Revision in Central Government Expenditure by Organizations ....

3.3 Principles of Allocation Revision of Transfer to Region in 2010 .............

3.3.1 Revisions in Balanced Fund ...................................................................

3.3.1.1 Revision in Revenue Sharing Fund (DBH) .............................................

3.3.1.2 The Revision in the General Allocation Fund (DAU) ............................

3.3.1.3 Revision in Specific Allocation Fund (DAK) .............................................

3.3.2 Revision in The Special Autonomy and Adjustment Fund .......................

3.3.2.1 Revision in Special Autonomy Fund .........................................................

3.3.2.2 Revision in Adjustment Fund .....................................................................

CHAPTER IV PRINCIPAL CHANGES IN BUDGET DEFICIT

AND BUDGET FINANCING

4.1 Introduction .............................................................................................

4.2 Budget Deficit Financing ..........................................................................

4.2.1 Non Debt Financing ................................................................................

4.2.2 Debt Financing (Net) ..............................................................................4.2.3 Standby Loan (Public Expenditure Financing Facility / Contingency

Loan) .........................................................................................................

4.3 Fiscal Risk .................................................................................................

4.3.1 Sensitivity Analysis ..................................................................................

4.3.1.1 Sensitivity Of Macroeconomic Assumptions ..........................................

4.3.1.2 Sensitivity Of Macroeconomic Variables On BUMN Fiscal Risks ...........

4.3.2 Central Government Contingent Liabilities: Infrastructure Development Project ..............................................................................................

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List Of Tables

LIST OF TABLES

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Table I.1 World Economic Growth, 2009 ....................................................

Table I.2 Macroeconomic Basic Assumptions 2010 .....................................

Table I.3 GDP Growth By Sectors, 2008 2009 .........................................

Table I.4 GDP Growth By Sectors, 2008 2010 ..........................................

Table I.5 Indonesia Balance of Payment, 2008 2010 ..............................

Table I.6 Summary of The 2010 Indonesian Budget and Revised Budget

Table II.1 Revenues and Grants, 20092010 ..............................................

Table II.2 Taxes Borne by Government (DTP), 2010 .................................

Table II.3 Tax Revenues, 2009 - 2010 .........................................................

Table II.4 Non-Oil and Gas Income Tax Revenues by Sector, 2009 2010 .............................................................................................

Table II.5 Domestic Value Added Taxes Revenues by Sectors, 2009 2010

Table II.6 Import Value Added Tax Revenues by Sector,2009 2010 .................................................................................

Table II.7 Import Duties Revenues 2010 ....................................................

Table II.8 Non-Tax Revenues in 2009 2010 ............................................

Table II.9 The Largest Line Ministries Contributing to The Non-TaxRevenues, 2009 2010 .................................................................

Table III.1 Government Expenditure, 2010 ..................................................

Table III.2 Subsidy Expenditure, 2010 ........................................................

Table III.3 Revision in Expenditures of Line Ministries/Agencies, 2010 ......

Table III.4 Transfer to Regions, 2010 ..............................................................

Table IV.1 Non-Debt Financing in APBN 2010 and APBN-P 2010 .............

Table IV.2 Financing Gapof PT. PLN (Persero) ..........................................

Table IV.3 Debt Financing in APBN 2010 and APBN-P 2010 ....................Table IV.4 Subsidiary Loan in APBN-P 2010 ..............................................

Table IV.5 Standby Loan That Have Been Signed .......................................

Table IV.6 Discrepancy Between Macroeconomic Assumption andRealization ....................................................................................

Table IV.7 Macroeconomic Assumption Sensitivity to APBN-P Deficit2010 .................................................................................................

Table IV.8 Stress Test of Economic Growth Change, Exchange Rate, OilPrice, and Interest Rate to BUMN Fiscal Risk ...........................


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Graph I.1 Economic Growth in Developed Countries, Usa and Europe,2008 2009 .................................................................................

Graph I.2 Economic Growth in Developed Countries in Asia Regions, 2008 2009 ............................................................................................

Graph I.3 Economic Growth in China and India, 2008 2009 ................

Graph I.4 Economic Growth in The ASEAN Regions, 2008 2009 .........

Graph I.5 Global Manufacturing Index (PMI) ...........................................

Graph I.6 Global Economic Growth Projection, 2009 2010 .................

Graph I.7 Growth of Balance of Trade and Global Inflation, 2005 2010Graph I.8 Rupiah And JCI Index, 2009 .....................................................

Graph I.9 Net Foreign Buying of Stock ........................................................

Graph I.10 Yield SUN Growth ........................................................................

Graph I.11 10-Year CDS (Credit Default Swap) ..........................................

Graph I.12 Net Foreign Buying/Selling SUN ................................................

Graph I.13 Source of GDP Growth and Its Consumption, 2008 2009 ...

Graph I.14 GDP by Expenditure Growth, 2008 2009 ................................

Graph I.15 Growth of GDP in 2008 2010 .....................................................

Graph I.16 GDP and Its Consumption Growth , 2009 2010 ........................

Graph I.17 Inflation Rates, 2008 2009 ......................................................

Graph I.18 Inflation by Group Of Commodities , July 2009 2010 .........

Graph I.19 Inflation Components, July 2009 & 2010 .................................

Graph I.20 Rupiah Exchange Rate and Foreign Exchange Reserve, 2008 2010 ..........................................................................................

Graph I.21 BI Rate, BI Deposit Facility, BI Certificate REPO & OvernightInter-Bank Money Market, 2008 2009 ..................................

Graph I.22 Lending Rate and Deposit Rate, 2008 2009 ...........................

Graph I.23 Inflation Growth and Interest Rate, 2008 2010 ...................

Graph I.24 Growth of demand, supply, and World Oil Price, 2008 2009

Graph I.25 WTI Oil Price, 2009 2010 .........................................................

Graph I.26 Indonesia Oil Lifting, 2008 2010 ............................................

Graph II.1 Oil & Gas Income Tax Revenue, 2009 2010 .........................

Graph II.2 Non-Oil and Gas Income Tax, 2009 2010 .............................

LIST OF GRAPH S

List Of Graphs

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Graph II.3 The Value Added Tax And The Sales Tax on Luxury GoodsRevenue, 2009 2010 ...............................................................

Graph II.4 Land And Building Tax Revenues, 2009 2010 ......................

Graph II.5 The Duties On Land & Building Transfer Revenue, 2009 2010 ................................................................................................

Graph II.6 Customs Revenue, 2009 2010 ...................................................

Graph II.7 Other Tax Revenues, 2009 2010 ...........................................

Graph II.8 Export Duties Revenues, 2009 2010 ........................................

Graph II.9 Oil & Gas Natural Resources Revenues, 2009 2010 ..............Graph II.10 Dividend From BUMN, 2009 2010.........................................

Graph II.11 Other Non Tax Revenues, 2009 2010 ...................................

Graph II.12 Public Service Agency Revenues, 2009 2010 ..........................

Graph II.13 Grants , 2009 2010 ..................................................................

Graph III.1 Central Government Expenditure, 2009 2010 .......................

Graph III.2 Central Government Expenditure, 2010 ....................................

Graph IV.1 Budget Deficit Financing APBN 2010 and APBN-P 2010 .........

Graph IV.2 Government Investment Fund and PMN APBN 2010 and APBN-P 2010 ..............................................................................

Graph IV.3 Government Capital Participation In APBN 2010 and APBN-P 2010 ...........................................................................................

Graph IV.4 Revolving Fund in APBN 2010 and RAPBN-P 2010 .................

Graph IV.5 Foreign Loan in APBN 2010 and RAPBN-P 2010 .....................

Graph IV.6 BUMN Contribution to APBN .....................................................

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Chapter IBasic Assumption and Fiscal Policy Highlights, APBN-P 2010

I-1Financial Note and Indonesian Revised Budget 2010

CHAPTER I

THE PROGRESS ON BA SIC ASSUMPTIONS ANDPRINCIPLES OF FISCAL POLICIES OF THE REVISED

BUDGET FOR THE FISCAL YEAR 2010

1.1 Introduction

Global economic condition in 2009 has been sluggish, as a affect of the global financialcrisis that hit the country in the mid of 2007. Many countries in various regions wereaffected by the crisis, resulting in negative growth during the first two quarters respectively

in 2009, namely the United States, countries within Europe, Japan, and some ASEANcountries including Singapore, Malaysia and Thailand. Nevertheless, in the half of 2009,the global economy performance recovery was indicated by the economic improvementsin some Asian countries, which showed a positive growth up to fourth quarter of 2009.In addition, the global economic recovery was marked by the improvement inmanufacturing industries, the increase in retail sales, the growth in consumer confidenceindex, the slow expansion in housing-sector, and the increase in commodity prices in theworld.

