INDONESIA OUTLOOK

Striking The Right Balance

Between Reform and Growth
SRI MULYANI INDRAWATI
MINISTER OF FINANCE OF THE REPUBLIC OF INDONESIA

MANDIRI INVESTOR FORUM

7 FEBRUARY 2018

photo by KemenESDM
 2017 ECONOMIC PERFORMANCE TAX REFORMS AS PARTS OF
1 4

outline
AND 2018 OUTLOOK FISCAL REFORMS

GOVERNMENT PRIORITIES
2 FUTURE GLOBAL CHALLENGES 5 SPENDING IN 2018

STRUCTURAL REFORMS TOWARD

3 SUSTAINABLE ECONOMIC 6 CONCLUSIONS
GROWTH

2
 2017
ECONOMIC
PERFORMANCE

01
AND
2018 OUTLOOK

Slide # 3
 INDONESIA ECONOMIC PERFOMANCE IN 2017
Indonesia successfully maintaining the growth momentum in 2017
2015 2016 2017
5.3

YoY: 4,88 YoY: 5,03 YoY: 5,07

5.21 5.19
5.15
5.125

5.03 5.06
5.01 5.01
4.95

4.94 4.94
4.83
4.775

4.74 4.78
4.6

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

for a decade, Indonesia performs better than many other emerging economies
9.0
7.4 G20 & BRICS
5.6
3.7 3.5 3.3
2.7 2.3 2.1 2.1 2.0 1.6 1.5 1.3 1.2 1.1 0.8 0.4
(0,6)
China India Indonesia S. Arabia Turkey Korea Australia Argentina Mexico S. Africa Brazil Russia Canada US Germany UK France Japan -0.6
Italy
Italy
 INDONESIA ECONOMIC OUTLOOK IN 2018
economic growth projected to rise higher in 2018, supported by the
continuity of growth momentum across all sectors
10 10
World Advanced economies Emerging market and developing economies Indonesia
8 8

6 6

4 4

2 2

6.38 6.17 6.03 5.56 5.01 4.88 5.03 5.07 5.40

0 0
2010 2011 2012 2013 2014 2015 2016 2017p 2018p

2018 macroeconomic indicators

GDP
Oil Price
Gas
Growth
(%)
5,4 Exc. Rate

(IDR/USD)
13.400 US$/
barrel
4,8 Lifting
(thousand
BOPD)

Oil Lifting
Inflation

(%) YoY 3,5 Int. Rate

(%) 5,4 (thousand

BOPD)
800 1.200
02
FUTURE
GLOBAL
CHALLENGES Slide # 6
 FUTURE GLOBAL CHALLENGES
Geopolitics & Security Water Conflicts Climate Change

Population Ageing
Food and Energy Security
 FUTURE GLOBAL ECEONOMIC TRENDS
Populism in EU

(Brexit,Eurosceptics)

Protectionism in USA

(Inward Looking Policies) Rise of Asia as an

Economic Powerhouse

STRUCTURAL REFORMS TOWARDS

SUSTAINABLE ECONOMIC GROWTH
Green Economy

Rise of Millenials
Rise of the machines
PAY AN ATTENTION TO THE
TECHNOLOGY CHANGE...
It will radically transforms
our daily life

DISRUPTION
(JOB DISPLACEMENT)

ARTIFICIAL
INTELLIGENCE

INTERNET OF
(EVERY)THINGS

INDUSTRIAL
REVOLUTION 4.0

9
03
SUSTAINABLE
ECONOMIC
TOWARDS
SUSTAINABLE
ECONOMIC GROWTH
Slide # 10
NOW WE ARE LIVING IN THE AGE OF KNOWLEDGE DRIVEN ECONOMY (KDE)
strengthening KDE is an imperative to sustain high growth rates in
the future and to avoid middle income trap

Old Industrial Economy Knowledge Driven Economy

• Resource based • Knowledge Intensive
• Labour Intensive • High Skill Talent
• Mass Production • Mass Colaboration
• Proximity is important • Location less significant
• Require Control • Require Collaboration
• Top Down Approach • Horisontal Collaboration
• Rigid • Flexible

Slide # 11
 HUMAN CAPITAL INVESTMENT IS A KEY
Indonesia still needs to continuously and consistently improving its human capital
Indonesia’s HDI 2010-2016 Comparison of HDI 2015

70.18 Singapore 0.925

69.55
68.90 Brunei Drslm 0.865
68.31
67.70 Malaysia 0.789
67.09
66.53 Turkey 0.767

