18 December 2006

1
UPDATE ON INDONESIAN ECONOMIC REFORMS
18 December 2006
2
Macroeconomic Indicators in 2006 an overview

• Improved economic performance with resilient
  stability of the macroeconomic conditions as
  indicated by
• moderate economic growth between 5.5 5.6
• downward trend in inflation
• stable exchange rate with lower volatility
• decreasing trend in interest rates

3
Outlook of Economic Indicators 2007 - 2008
The economy will regain its rigor and grow by
6.0 in 2007 and 6.2 in 2008, demonstrating a
sustained post crisis economic recovery
4
Balance of Payments in 2007

• Current account surplus is projected at USD 6
  8 billion (1,5 1,9 of PDB) supported by a
  strong export performance. But import is also
  expected to increase responding to the buoyant
  domestic demand.
• Capital inflow for portfolio placement is
  expected to dominate the capital account, while
  FDI inflow is expected to remain sluggish.
• The overall balance of the BOP and the
  projected development of foreign reserves are
  expected to support the stability of the Rupiah
  value in 2007.

USD Billion
5
Banks have continued to perform reasonably well
Main Banking Indicators
Key Highlights

• Continued decline in NPL ratio in 2006
• Banks are on average well capitalized with CAR at
  around 20.5.
• LDR1 increases slightly from 64.7 in Dec 2005 to
  65 in October 2006
• Net interest income (NII)2 also in an increasing
  trend, from Rp 6.2 trillion in December 2005 to
  8.1 trillion in Oct 2006.
• Banks return on asset remains stable at around
  2.6 as the total assets increase significantly.

1 Loan calculation includes channeling loans 2
Calculated as NII for the particular month
divided by earning assets for the corresponding
period
Source Bank Indonesia
27
6
Current banking initiatives policies to
solidify the Indonesias banking industry

• Adjustment to rules governing the quality of
  earning assets of commercial banks
• Expansion of public access to sharia banking
  services through office channelling
• Extension of the banking service network to
  micro, small and medium sized enterprises
• Adjustment of risk weighted assets for mortgages
  and loans for civil service, military and
  retirees
• Customer protection scheme through the
  enforcement of banking mediation program
• The implementation of Good Corporate Governance
  for commercial banks

Prudential Regulations have been further
strengthened (January October 2006 Banking
Policy Package )

• To increase banks intermediation function,
  especially for financing development projects as
  well as SMEs
• To improve the banking industry capacity in line
  with the blue print of Indonesias Banking
  Architecture
• To enhance performance of state banks including
  the resolution of NPL through the amendment of
  related regulations

Package for financial sector reform (banking
sector)
7
Current banking initiatives policies to
solidify the Indonesias banking industry (contd)

• Other initiatives to strengthen banking industry
  
• Banking Industry Consolidation Process
• Certification program for risk managers to
  improve the quality of risk management in the
  banking industry
• Re-launched the Credit Information Bureau to
  strengthen the banking infrastructure. The
  coverage of information provided by the new
  credit bureau has been enhanced
• Linkage program to link commercial banks with
  rural banks in financing small and medium
  enterprises (SMEs)

Progress on Indonesia Banking Architecture
continued
8
Thank You