The global economy recovery also occurred in a number of developed and developingcountries. In the fourth quarter of 2009, some countries were able to boost their economyacceleration growth compared with the previous quarters, namely, the United States grew

by 0.2 percent, Japan was minus 1.1 percent, China increased by 10.7 percent, Singaporeraised by 3.8 percent, and South Korea grew by 6.0 percent. This economic improvementwas strengthened by the policies issued by the Government and the central banks of eachcountry through their fiscal stimulus packages, and the applicable interest rate policies ineach country in order to minimise the impact of crisis.

Despite having suffered from the global crisis, Indonesia was one of three countries thathave delivered its best economy performance after China and India. The national economystability was maintained shown by the more strengthening of rupiah exchange rate sinceApril 2009, which reached the highest appreciation in Asia. Inflation rate was managedto a modest 2.78 percent, and the improvement in capital market reflected by the increasein Jakarta Composite Index Indeks Harga Saham Gabungan (IHSG) around 101.76percent since March 2009 up to the end of 2009, which was the second best after ShenzenChina. In addition to these indicators, other indicators such as Government Bond Yield(SUN Surat Utang Negara) and the level of Credit Default Swap (CDS) have decreased.This has indicated that the national economy performance in 2009 was promoting theperiod of recovery.

The national economy was able to accelerate and to reach the positive growth 4.5 percentin 2009 amid the global economic which was not fully recovered. The driven factorswere the consumption of the households and Government that grew respectively 4.8 percentand 15.7 percent supported by the improvements in some indicators such as motor vehicleand car sales, electricity and consumption credits. Besides consumptions, another


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I-2 Financial Note and Indonesian Revised Budget 2010

Chapter I

economic expansion was driven by the growth of investment which was 3.3 percent in2009. The investment growth was reflected by the increase in total credit, especially the

Credit Investment which still grew by two digit points. On the other hand, the contributionof external sectors such as exports and imports also made recoveries since the middle of2009, supported by the increase in demand and the prices of commodities.

The Indonesian economy is predicted to improve in 2010. The economy recovery andmacroeconomic indicator behaviour are predicted to continue. Economy activities arepredicted to develop which will result in the increase in prices of the main worldcommodities, a rise in inflation and the interest rate, as well as the growth in capitalinflows. This condition is slightly different from the one which was previously predicted,so that it is important to be prepared and to anticipate the impacts that may arise. Themacroeconomic basic assumptions that have been determined in the APBN 2010 (APBN2010) are deemed necessary to be adjusted to the current conditions.

In relation with the above matters, the Government has expeditiously submitted the 2010Draft of Law on the Revised Bill on the Indonesian Budget (Revisi RUU RAPBN). This was faster than the regular schedule, which was normally proposed after theimplementation of the Indonesian Budget in the first semester. The purpose of the rapidsubmission of the Revised Bill on the Indonesian Budget was not only to address thecurrent national economy conditions, particularly in relation to macroeconomic variablesthat had significantly changed, but also to contain the additional prioritised expendituresthat had not been included in the Law of the APBN 2010. This was based on the provisionunder article 27 of Law Number 47 Year 2009 regarding APBN 2010.

Having highly intensive discussions in the plenary session of the House of Representatives

of the Republic Indonesia on 3 May 2010, the Draft of Law of the Revised Bill on theIndonesian Budget (RUU APBN-P) has been approved to be passed the Law. Further, theRevised Bill on the Indonesian Budget was enacted by the Law Number Year 2010 dated25 May 2010.

1.2 Global Econom y

The first half of 2009 was the period of weak for the global economy. Impact of the globalfinancial crisis prevailed over the real sector. The slowing economic growth started toperceive since the second semester of 2008. Entering 2009, declining economic growth was more devastating, and it fell down dramatically in the third quarter of the secondsemester of 2009. During this period, many countries experienced the negative growth

amid further escalation in other economic problems, such as: the low level of productivityand economy activities, and an increase in unemployment. This phenomenon was clearlyappeared in some developed countries that had been the engine for economic growth inthe world. This condition encouraged various countries to work together to formulatethe joint strategic and focused policies aiming at devoting efforts effectively to survive thecrisis. These efforts brought about fairly well results, in which the global economy hasreached a faster recovery than it had been previously estimated.

In 2009, most developed countries experienced a low level of growth in the first semester.Entering the second semester some improvements showed; however, the growth rates were still negative. This trend mainly occurred in the United States and Europe. TheUnited States whose economy contribution to the world was 28 percent of the total GDP


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achieved a negative growth in the first andsecond quarters of 2009, minus 3.8 percent

and minus 4.1 percent respectively. Duringthe third and fourth quarters the economygrowth increased to minus 2.7 percent and0.2 percent. The similar improvement wasalso demonstrated by some developedcountries in Europe. England recorded itseconomy growth of minus 5.5 percent andminus 5.9 percent in first two quarters of2009. Entering the third and fourth quarter, the growth of England has improved slightlyto minus 5.3 percent and 2.9 percent. Germany and France reached their lowest growthin the first quarter, which were minus 6.7 percent and minus 3.9 percent. These countriesachieved their growth in the following quarters. In the fourth quarter of 2009, the rate ofeconomic growth in these two countries reached minus 2.2 percent and minus 0.5 percentrespectively (Graph I.1).

The rate of economic growth in developedcountries in Asia reflected a faster recovery, which was slightly different from whathappened in developed countries in North America and Europe. Japan was the mostdevastating country hit by the hardest crisisin the first quarter of 2009, in which itseconomic growth was minus 8.9 percent.

Nevertheless, in the second, the third andthe fourth semester the economic growthin Japan recovered, although it still recorded a negative growth of minus 5.7 percent,minus 5.2 percent, and minus 1.1 percent respectively. South Korea was able to reach itspositive growth in the third and fourth quarters, which were 1.0 percent and 6.0 percent(Graph I.2), after encountering the negative growth in the first and the second quartersof 2009.

The economic growth in Japan and South Korea was relatively better compared with theeconomic growth in other developed countries. This was caused by, among others theconducive economy condition in Asia region, which was mainly sustained by the economyperformance in some developing countries, in particular China and India. These two

countries were big countries initially expected to become the key to reduce crisis, andalso to become driving force of economy recovery in the Asia region. Despite the impactof global crisis and having encountered economic slowdown, these two countries stillmaintained s moderate rate of economic growth, which had positive impacts on thecountries in the Asia region. China experienced an economic downturn reaching 6.2percent in the first quarter of 2009, although China had shown a consistent growth in thelast few years at a level of 10 percent or above. Yet, Chinas economy was back to improvein the second, third and fourth quarters growing by 7.9 percent, 9.1 percent and 10.7percent respectively. Similarly, in India its economic growth reached 7.3 percent in 2008,and dropped to 5.8 percent in the first quarter of 2009. During the next period, the growth

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USD U.K Germany France

Q1 20 08 Q2 200 8 Q3 20 08 Q4 20 08 Q1 2009 Q2 200 9 Q3 20 09 Q4 20 09

Source : Bloomberg

GRAPH I.1ECONOMIC GROWTH IN DEVELOPED COUNTRIES, USA AND EUROPE,

2008-2009( y-o-y, percent)

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Jepang Korsel

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009Q2 2009 Q3 2009 Q4 2009

Source : Bloomberg

GRAPH 1.2

ECONOMIC GROWT H IN DEVELOPED COUNTRIES IN ASIA REGIONS, 2008-2009

(y-o-y, percent)


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Chapter I

rate in India increased again achieving 6.0 percent, 8.6 percent, and 6.5 percent in thesecond, third, and fourth quarters of 2009 (Graph I.3).

In the region of South East Asia, theeconomic contraction occurring in 2009 hasalso been faced by the three of five main ASEAN countries (ASEAN-5), namelyMalaysia, Singapore, and Thailand. Thethree countries recorded the lowest growthin the first quarter of 2009, minus 6.2percent, minus 8.9 percent and minus 7.1percent respectively; however, in the nextperiod it has improved. Singapore achieveda positive growth by 3.8 percent in the

fourth quarter of 2009. Whereas, Malaysia and Thailand grew by each 4.4 percent and5.9 percent.