Mexico 0.762

2010 2011 2012 2013 2014 2015 2016 Brazil 0.754

Thailand 0.74

Indonesia’s HDI 2016 China 0.738

Indonesia 0.689

12,72 7,95 Viet Nam 0.683

Expected years M e a n Ye a r s Philippines 0.682

Of Schooling Of Schooling
South Africa 0.666

70,9 10.420* India 0.624

Cambodia 0.563
Life Expectancy GNI per Capita Myanmar 0.556
* In thousand
At Birth 0.00 0.25 0.50 0.75 1.00
TO SUCCESSFULY COMPETE IN KNOWLEDGE DRIVEN ECONOMY
Greater Emphasis Should Be Put On
Science,Technology,Mathematics (STEM) subjects in Education

Science Reading Mathematics Indonesia in PISA Score

Singapore Singapore
556 Singapore
535 564
Japan Japan
538 516Japan 532
“The performance
Chinese Taipei Chinese532
Taipei Chinese
497 Taipei 542
Vietnam Vietnam
525 487 Vietnam 495
of Indonesian
Hong Kong (China) Hong Kong523
(China) Hong Kong527
(China) 548 students (girls and
B-S-J-G (China) B-S-J-G (China)
518 B-S-J-G
494 (China) 531 boys) in science,
Korea 516 Korea 517 Korea 524 mathematics and
United Kingdom United509
Kingdom United Kingdom
498 492 reading is one of the
United States United
496 States United
497 States 470 lowest among PISA-
OECD average OECD
493 average OECD
493average 490 participating
Turkey 425 Turkey 428 Turkey 420 countries with an
Thailand 421 Thailand 409 Thailand 415
average ranking of
Mexico 416 Mexico 423 Mexico 408
62 out of 69
Indonesia 403 Indonesia 397 Indonesia 386
401 407 377
countries”
Source : OECD
Brazil Brazil Brazil

360.00 420.00 480.00 540.00 600.00

360.00 480.00 600.00
360.00 480.00 600.00
STRUCTURAL REFORMS IS CRITICAL FOR INDONESIA TO MAINTAIN HIGH
SUSTAINABLE GROWTH IN KDE ERA
The key is to focus on three sets of reforms

INSTITUTIONAL REGULATORY FISCAL

REFORM REFORM REFORM

Creating Institutions Designs Regulations More Effective And

That Apply Good
Governance and That Foster Innovation, Efficient Management
adaptive to change Competition and Growth of Fiscal Policies
 INDONESIAN GOVERNMENT VERY COMMITED TO CREATE STABLE
AND GOOD INVESTMENT CLIMATE
While Ease Of Doing Bussiness (EODB) Score Consistently Improve,
More Efforts Needs To Be Done

Institutions Some Government Efforts To Improve

Innovation Infrastructure Investment Climate
Business Macroeconomic
Sophistication Environmen
1. Easing Import and Export
Market Size
Health and

Restrictions

Primary
2. Reducing Dwelling Time
Technological Higher Education
Readiness and Training 3. Revising and Perfecting Tax
Financial Market Goods Market
Development Efficiency
Incentive Schemes (Tax Allowance
Labour Market and Tax Holiday)
Efficiency
2015 2016 2017
 INDONESIAN GOVERNMENT IS VERY COMMITTED TO IMPLEMENT
STRUCTURAL REFORMS
Some of Internationally Recognised Achievements In Implementing it

Investment Grade dari Galup World Poll

Standard and Poor’s Indonesia & Swiss are
considered as the
#1
Indonesia gains investment grade from all
reputable international rattings agency: countries with highest
S&P, Moody’s, Fitch, JCRA, & R&I. level of trust to the
Government
Ease of Doing
Business 2018 BBB
Indonesia position improve
from 91 to 72. Indonesia
also recognised as one of
the Top Improvers.
5
positions Global Competitiveness Index

Currently Indonesia
position is above India,
Brazil, dan Philippines
19
2017-2018
Indonesia position improve from 91 to 36. 9 of 12
positions pillars of measurement is getting better score
such as: Institution, Infrastructure,
macroeconomic, health and primary education,
technological readiness, business sophistication
04 TAX REFORMS AS
PARTS OF FISCAL
REFORMS Slide # 17
 CHALLENGES OF INDONESIA’S TAXATION
tax revenue consistently increases every year, but tax ratio is still low