Philippine and Indonesia are two of ASEANcountries that are undergoing economicexpansion at slow speed. In the first quarterof 2009, the economic growth in Philippinereached 0.5 percent, whereas in the second,third and fourth quarters of 2009 it hasincreased by 1.2 percent, 0.2 percent and2.1 percent. Indonesia is one country of the ASEAN-5 countries attaining the highest

economic growth whose economic rategrew in the range of 4.0 percent. In thefirst quarter of 2009 Indonesia economic had grown by 4.5 percent; however, it declined4.1 percent in the second quarter. In the third and fourth quarters of 2009, the Indonesianeconomic growth improved 4.2 percent and 5.4 percent (Graph I.4).

Entering the second semester of 2009, therehas been a positive development in whichoptimism about the faster proceeding ofeconomy recovery has prevailed than it had been initially expected. This optimismprevailed amid the economic activity

indicators and international trades in severalindicators. Baltik Dry Index indicator thathad plunged sharply in the mid of 2008,started to increase in the beginning of 2009marking the beginning of an increased

activities in shipping and trading among countries. Meanwhile, the Purchasing ManagersIndex (PMI) published by JP Morgan as one indicator of manufacturing industrialactivities in the world has indicated an economic expansion in the middle of 2009 (GraphI.5).

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GRAPH I.4ECONOMIC GROWTH IN THE ASEAN R EGIONS, 2008-2009

(y-o-y, percent)

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Source : Bloomberg

Sumber:ISM

Sumber:ISM

GRAPH I.5GLOBAL MANUFACTURING INDEX (PMI)

(Point)

Source : ISM

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Cina IndiaQ1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009Q2 2009 Q3 2009 Q4 2009

Source : Bloomberg

GRAPH I .3ECONOMIC GROWTH IN CHINA AND INDIA,

2008-2009 (y-o-y, per cent)


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The optimism about global economy recovery and current indicators is a consideration inrevising the estimation of economic growth rate in the world in 2009 to a higher level.

Having undertaken some downward revisions, IMF again made a revision to the projectionon the economic growth in the world from minus 0.8 percent (published in January2010) to an increase by minus 0.6 percent in April 2010 (Table I.1). On the other hand,IMF also revised the growth in the international trade volume to its lower level. In thiscase the projection on the international trade volume in the world was also revised fromminus 12.3 percent to minus 10.7 percent in April 2010, which will also be revised to 11.3according to July 2010 publication.

The current development in the globaleconomy has also exerted on the revision ofthe global economy projection in 2010which had been initially estimated to reach2.9 percent and had been revised to 4.2

percent (WEO World Economic Outlook, April 2010), and later was revised to 4.6percent (WEO, July 2010). The growth indeveloped countries had improved fromminus 3.2 percent in 2009, became 2.6percent in 2010. Whereas the economicgrowth in developing countries has increased from 2.5 percent to 6.8 percent. The economicgrowth in developing countries in the Asia region has indicated the highest level of growthcompared with that in other regions, 9.2 percent (Graph I.6).

The revision in the economic growthprojection above is also supported by the

revised projection in the international trade volume growth in the world together withan increase in demand in the world. Theimprovement in such demand is estimatedto have an impact upon the global inflationlevel. The growth of goods and servicestrading volume is projected to increase fromminus 11.3 percent in 2009 to 9.0 percentin the following year (Graph I.7).

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World De veloped Countries De ve loping Counries

GRAPH I.6GLOBAL ECONOMIC GROWTH PROJECTION, 2009-2010

(y-o-y, percent)

2009 2010

Source : WEO, IMF

3,769 3,7144,005

5,983

2,5482,893

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GRAPH I.7GROWTH OF BALANCE OF TRADE AND GLOBAL

INFLATION, 2005-2010(Percent)

Inflation

Goods and Services

Goods

Source : WEO, IMF

Publication Apr 08 Oct 08 Apr 09 Oct 09 Jan 10 Apr 10 Jul 10GDP Growth 3.8 3.0 -1.3 -1.1 -0.8 -0.6 -0.6

Trade Volume 5.8 4.1 -11.0 -11.9 -12.3 -10.7 -11 .3

Sourc e : WEO, IMF

W ORLD ECONOMIC GROW TH , 2009 (Per cent)

TABLE I.1


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Chapter I

1.3 General Remarks in the Indonesian Economy

Approaching the end of 2009, the progress in macroeconomic indicator of Indonesia showeda continuous improvement. This was bolstered by considerable optimism for the globaland domestic economic improvements, and maintained stability of macroeconomic. Theincreased global economy has extended positively over the development of export andinvestment. The export performance which dropped in the first semester was starting toimprove in the second semester in 2009, in line with the increases in demand and thecommodity prices in global market. Meanwhile, the stable purchasing power of peopleand the growing confidence of the people about the economic growth, have promoted thelevel of consumption to be maintained at the significant high level. The growth of householdand government consumptions which were persistently high at the level of 4.9 percentand 15.7 percent in 2009, and the improved export performance, have strengthened theoptimism among business actors to increase the investment. The indicators of the increasedinvestment reflected in the improved demand of cement and the growth of capital importcommodities. By these progresses, the realisation of economic growth in 2009 reached4.5 percent.

Meanwhile, the inflation rate in 2009reached 2.78 percent (y-o-y), which waslower than it had been estimated in the2009 Indonesian Budget, 4.5 percent. Thelow rate of inflation in 2009 was mainlyinfluenced by the decline in subsidized fuelprice (BBM Bahan Bakar Minyak) in

early 200, the control of supply anddistribution of food mainly rice, and therelatively stable rupiah exchange rate. Theswift capital inflow penetrating domesticfinancial market has encouraged theappreciation of rupiah exchange rate. Therupiah exchange rate by the end of 2008 was in a close position at the level of Rp. 10.950/USD inclining toward a strong level up to Rp. 9.400/USD by the end of 2009, or it wouldshow an appreciation around 14.16 percent in 2009. The average level of rupiah exchangerate during 2009 reached about Rp. 10.408/USD (Graph I.8).

In line with the decline in inflation and a relatively stable rupiah exchange rate, the

monetary authority has undertaken loose monetary policies reflecting in declining BI(Bank Indonesia) rate from 275 bps to 6.5 percent in August 2009. This level of BI rate would constantly be maintained until the end of 2009. This declining BI rate wastransmitted to the inter-bank money market rate of interest shown in the daily averagedecrease of the interest rate from 9.44 percent by the end of 2008 to 6.47 percent by theend of 2009. The decline in BI rate was followed by the average interest rate of BankIndonesia Certificate (SBI Sertifikat Bank Indonesia) from 11.9 percent by the end of2008 to 6.58 percent by the end of 2009. Thus, during 2009, the average interest rate ofthree-month Bank Indonesia Certificate reached approximately 7.59 percent, lower thanprevious year reached 9.34 percent.

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PointRp/US$

kur s Rp/US$ IHSG

GRAPHI.8RUPIAH AND JCI INDEX, 2009

Source: Bloomberg

29/01/2010,2.610,8

29/01/2010,9.365

05/01/2009,11.013

02/03/2009,1.256,1


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Capital market performance also improved. After experiencing a severe hit stemmingfrom the financial and global economic crisis resulting in a decrease interest of foreign

and domestic investors in investment, the IHSG price started to increase in 2009. Thereturn of foreign investors to the market during 2009 has indicated a growing confidencein a tremendous potential of Indonesian economy supported by macroeconomic stability, which was well maintained. This positive sentiment would entice more investors intoIndonesian market either capital market or real sector.

During 2009, Indonesia capital market performance exceeded that of other countries,although in the beginning year of IHSG it had plunged down reaching the lowest level at1.256.11 point, due to mortgage crises attack. Furthermore, the IHSG increasedsignificantly. By the end of December 2009, the IHSG closed at the level of 2.534,36 point(the highest level during 2009) having the increase by 101.76 percent. This condition wascontinuously improving up to 31 January 2010 in which the IHSG reached the level of

2,610.8 point (Graph I.8).The growth of capital market performancehas brought about the Indonesia index tothe second highest level amongst the capitalmarket performance in Asia, in which theShenzhen index was at the first level,followed by the Shanghai and China indexat the third level. Meanwhile, the value offoreign buying stock in December 2009reached Rp. 3.84 trillion which was thehighest value of buying by foreign parties

during 2009 (Graph I.9)

To stimulate the growth of capital market, the Government will continuously maintainthe economy condition, so that it will remain conducive for the development of capitalmarket. In addition, the Government together with related institutions will pursue itsmaximum endeavours in facilitating a forum for investor protection through thesupervision of infrastructure or a series of stock exchange regulations; encouragedissemination information; and educate the public about the capital market; as well aspromote the improvement of good corporate governance to business actors by enforcinga discipline within business actors to obey the prevailing rules.

Conventional Based Government Securities

Market (SUN) had improved, reflecting in thedecrease in the SUN yield of 5-year-tenure,10-year-tenure and 30-year-tenure in theperiod of end of December 2008 until end of2009 by 282.4 bps, 182.9 bps and 120.6 bpsrespectively. With this growth, on 31December 2009 the SUN yield of all tenures,5, 10 and 30-year-tenure decreased by 8.98percent, 10.06 percent and 10.99 percentrespectively, and on 31 January 2010 these

value decreased again by 8.54, 9.79 percent and 10.81 percent respectively (Graph I.10).

6

8

10

12

14

16

18

20

22

1 Y 3Y 5Y 7Y 10Y 15 Y 30 Y

39749 39813 30 June 09 31 Dec 09 29 Jan 10

GRAPH I.10 YIELD SUN GROWTH (Percent)

Source: Bloomberg

-1160.242

-561.546

1815.338

2601.982

1973.807

746.511

3089.83

2044.412

924.924

-3118.102

1793.852

3839.367

430.2

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

GRAPH I.9NET FOREIGN BUYING STOCK

( Rp Billion )

Source: BloombergSource: Bloomberg

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan


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Chapter I

The decrease in the SUN yield wasinfluenced by abundant liquidity in the

global market, the Fed Fund Rate cut, andthe decline in risk premium reflecting in thedecrease in credit default swap (CDS) fromits highest rate of 1,236.4 on 24 October2008 to 626.0 on 31 December 2008. Thisfurther decreased by 224.0 on 31 December2009 and increase by 245.6 on February2010. The level of decrease in CDS inIndonesia was the largest compared withother countries having the same rate of

obligation. Besides, the improvement in global perception about Indonesia, the decline in

the inflation growth, and the sustainability of fiscal has given a positive sign for investorsto invest their assets in SUN (Graphic I.11). Since September 2009, foreign investorsconstantly bought the SUN making the total of net foreign buying of SUN Rp. 23.86trillion until 31 January 2010 (Graphic I.12).

The growth of Balance of Payment has also improved shown by an increase in a surplusof Balance of Payment Surplus, so that the foreign exchange reserve by the end of 2009

was projected to reach the amount of USD 66.1 billion, or equivalent to 6.6 months ofimports and foreign debt repayment. The significant increase in the foreign exchangereserve was enormously contributed by the increase in the capital inflows and theimprovement of the export performance.

Banking sector performance in 2009 in general was improving. The growth of asset up to2009 reached 9.7 percent, third party fund (DPK) grew by 12.5 percent, and banking loangrew by 8.7 percent. Other indicators of the growth of bank such as credit ratio to thirdparty fund reached 74.5 percent, Non Performing Loan/NPL ratio was 3.8 percent, andCapital Adequacy Ratio/CAR was 17.4 percent (far above the CAR required by BankIndonesia, 8.0 percent), and Net Interest Margin was 11.9 percent by end of December2009.

0.918

4.308

-2.604

5.45

5.464

2.442

5.9116.649

-1.172

-12.679

-6.389

1.187

-1.582

-5.122

-1.17

3.88

5.19

-1.75

4.43

0.42

2.07

8.19

3.053.53

7.02

-13

-11

-9

-7

-5

-3

-1

1

3

5

7

9

201020092008

GRAPH I.12NET FOREIGN BUYING/SELLING SUN

(Billion Rp)

Sourc e : Ministry of Finance

0

200

400

600

800

1000

1200

1400

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Indonesia

Brazil

Columbia

Phillipine

GRAPH I.1110-YEAR CDS (C REDIT DEFAULT SWAP)

Source : Blooomberg


15/174



1.4Growth in Macroeconomic Indicators in 2010

According to the Indonesian Budget Law of 2010, basic assumptions of macroeconomicare projected as follows: (1) economic growth by 5.5 percent, (2) the inflation rate by 5.0percent, (3) the interest rate of SBI by 6.5 percent, (4) Rupiah exchange rate by Rp10.000/USD, (5) the average price of Indonesia crude oil by approximately USD 65.0 per barrel,and (6) oil lifting by 0.965 million per barrel per day.

Having taken into account global and domestic economic growth within 2009, and currentdevelopment, basic assumption of economic variables used as the reference in calculatingvariables in the APBN 2010 are considered to be adjusted. In order to up-date basicassumption of macroeconomic to be more realistic, the following are basic assumption ofmacroeconomic in the APBN-P 2010 : (1) the projection of the economic growth about5.8 percent, (2) the increase in inflation by 5.3 percent (3) the stable average interest rate

of SBI at 6.5 percent , (4) Rupiah exchange rate appreciation by Rp9.200/USD, (5) theaverage increase in Indonesia crude oil price by USD 80 per barrel, and (6) the stableprice of lifting oil at 0.965 million barrel per day (Table I.2). These adjustments arerequired to determine the variables of Indonesian Budget in order to face the changingeconomy condition, so that the target and economic goals will be more realistic.

1 .4 .1 Economic Growth

Economic growth until end of 2009 was marked by the sharply fall in the performance ofexternal sector as the impact of the decline in global demand which had started in the midof 2008. As a result, economic growth was slowdown compared with the realisation in2008. In 2009 economic grew by 4.5 percent (y-o-y), which was lower compared with

De s c r ip t io n A PB N A PBN-P

Gross Domestic Product (billion Rp) 5,981,37 3.1 6,253,7 89.5

Economic growth (%) 5.5 5.8

Inflation (%) y -o-y 5.0 5.3

Three-month interest rate of BI

Certificate (%)

6.5 6.5

Exchange Rate (Rp/USD1) 10,000 9,200

Oil Price (USD/barrel) 65 80

Oil lifting (thousand barrel/day ) 965 965

Sou rce : Ministry of Finan ce

T A B L E I .2

MA CROECONOMI C BASIC ASSUMPT IONS 20 10


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Chapter I

the previous realisation, 6.01 percent. This economic growth was bolstered by householdconsumption 4.85 percent; Government consumption 15.72 percent; investment 3.32

percent and the contraction of export-import minus 9.70 percent and minus 14.97 percentrespectively.

Household consumption grew significantlywithin 2009 by 4.85 percent (y-o-y), whichwas lower than the realisation in the periodof 2008 around 5.34 percent. This declinewas caused by a reduced in purchasing powerof public as the impact of global crisis.However, some factors that were able torestrain from dramatic fall of the householdconsumption were : the implementation of

National Election, the fiscal stimulus namelythe fiscal incentives, the increase in the base

salary, and the payment for the thirteenth month salary for government civil servants(PNS) / members of Indonesian Armed Forces (TNI) / the Republic of Indonesia Police

Force (POLRI) and the Retirees, as well asthe distribution of the Unconditional CashTransfer (BLT) for the poor. Theconsumption of non-food grew by 5.97percent relating to the Legislative Electioncampaigns (for example: shirts/banners/ brochures), whereas, the consumption of

food increased by 3.57 percent. The cyclicalpush factor by end of year boosted thehousehold consumption to remain strong.The growth of the household consumptionreflected in the increase in real disposable

income along with the decrease in the inflation rate and the rise in the exchange value ofthe farmers as well as the labour wages (Graph I.14).

The Government Consumption grew by 15.72 percent (y-o-y), which was greater than with the realisation during the same period of the previous year, 10.43 percent. Theimplementation of the National Election and the Legislative Election has boosted theincrease in the good consumption to 21.06 percent. In addition, the employee expenditures

grew by 5.10 percent relating to the policy on the increase in the base salary and pension,as well as the payment for the thirteenth month salary.