13.3%
2000

Tax Revenue % of GDP 14%

11.8% 11.9% 11.9%
11.1% 11.2% 11.4% 11.0%
10.7% 10.3%
1500

11%
25,0
23,3 7%
1000

22,2
1495.9
1146.9 1240.4 1283.6
980.5 1077.3 4%
873.9 16,0
500

658.7 619.9 723.3 15,6

11,5 11,8 0%
12008
0,4 12009
0,8 10,9
0

2010 2011 2012 2013 2014 2015 2016 2017

Even Among ASEAN Peers…. 25.0

22.2 23.3

15.6 16.0
10.4 10.8 10.9 11.5 11.8

RRC Indonesia USA Germany Canada Malaysia Thailand Australia France UK

 CHALLENGES OF INDONESIA’S TAXATION
The Number of Registered Taxpayers is so small, those who pay taxes even smaller

40 mil 80%
Registered Taxpayers (RTP) RTP with Obligation To submit Tax Return
Tax Return Submitted Tax Compliance

30 mil

63%
60%
59%
20 mil
56%
32.8
30.0
27.4
24.3
10 mil 18.4 20.2
17.7 18.2
11.0 12.7
10.0 10.9

0 mil 40%
2013 2014 2015 2016
 TAX REFORMS IS URGENTLY NEEDED
DG TAX REFORMS DIRECTIONS
EXISTING CONDITIONS PILLARS OF TAX REFORMS GOALS

▪ Rigid and Unflexible Organisation Bussiness Process ▪ Good Database

Regulations & Bussiness
Process
▪ Low Quality Database
▪ Unreliable IT System
▪ Lacks of Coordination
Among Units and
GOVERNMENTS PRIORITIES SPENDING IN 2018
Institutions.
▪ Low Tax Compliance.
▪ TAX RATIO = 11%
▪ Sophisticated IT System
▪ Adaptive and Flexible
Tech. Information
Regulations& Bussiness
&Database
Process
Human Resources Regulatory ▪ Optimal Coordinations
Among Units and
Institutions
▪ High Tax Compliance
▪ TAX RATIO = 14%

Tax Reforms Sequences

1st Priority
Observers Teams (International
External
Assistance
Organisations, Private Sectors, Mass
Media, Society Advisor Teams 2nd Priority
Tax Policy
(Profesional Tax Practitioners) Tax Administrations
Reforms Reforms
 TAX AMNESTY & AEOI AS PARTS OF DG TAX REFORMS
Tax Amnesty Main Purpose Is To Strengthen Tax Database, While AEOI Aims To
Avoid Base Erosion and Profit Shifting

Achievement of
Tax Amnesty Program

Domestic

Declaration

4.884
trilion (IDR)

Repatriation

Foreign
101 Countries In The World
Declaration
www.pajak.go.id Agree to Share & Exchange Data For Taxation Purpose
05 GOVERNMENTS
PRIORITIES
SPENDING IN 2018 Slide # 22
STATE BUDGET AS FISCAL
INSTRUMENTS

Allocation
Distribution
Stabilisation
GOVERNMENT BUDGET 2018 AT A GLANCE
1,2 GRANT TRILLION RUPIAH

Non Tax Revenue

275,4
REVENUE SPENDING
CENTRAL
BUDGET GOVT
SPENDING
Tax Revenue
2018
1.618,1 1.454,5

1.894,7 2.220,7
TRANSFER
FUND

766,2
DEFICIT
FINANCING
2,19% of
GDP
325,9
 PRODUCTIVE SPENDING CONTINUES
Infrastructure Development, Reducing Inequality and Improving Human Capital
Are The Government Focus, While Energy Subsidies Decrease Significantly...

500 Productive Spending & Energy Subsidies (2013-2018)

444.1
426.7
400.9 410.4
390.1
370.4
375 353.4
332.4 341.8
310
269.1
256.1
250

155.9 154.7

125 119.1 111

106.8 106.7
92.3 89.9 94.5
59.7 65.9
46.1

0
2013 2014 2015 2016 2017 2018

Education Infrastructure Health Energy Subsidies

 SOCIAL SPENDINGS TO REDUCE POVERTY AND INEQUALITY
Poverty Alleviation and Supports Towards Poor Segments Of The Society Continously
Being Strengthened Through Well Designed Social Programs and Targeted Subsidies