Investment fell down drastically from 11.86 percent in 2008 to 3.32 percent in 2009 (y-o-y), due to the decrease in the production as a result of sluggish global activities and thedrop in domestic demand. The investment decline was indicated in the reduction of thecapital import commodities, cement sale, Foreign Investment Domestic Investment(PMA-PMDN). The majority types of investment grew negatively mostly investment ofnon-building, showed by a drop in capital import goods. Meanwhile, the investment onbuilding in 2009 still recorded a positive growth by 7.05 percent, which was slightly lowercompared with the realisation in the previous year by 7.51 percent. This was due to the

5.3 4.8

10.4

15.7

11.9

3.3

9.5

-9.7

10

-15

-20

-15

-10

-5

0

5

10

15

20

2008 2009

GRAPH I.14GDP BY EX PENDITURE GROWTH, 2008-2009

(Percent)

Household ConsumptionGovernment ConsumptionInvestment/Gross Fixed Capital FormationExportImport

Sourse: Ce ntral Bureau of Statistics& the Ministry of Finance

4,0%

17,0%

4,2%

3,7%

1,6%

-30%

-20%

-10%

0%

10%

20%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008 2009

Household Cons. Gov. Cons. PMTB Export Import

Source: BPS dan Ministry of Finance

GRAPH.13SOURCE OF GDP GROWTH AND ITS CONSUMPTION, 2008 -2009

(Percent)


17/174



continuing development in property sector and the rehabilitation programme followingthe Padang earthquake disaster that was starting to commence. This number also showed

that the investment by end of year was improving amid the global and domestic demandrecovery, and the conducive climatic investment after the National Election.

On the international trade side, the export-import activities contracted sharply, due totumbling global demand and the decline in the export-import value because of the drop inthe global oil price, the decrease in the production of domestic crude oil, and the fallingprices of several commodities in the first semester of 2009. In conjunction with theimproving global demand and the increase in the prices of international commodities, theexport growth was starting to improve. The indicator of the export growth wasdemonstrated by the volume growth of the international trade. The import was projectedto grow significantly along with the increases in household consumption and investment,primarily the increase in the raw material import and capital goods for activities of

production. In 2009, the export-import reached minus growth by 9.70 percent and minus14.97 percent, which were lower than the realisation in the previous year minus 9.5percent and minus 10.0 percent. Good exports grew by minus 10.57 percent and serviceexports reached minus 2.07 percent. Meanwhile, good imports reached minus 18.56percent and service imports grew minus by 1.53 percent.

On the supply side, the economy growth performance within 2009 was marked by theglobal economic slowdown in the majority economic sectors due to the plunge on theglobal economic (Table I.3). Nevertheless, of the existing nine sectors, three sectorsrecorded a higher growth than those in the previous year, namely mining and quarrying,electricity, gas and water supply, as well as service sector.

Meanwhile, transport and telecommunication sectors recorded the most significant ingrowth by 15.53 percent (y-o-y) by 2009. This was chiefly due to the telecommunicationsector growing by 23.80 percent as a result of the use of cellular telephones, either onlinespeaking or text sending messages (SMS-Short Message Services).

I

Q u a r t e r

II

Q u a r t e r

II I

Q u a r t e r

IV

Q u a r t e

r

I

Q u a r t e r

II

Quarter

II I

Q u a r t e r

IV

Q u a r t e r2 0 0 8 20 0 9

1. Agriculture, Livestock, Forestry , and Fisheries 6.44 4.81 3.25 5.12 5.91 2.95 3.29 4.61 14.46 15.29

2. Minning and Quarrying (1.62) (0.37) 2.32 2.43 2.61 3.37 6.20 5.22 10.92 10.54

3. Manufacturing Industries 4.28 4.23 4.31 1.85 1.50 1.53 1.28 4.16 27.89 26.38

4. Electricity, Gas and Water Supply 12.34 11.77 10.41 9.34 11.25 15.29 14.47 13.99 0.82 0.83

5.Construction 8.20 8.31 7.76 5.88 6.25 6.09 7.73 8.03 8.48 9.89

6. Trade, Hotels and Restaurant 6.75 7.68 7.59 5.47 0.63 (0.02) (0.23) 4.17 13.97 13.37

7. Transportation and Communication 18.12 16.57 15.64 16.12 16.78 17.03 16.45 12.22 6.31 6.28

8. Financial, Real Estate, and Business Services 8.34 8.66 8.60 7.42 6.26 5.33 4.90 3.77 7.43 7.209. Services 5.52 6.51 6.95 5.93 6.70 7.19 6.04 5.69 9.73 10.22

GROSS DOMEST IC PRODUCT 6.21 6.30 6.25 5.27 4.53 4.08 4.16 5.43 100.00 100.00

Source : BPS & the Ministry of Finance

* provisional figures

** Very very provisional figures

Table I.3

(Percent, y-o-y)

Distr ibution

BUSINESS SECTOR

20 0 8 20 0 9

GDP GROWTH BY S ECTORS, 2008 - 2009


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Chapter I

During 2009, the agriculture, livestock,forestry and fisheries sectors grew by 4.13

percent (y-o-y), which was lower thanthose in the same period of the previous

year, 4.83 percent. The most significantgrowth was achieved by the fisheries subsector by 5.20 percent. In addition, themost substantial contribution came fromfood crop subsector growing by 4.71percent.

The manufacturing sector within 2009slightly grew by 2.11 percent (y-o-y),

which was slowdown compared with that

in the previous year reaching 3.66 percent. Oil and gas industrial sectors contracted by2.21 percent. Meanwhile, non oil and gas industrial sectors increased by 2.52 percent which was mainly bolstered by food and beverage and tobacco industries, as well aspaper and printed material industries growing by 11.29 percent and 6.27 percentrespectively.

Trade sectors, hotel and restaurant industries recorded a positive growth by 1.14 percent(y-o-y) within 2009 which was slowdown compared with the realisation in the previousyear reaching 6.87 percent. This was due to the sharp contraction in import performancesince the fourth quarter of 2008. The growth of these sectors was buttressed by therestaurant subsector performance reaching up by 7.53 percent.

Entering 2010, the improvement in global economy has brought about an impact todomestic economy. In the APBN 2010, the assumptions of domestic economic growth isprojected to grow about 5.5 percent surpassing the that in 2009 by 4.5 percent. Lookingat the current conditions, the projection on economic growth has applied the correctionsthat are projected to grow by 5.8 percent. Nevertheless, it is forecasted that its source ofgrowth will change.

The household consumption that previously reached 4.9 percent in 2009 has increased to5.2 percent in 2010. The increase in the household consumption was in line with thegradual recovery in global and domestic economy. The consumption indicators werereflected in the following: car and motor vehicle sales, electricity consumption, and goodconsumption goods. Several policies will be issued, namely the Conditional Cash Transfer

Program (PKH), the School Operational Assistance (BOS), and other subsidies that willbe expected to reduce the growth of household consumption.

On the other hand, the government consumption is projected to decline from 15.7 percentin 2009 to 8.8 percent in 2010. This is due to the fiscal stimulus that is no longer providedin the consumption in 2010. Within 2010, the government consumption will be directedto consistently support the education budget, to precede the bureaucracy reforms and tomanage the sustainability of peoples welfare.

Investment is projected to grow by 8.7 percent in 2010, which mainly relates to theGovernment capital expenditure to serve the purpose on the infrastructure developments.

6.0%

4.5%

5.8%

0%

1%

2%

3%

4%

5%

6%

2008 2009 the 2010 RevisedState Budget

Source : Ministry of Finance

GRAPH I.15GROWTH OF GDP IN 2008 - 2010

(Percent)


19/174



Besides, the investment growth is bolstered bythe acceleration in the household consumption

increase, and the improvement of exportfollowed by the increase in business activities.On the banking side, the decline in the creditrate interest has encouraged the building andnon-building investment. In the internationalperspective, the economy prospectimprovement is expected to stimulate theinvestors interest in investing capital inflows.

On the international trade side, exports and imports in 2010 are forecasted to start reachinga positive growth due to the global economic recovery. Export is predicted to growconsiderable, from minus 9.7 percent in 2009 to 14.2 percent in 2010. This is in line with

the beginning of the improvement in the global trade volume and commodity prices. Inaddition, the increase in export also relates to the characteristics of Indonesia exportcommodities having a basis in primary commodities allowing a rapid recovery from thecounterparty demand. In line with the improvement in domestic and export demand,import is growing from minus 15.0 percent in 2009 to 17.2 percent in 2010.

In 2010, the pillars of Indonesian economy that will start to grow substantially are thefollowing: manufacturing industry, agriculture sector, trade sector and hotel andrestaurant. This is in line with the global economic recovery which will result in the riseof demand of Indonesian products (Table I.4).

The agriculture, livestock, forestry and fisheries sectors are forecasted to grow by 4.0percent in 2010. Meanwhile, the manufacturing sector is expected to return to increaseas it was before the crisis growing by 4.0 percent. Trade, hotel and restaurant sectorswhich closely relate to import activity are projected to grow by 7.5 percent. During thesame period, transport and telecommunication sectors are predicted to remain growingmost significantly reaching about 11.9 percent, compared with other sectors. Another

SE CT ORS 20 0 8 2 0 0 9 2 0 10 *

1. Agriculture, Livestock, Forestry, and Fisheries 4.8 4.1 4.0

2. Minning and Quarrying 0.7 4.4 3.1

3. Manufacturing Industries 3.7 2.1 4.0

4. Electricity, Gas and Water Supply 10.9 13.8 8.9

5.Construction 7 .5 7 .0 7 .3

6. Trade, Hotels and Restaurant 6.9 1.1 7 .5

7. Transportation and Communication 16.6 15.5 11.9

8. Financial, Real Estate, and Business Services 8.2 5.1 5.2

9. Services 6.2 6.4 6.5

GROSS DOMEST IC P RODUCT 6.0 4.5 5 .8

Notes : (*) Estimation of APBN-P

Source : BPS & Ministry of Finance

TABLE I.4

GDP GROWTH BY SECTORS, 2008-2010(Percent, y-o-y)

4,9 5,2

15,7

8,8

3,3

8,7

-9,7

14,2

-15

17,2

-20

-15

-10

-5

0

5

10

15

20

2009 2010

Household Consumption Government Consumption

Investment/Gross Fixed Capial Formation Export

GRAPH I.16GDP AND ITS CONSUMPTION GROW TH,

2009 - 2010 (Per cent)

Source : Ministry of Finance


20/174



Chapter I

sector that is predicted to be able to achieve the most significant increase in 2010, namelyelectricity, gas and water supply sectors by 8.9 percent. This is in line with the beginning

of the operation of new electric power plant and the completion of water supply projectsin the regions.

1 .4 .2 Inf lation

The global economic slowdown occurring in the first semester of 2009 and the positivecontribution of domestic policies have influenced the decline in inflationary pressures in2009. The decrease in international commodity prices particularly crude oil price haspushed the Government to reduce the BBM price at the beginning of 2009 as a continuationof the fuel price reduction at the end of 2008. This policy had brought about an impact ina decline in transportation tariff which finally pushed down the inflation significantly.Furthermore, the global economic slowdown followed by the inflation decline in the

counterparty countries have caused the decline in imported inflation. Rupiah exchangerate appreciation of US dollar and public expectation of inflation having improved gradually,have pushed down the rate of inflation in 2009.

Several factors above have caused a sharpdecline in inflation, based on headline inflation(IHK Consumer Index Price). On the yearlybasis, the rate of inflation in 2009 recorded about2.78 percent (y-o-y), which was lower thanthat in 2008 of 11.06 percent. Historically, theinflation rate in 2009 reached down the lowestinflation in the last 10 years. Deflation occurred

three times within 2009, in January, April, andNovember reaching about 0.07 percent, 0.31percent, and 0.03 percent respectively that havecontributed to the decline in the inflation ratein the fiscal year (Graphic I.17). The realisation of inflation in 2009 was extremelylower than the assumption of inflation in the APBN-P 2009 by 4.5 percent.

According to its group, the inflation in 2009 was caused by the rise in nearly all prices ofthe expenditure categories except the groups of transportation, communication andfinancial services. The relatively high inflation rate was in the category of prepared food,beverages, cigarettes and tobacco as well as the category of clothing reaching about 7.81percent (y-o-y) and 6.00 (y-o-y) respectively. On the other hand, the transportationcategory recorded a deflation at 3.67 percent (y-o-y), as a result in the decline in BBMprice in December 2008 and January 2009. The BBM price and local transportation tariff were particularly the two commodities contributing to the sharp deflation rate in IHKgrowth in 2009 (Graphic I.18).

Based on its component, the yearly inflation decline in 2009 was mainly caused bydeflationary components of administered prices, which was about minus 3.26 percent.These deflationary components occurred as a result in the Government policy in reducingsubsidised fuel prices (regular and diesel fuel), which finally caused in the decline in otherdomestic commodities, including the transportation tariffs. Besides, core inflation hasdeclined in response to pressure on external factors, and the improvement in the inflation

1.77

0.65

0.95

0.57

1.41

2.46

1.37

0.51

0.97

0.45

0.12

-0.04-0.07

0.210.22

-0.31

0.040.11

0.450.56

1.05

0.19

-0.03

0.33

0.84

0.30

-0.14

0.150.29

0.97

1.57

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

(0.5)

-

0.5

1.0

1.5

2.0

2.5

3.0

JanFeb

Mart

Apr

May

Jun

July

Agust

Sept

Oct

Nov

Des

JanFeb

Mart

Apr

May

Jun

July

Agust

Sept

Oct

Nov

Des

JanFeb

Mart

Apr

May

Jun

July

2008 2009 2010

GRAPH I.17INFLATION RATES, 2008 -2010 (percent)

inflationr ate in flatio nrateSource : BPS


21/174



expectation. In the same period, volatile foods inflation showed a sharp fell as a result ofsecurity of supplies and distribution of several main peoples commodities as well as theimpact of global food commodity prices within 2009. Until the end of 2009, the coreinflation and volatile food inflation have recorded 4.28 percent and 3.95 percent respectively(Graph I.19).

In 2010, the inflationary pressures areforecasted to have a tendency toward anincrease. Entering 2010, the inflation rate

(m-t-m) in January until June 2010 reachedabout 0.84 percent, 0.30 percent, -0.14percent, 0.15 percent, 0.29 percent and 0.97percent respectively. In July 2010 theinflation rate reached about 1.57 percent (m-t-m) or 6.22 percent (y-o-y), which werehigher than those in December 2009, whichhad reached 2.78 percent (y-o-y). Thebeginning improvement of global economyis predicted to push the increase in global commodity prices and the inflation rate in themain Indonesias counterparty countries. The inflationary pressures from the externalfactors are predicted to have an impact in the public inflation rate. On the internal side,the increase in domestic demand is in line with the national economy recovery which isprojected to push the inflation rate in 2010. In addition, the Government policy in themain commodity prices is also predicted to drive the inflation rate in 2010. Havingconsidered the inflationary factors mentioned, the inflation rate assumptions in the APBN-P 2010 would increase to 5.3 percent, which is slightly higher than the assumptions in theAPBN 2010 by 5.0 percent.

1.4.3 Rupiah Exchange Rate

During 2009 in general the rupiah exchange rate tended to appreciate. In January 2009,the rupiah exchange rate in average recorded the value of Rp. 11.167/USD. In February

5.56

-3,22

4.314.14 3.74

16.18

-5

0

5

10

15

20

Co re Administered Price Volatility

GRAPH I.19INFLATION COMPONENTS , JULY 2009 & 2010

(y-o-y, percen t)

39995 40360Source : Ce ntral Bureau Of Statistics

Juli 2010Juli 2009

14.1

8.2

2.4

5.19

3.34

2.51

4.3

8.0

3.56

4.89

4.71

4.53

-6.71

-10 -5 0 5 10 15 20

Food Stuff

Prepared Food, Beverages, Cigarettes and Tobacco

Housing, Electricity and Water Supply

Clothing

Medical Care

Education, Recreation and Sport

Transportation, Communication and Financial Service s

GRA PH I.18INFLATION BY GROUP OF CO MMODITIES,

JULY 2009 - 2010 (y-o-y, percent)

39995 40360

Juli 2010Juli 2009Source : Central Bureau Of Statistics


22/174


23/174


24/174



Chapter I

The transmission of BI rate cut onto lending rate was slowly shown and more limited.During 2009 (January until December) the aggregate of lending rate in average has

declined by 99 bps. The inadequate response of lending rate has connected to severalfactors such as: high inter-bank perception about the real sector risk.

The transmission of BI rate cut onto PUAB, deposit rate and lending rate was followed bythe decline in the three-month SBI rate. Within 2009, the average rate of the 3-monthSBI has tended to continuously decline consistently. Overall, the average rate of thethree-month SBI within 2009 reached into 7.59 percent, lower than that in 2008, whichwas at the range of 9.34 percent (Graph I.23).

In 2010, the assumption of 3-month SBIrate is forecasted to increase. During January-July 2010, the realisation of 3-month SBI rate in average will reach into 6.58 percent,same as the average rate in December 2009, which was at the level of 6.58 percent. Twomain factors have influenced the rise in the 3-month SBI rate. On the internal side,within 2010 Bank Indonesia is estimated to take tight monetary policies. This is connectedto the high inflation expectation in 2010 triggered by a global strong demand as an impactof global economic recovery and the increase in prices of international commoditiesparticularly global crude oil. In addition, the high inflation expectation is also bolsteredby the policy on the rise in tobacco excise tax rates issued the Government at the beginningof 2010.