2018 Allocation: 283,7* *Trillion Rupiah*

CONCLUSIONS

TARGETS 2018

FOOD IND.SMART JKN FOR SUBSIDIES FOR SMALL

PKH SUPPORT PROGRAM POORS BUSSINESS VILLAGE FUND
10 million houshold 19,7 million Student 117,7 thousand
92,4 million People 74.9587 Villages
15,6 million houshold HouseHold
SPENDING FOR HUMAN CAPITAL DEVELOPMENT
20% BUDGET 5% BUDGET
% 444,1 % 104.9
111.1

419,8 92.3
390,1 65,9
370,4
353,4 59,7

2014 2015 2016 2017 2018

6,3 10,4 (5,1) 13,3 5,8

29,6 10,3 40,1 13,7 5,8

IND.SMART PROGRAM 19,7 Mil. Student

IND.HEALTHY PROGRAM 92,4 Mil. People
SCHOOL OPERATIONAL FUND 56 Mil. Student
FAMILY PLANNING FACILITY 1,8 Mil. People
BIDIK MISI SCHOLARSHIPS 401,5 Thousand
Student
HEALTH FACILITY DEV. 49 Hospital/
SCHOOL REHABILITATION 61,2 Thousand Health Facility

BABY IMMUNISATION PROGRAM 92,5%

TEACHER ALLOWANCE 1.8 Mil. Teacher
FOOD & DRUG CERTIFICATION 74 Thousand
INFRASTRUCTURE DEVELOPMENT REMAINS FOCAL
FOCUS OF THE GOVERNMENT
SOME GOVT
PRIORITIES FOR 2018
Road Building
Targeted: 865 km

Irigation Development
Targeted: 781 km

Electrification Ratio
Targeted: 95,15 %

Development of
% Subsidised Apartments
Targeted:13.405 unit
WHILE INFRASTRUCTURE BUDGET HAS BEEN INCREASE
SIGNIFICANTLY FOR THE PAST FEW YEARS...
Not All Infrastructure Development Can Be Financed By The Governement Budget,
Therefore Private Sector Participation Through PPP is Encouraged.

44 Governement Facilitates Investors Who Eager To

Participate In Indonesia Infrastructure Development
China
3.5
3.5 PT Sarana Multi Infrastruktur

Malaysia
Infrastructure

India Specialised in Infrastructure Financing with 3

33 Thailand Brazil main Focus: Financing and Investment,
Index

Consultation, and Project Development

Infrastructure
Vietnam Rusia
2.5
2.5 Indonesia
Philippines
Gap
PT Penjaminan Infrastruktur
22 Indonesia

1,000
1000 3,250
3250 5,500
5500 7,750
7750 10,000
10000
Specialised in Infrastructure Guarantee To
GDP Per Capita Increase Credit Worthiness from Infrastructure
Projects Either With PPP or Without PPP
06 CONCLUSIONS Slide # 30
CONCLUSIONS
1 Indonesian Economy in 2018 Will Continue To Experience Robust, Stable, and
Increasing Growth, Supported By Recovery Momentums Gained During Previous
Years

Indonesian Government Commited to Continue Structural Reforms (Institutional

2 Reform, Regulatory Reform, and Fiscal Reforms) to achieve High and Sustainable
Growth In The Era Of Knowledge Driven Economy

Indonesian Governement Will Continuously and Consistently Improve its

3 Investment Climate In Order To Create A Good And Stable Environment For
Bussiness To Thrive and Prosper

Indonesian Government Welcoming Any Constructive Suggestions and Advices

4 From The Private Sectors Regarding its Efforts To Create A Good Investment
Climate

5 Indonesian Government Strongly Encouraged And Will Facilitates Private Sectors

To Take A Part In The Infrastructure Development In Indonesia

6 Indonesia Offers A Promising Future For Business, Dont Wait To Long!!!, Invest In
Indonesia As Soon As Possible
 THANK YOU
SRI MULYANI INDRAWATI
MINISTER OF FINANCE OF THE REPUBLIC OF INDONESIA

MANDIRI INVESTOR FORUM

7 FEBRUARY 2018

photo by KemenESDM
10 MINISTRIES AND GOVERNMENT INSTITUTIONS WITH THE
LARGEST BUDGET IN 2018
Ministries

107,7 107,4 62,2,7 59,1 48,2 41,3 40,1 32,9 45,7 23,8
114,2 102,7 60,9 54,2 17,2 36,9 37,8 27,8 40,3 23,7

APBN 2018 OUTLOOK 2017

Government Institutions

96,3 12,5 8,3 6,4 5,7 5,6 5,6 5,5 4,8,7 2,8
95,5 3,3 8,2 5,2 3,8 9,8 1,9 2,2 4,0 2,7