On the external side, within 2010 the US is predicted to issue government bonds to cover

its state deficit in the 2010 budget reaching in USD 1.42 trillion or about 10 percent to itsGross Domestic Product (GDP). The issuance of the US Government Bond will take theform of short-term obligation (Treasury Bills), medium-term (Treasury Notes), and long-term (Treasury Bonds). In line with the increase in the issuance of government bond andthe beginning process of the US economy recovery, the Fed as the monetary authority ispredicted to commence its tight monetary policy. Considering this condition, the interestrate of the Fund Rate will be predicted to be above 0.25 percent.

The abovementioned progress is projected to influence in the growth of 3-month SBIinterest rate. The assumption of the average interest rate of 3-month SBI is predicted to beat the level of 6.5 percent same as that of the APBN 2010.

0

2

4

6

8

1012

14

Jan

Feb

Mart

Apr

May

Jun

July

Agust

Sept

Oct

Nov

Des

Jan

Feb

Mart

Apr

May

Jun

July

Agust

Sept

Oct

Nov

Des

Jan

Feb

Mart

Apr

May

Jun

July

2008 2009 2010

GRAPH I.23INFLATION G ROW TH AND INTEREST RATE, 2008 - 2010 (percent)

Infl.growth

BI Rate

Fed Fund Rate

3-month BI Certificate

Source : The Fed, BI, Statistics


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1.4.5 Indonesia Crude Price (ICP)

The global economy recovery has broughtabout an increase in a world demand of oil,particularly in the last semester of 2009. Aninstitution in the US, namely the EnergyInformation Administration / EIA hasrecorded a total realisation of the oil globaldemand reaching about 85.9 million barrelper day, at the end of December 2009. EIAhas predicted that the high world demand

of oil will remain within 2010 amid Chinas economy recovery as one of the biggest oilconsumer in the world. Along with the increase in the world demand of oil, EIA hasestimated that the world crude oil price WTI in 2010 will be at the level of USD78.7 perbarrel or increasing in 27.6 percent from the average of crude oil price of WTI in 2009reaching by USD61.7 per barrel.

The ICP in 2010 is predicted to increase inaccordance with the trend in theinternational oil price. Until the end of July2010, the price average ICP will reach aboutthe level of USD77.4 per barrel, which ishigher than the realisation in the period of2009 amounting to USD53.5 per barrel. In2010, ICP was estimated to rise

approximately amounting to USD80 perbarrel or it increased to USD18.4 per barrelcompared with the average ICP in 2009reaching about USD61.6 per barrel.

1.4.6 Lift ing

The realisation of oil lifting in 2009(December 2008-November 2009) hasreached 0.944 million per barrel perday, which was lower than the targetset up for the APBN-P 2009 amounting

to 0.960 million barrel per day (GraphI.26). Some problems preventingfrom the achievement of oil productiontarget in 2009 were, among others,either the projects delay or unplannedshutdown, such as bad weather andthe damage in electric facilities.Furthermore, problems faced by somecounterparty contractors failing to

reach the production target was caused by the delay in a development of production

30

40

50

60

70

80

90

39814 39904 39995 Oct 2009 40179 40269

GRAPH I.25WTI OIL PRICE, 2009-2010

(USD per barrel)

Average estimat ion =US$78,7 per bareel

Average realisation S$61,7 per barrel

Source:Bloomberg,EIA&MinistryofEnergyandMineralResources

0

20

40

60

80

100

120

140

160

80.0

81.0

82.0

83.0

84.0

85.0

86.0

87.0

88.0

Demand Supply WTI Brent ICP

GRAPHI.24GROWTH OF DEMAND, SUPPLY, AND WORLD OIL PRICE,

2008-2009 (U SD per ba rrel )

Source: Bloomberg,EIA&Ministry ofEnergyandMineralResources

0.9

0.91

0.92

0.93

0.94

0.95

0.96

0.97

2008 2009 2010*

0.927

0.96

0.965

0.936

0.944

0.965

GRAPH I .26INDONESIA OIL LIFTING, 2008 - 2010

(mil l ion barrel p er day)

Tar ge t R ea lisat io n

Source: Ministry of Finance & BP Oil & Gas

*) the RevisedBudget


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Chapter I

facilities, technical problem of equipment / production facilities and problem in procuringfloating production facilities (Floating Storage Offshore / FSO).

The achievement of oil lifting in 2009 that was below the target set up was influenced bythe realisation of oil and gas investment. Until 30 December 2009 the realisation ofinvestment in oil and gas reached about USD12,184 billion below the target, USD13,778 billion. Within the same period the realisation of upstream investment in oil and gasdropped down from the target about USD13,166 billion to USD10,874 billion, and therealisation of downstream investment grew from the target about USD612 million toUSD1,310 billion. The Government has set up to reach the target of investment in oil andgas sector in 2010 by USD15,988 billion consisting of investment in upstream sector byUSD13,628 billion and investment in downstream sector by USD2,360 billion.

In order to stimulate sound investment in oil and gas sector, the Government issued a

series of regulation in 2009, among others, two Laws, three Government Regulations,two Presidential Rules/ Presidential Decree, 32 Minister of Energy and Mineral ResourcesRegulations, 51 Minister of Energy and Mineral Resources Decrees, and other 390 legalproducts.

In the APBN 2010, the Government and the House of Representatives have agreed on thetarget of oil lifting about 0.965 million barrel per day. Considering the realisation of oillifting in 2009 that was lower than the target set up in the APBN-P 2009, the Governmenthas taken a number of precautionary steps in achieving the target on oil production.These steps are as follows: issuing the provision of not to peg the cost recovery (replacementcost of exploration and production activities), granting tax incentives on import oil andgas equipment, optimising oil production from oil wells having been abandoned, and

enhancing an effective communication with the contractors having worked under a jointcontract to improve the performance on the production in order to achieve the target. In2010 additional oil lifting is predicted from an area operated by PT Chevron PacificIndonesia about 364,800 barrel per day, and from PT Pertamina and its counterpartyabout 131,800 barrel per day. Based on this progress, the target on oil lifting of crude oilin the APBN-P 2010 is set up by 0.965 million barrel per day, which is same as theassumption on the APBN 2010.

1.4.7 Balance of Payments

Along with the improving outlook on the global and domestic economy, balance ofpayments performance in 2009, in terms of both current account and capital and financial

transactions are expected to improve compared to its performance in previous years. Theimprovement on balance of payments performance was mainly due to the increasingdemand from exports and capital inflows, in form of project loans and loan programmes,as well as direct and portfolio investments.

The current account in 2009 was expected to record a surplus of USD10.746 million,driven by an increase in the surplus in the balance of trade and a deficit in the balance ofincome, which was slightly lower than that in the previous year, although the balance ofservices showed a deficit. The balance of trade in 2009 showed a surplus of USD35.133million, which was greater than that in the previous year amounting to USD22.916 million.This was due to the decrease in imports relative to exports. Meanwhile, the increase indeficit in the balance of service was mainly influenced by the increase in service spending,


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and imports of transportation of goods, in line with an improvement of in domesticeconomic absorption that have encouraged the increase in imports.

Meanwhile, the capital and financial account in 2009 were estimated to record a surplusamounting to USD3.548 million. This surplus was mainly from a large surplus in directinvestment and portfolio investment, in line with an estimated increase in direct investmentin oil and gas sector and improving perception of the risk in the domestic market. Surpluson portfolio investment was supported by the issuance of global bonds, foreign currencyof sukuk, and shibosai bonds by the Government. Another investment performance wasboosted by additional allocation of special drawing rights, or Special Drawing Rights (SDR)amounting to USD2.720 million which was under the agreement of the G-20 leaders(Group of 20). This additional allocation of SDR was aimed at strengthening the positionof foreign exchange reserves of developing countries, including Indonesia, as an effort tohandle the global economic crisis.

Based on development in balance of payment variables in 2009, the general equilibriumwas estimated to generate a surplus in USD 12,506 million, so that the foreign exchangereserve was estimated to reach by USD 66,105 million or equal to equivalent to 6.6 monthsof imports and foreign debt repayment (Table I.5).

In 2010, the performance of balance of payments is projected to remain fairly strong, asa result of rising surplus in the capital and financial accounts, alongside with a decline inthe current account surplus. Balance of trade as one component of the current accountsis supported by the improved performance of exports and capital inflows, although at thesame time imports are also expected to rise. Export performance improvement connectedwith economic recovery and the volume of world trade is moving to the positive growth.

In line with this, exports are expected to grow by 24.4 percent reaching USD148, 660million. On the other hand, a slight growing of economic activities and investment willencourage an increase in imports of raw materials and capital goods. In 2010, importsare expected to increase significantly to 35.2 percent, reaching USD11.051 million.Considering these conditions, the balance of trade will generate a surplus in USD34.609million. Meanwhile, the deficit in the balance of trade is estimated to reach USD15.958million, which is approximately 13.1 percent higher than the realisation in 2009. This isprimarily due to the increase in imports of transportation (freight) and expenditures ofother services. Deficit in the balance of revenue is estimated to reach USD17.561 millionwhich is 16.0 percent larger than the realisation in 2009. While the balance of transfer isestimated to generate a surplus USD4.960 million or 2.0 percent increase when comparedwith that in the previous year. Considering these conditions, the current account in 2010

is estimated to produce a surplus USD6.050 million.

On the other hand, capital and financial accounts in 2010 are estimated to have a surplusof USD12.889 million, which is higher than that in 2009 amounting to USD3.548 million.The increase surplus in financial and capital accounts are caused by the balance sheet ofpublic sector increasing in 8.5 percent compared with the conditions in 2009, and also bythe balance sheet of private sector returning to positive. The more conducive investmentand the liquidity recovery in the global financial market is estimated to encourage foreigncapital inflows, so the balance sheet of private sector will generate a surplus USD830million, whereas in 2009 it had a deficit of USD7,565 million.


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Chapter I

2008 2009* 2010**A . CURRENT A CCOUNT 126 10 ,7 4 6 6,0 5 0

1. Trade Balance 22,916 35,133 34,609

a. Export, fob 139,606 119,480 148,660

- Oil and Gas 31,7 21 20,451 25,315

- Non-Oil and Gas 107 ,885 99,063 109,484

b. Import, fob -116,690 -84,347 -114,051

- Oil and Gas -23,935 -12,113 -14,112

- Non-Oil and Migas -92,7 55 -7 2,202 -89,642

2. Services -12,998 -14,108 -15,958

3. Income -15,155 -15,140 -17 ,5614. Current Transfer 5,364 4,861 4,960

B. CA PIT A L A ND FI NA NCI A L A CCOUNT -1,87 6 3 ,5 4 8 12,889

1. Public Sector 1,903 11,113 12,059

- Capital Transactio n 21 11 45

- Financial Transaction 1,882 11,103 12,014

a. Portfolio Investment 3,317 9,57 8 11,223

b. Other Investment -1,436 1,525 7 92

- Programme Loan 2,7 43 2,962 2,444

- Project Loan 2,201 2,567 2,819

- Debt repayment -6,380 -6,7 24 -6,07 5

- Allocatio n of SDR (Spec ial Drawing

Right) 0 2,7 20 0

2. Private Sector -3,7 7 8 -7 ,565 830

- Capital Transactio n 27 3 85 62

- Financial Transaction -4,052 -7 ,650 7 67

a. Direct I nvestment, net 3,419 1,928 6,459

b.Portfolio Investment -1,597 7 58 356

c. Other Investment -5,87 3 -10,337 -6,048

C. T OT A L (A +B) -1,7 5 0 14 ,294 18,9 3 9

D. NET ERRORS A ND OMM I SSI ONS -195 -1,7 88 -2 63

E. OV ERA L L BA L A NCE (C+D) -1,94 5 12,5 0 6 18,6 7 6

M e m o r a n d u m

I n tern at io n al Re serv e 5 1,63 9 6 6,10 5 83 ,188

4.0 6.6 6.5

* Provisional figures

**Projection

Source : Bank Of Indonesia

(in m onths of imports a nd official foreign debt

repayment)

TABLE I.5

IN DONESIA BALANCE OF P AYMENT , 2008-2010

( in bi ll ion of USD)

Items


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The improving balance of payments is reflected in the increase in foreign exchange reserve which is expected to support the domestic stability and economic growth. The foreign

exchange reserve is projected to reach USD83.118 million in 2010.

1.5 Principles of Fiscal Policy of APBN 2010

Since the end of the year 2009 and at the beginning of the implementation of the APBN2010, the Government continues to monitor global and domestic economic developments,the implementation of the APBN-P 2009 and its impacts on the implementation of theAPBN 2010. As a result of this monitoring process, the performance of national economyin 2009 is able to survive from the pressure of the global crisis, compared with theperformance of other countries that have also been affected by the sharp global crisis.From the macroeconomic perspective, the strengthening of rupiah particularly in thesecond semester of 2009 and the decline in the inflation rate have created a positive impact

on the decline in the interest rate of Bank Indonesia Certificate. These indicators andeffective polices introduced by the Government have buttressed the economic growth toremain positive and relatively high in 2009 reaching about 4.5 percent. In addition, theinflation rate was managed to reach 2.78 percent.

Achievement in the national economy and global economic conditions have also exertedimpacts on the realisation of the APBN-P 2009 variables. In general the realisation ofAPBN-P 2009 was managed well, as reflected in the deficit realisation of APBN-P 2009amounting to Rp88.618,8 billion (1.6 percent of GDP), which was below the target ofRp129.844, 9 billion (2.4 percent of GDP). This is as a consequence of the realisation ofthe revenues and grants reaching 97.4 percent of the target, while the realisation of thestate expenditures reached 93.7 percent of the ceiling. On the other hand, the realisation

of net financing has amounted to Rp12,583.2 billion, so that it generated a surplus netfinancing (SILPA a surplus/deficit of budget and net financing in the budget year)amounting to Rp. 23,964.4 billion.

Entering 2010, although signs of global economic recovery have appeared, theimplementation of national development still continue to face challenges that need to beanticipated in the future. From the external side, the global economic recovery is predictedto improve indicated by the growing prices of primary commodities especially crude oilprice which will finally affect primary commodities, especially crude oil prices which willalso affect the posture of the APBN 2010. On the internal side, the growth of inflation ispredicted to rise surpassing its target in 2009, as a result of the increase in purchasingpower of people and the policy on administered prices. In addition, the national development

will continuously put in a great deal of effort to reduce the rate of unemployment andpoverty, and to build basic and supporting infrastructure, including removing impedimentin building the infrastructure.

Considering the evaluation in the economy performance in 2009, and the economic growthas well as the national development in 2010, the Government has deemed it necessary tomake some revisions in the APBN 2010. The legal basis of the APBN-P is under the article27 of Law Number 47 year 2009 regarding the APBN 2010, in which verse (1) gives amandate to the Government to propose the Bill on the Indonesian Budget for the 1010fiscal year, in the event that :


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Chapter I

a. Progress of macroeconomic is unsuitable with the assumption supported on theIndonesian Budget for the 2010 fiscal year;

b. Changes in principles of fiscal policy have occurred;

c. Conditions exist that have caused a budget shift between organisational units,programmes, and / or inter types of expenditures;

d. Conditions exist that have caused a budget surplus in the previous year to bespent for financing the budget year of 2010;

Within this framework, changes in the APBN 2010 are aimed at: (a) anticipating thechanges in macroeconomic indicators in 2010, (b) maintaining the stability of prices ofgoods and services within the country; and (c) accelerating the implementation of prioritisednational development programmes both in the medium-term and in 2010. The changesin the APBN 2010 are made comprehensively, so that it will include all changes in thebudgets of income, expenditure, budget deficit and financing the budget.

On the national income side, the changes occur, either in the plan of projection on of taxrevenue or and PNBP. On the tax revenue side, the adjustments in the target variablesare made based on the changes in the macroeconomic variables projection in the APBN-P 2010, and the realisation of tax revenues in 2009. The change in basic macroeconomicassumptions in 2010 affecting the tax revenue is mainly the change in the projection onRupiah exchange rate against the US dollar. In addition, a deviation in the realisation oftax revenue in 2009 from the target set in the APBN-P 2009 will be incorporated as abaseline of revising the projection on of the new tax revenue in 2010.

Meanwhile, non-tax revenues estimated to increase related to higher ICP assumption as

a basic for calculating revenue oil and gas resources and increase on governments revenuetarget based on estimate State Owned Enterprises financial performance improvement in2009 . Based on these development, APBN-P 2010 expected to be Rp992,398.8 billion, or4.5 percent higher than the target of APBN 2010 amounting to Rp949,656.1 billion.

On the goverment expenditure side, change comes from a combination ceiling of theaddition of a new state budget, and budget reallocation. The addition of the govermentexpenditure in APBN-P 2010 was due to the addition of the central government budget,and the addition of transfers to local budgets. Changes in centr

10-12-20, financialnoteandrevisedbudget

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