December 2008: Monetary Policy Statement

During November 2008, inflationary pressure in Indonesia began to ease in keeping with the onset of domestic economic slowdown triggered by the impact of the weakening global economy and falling international commodity prices. For 2009, Bank Indonesia predicts a drop in inflationary pressure, with the inflation trend at the lower end of the 6.5%-7.5% targeting range. In the view of Bank Indonesia, the impact of the global crisis on the domestic economy began surfacing in Q3/2008 and will become more strongly entrenched in 2009. The global financial crisis has similarly hit performance in the Indonesian financial sector, as indicated by increased yields on Government Securities, plunging share prices and the weakening of the exchange rate. In response, the Board of Governors of Bank Indonesia holds the view of the necessity for monetary policy to maintain equilibrium between measures to stimulate business activity and other actions to ease the vulnerability of financial markets, while continuing to safeguard long-term macroeconomic stability.

Bank Indonesia is keeping a close watch on the global financial market turbulence and the related impact on the Indonesian economy. The present global phenomenon is believed to be a process of deleveraging that has led to tightening of global liquidity and in turn portfolio capital flight, including from Indonesia. Repricing by foreign investors in response to perceptions of mounting risk has led to a growing wave of capital outflows from emerging markets. Regional stock indices have plunged considerably, while yield levels are up on bond markets in some countries. The mass exodus of investor capital has put pressure on almost all world currencies. 

All these processes have borne down heavily on the rupiah exchange rate. During November 2008, the exchange rate recorded average 13.8% depreciation, markedly steeper than the 6.5% of the preceding month. The depreciation has been accompanied by heightened volatility fuelled primarily by falling market confidence amid the tightening domestic supply of foreign currency. The pressure has also been evident in the Indonesian Composite Stock Index. Nevertheless, actions taken by the Government and Bank Indonesia in anticipation of further crisis developments halted further index decline. Analysed over the month, the stock index weakened only 1.2% to close at 1,241 points, representing dramatically reduced decline compared to 31.4% one month earlier.

In a similar vein, inflationary pressure has begun to ease. External developments and weakening domestic demand have contributed to softening domestic inflationary pressure. Volatile foods inflation was down significantly from the preceding month consistent with the ongoing decline in international commodity prices. Deflation also took place in administered prices. While the present situation has eased, Bank Indonesia sees the potential for heightened pressure in core inflation, due to the weakening of the rupiah. Nevertheless, this pressure has been offset to some extent by the fall in international commodity prices. Amid these developments, November 2008 CPI inflation was recorded at 0.12% (mtm), down from 0.45% in the preceding month. 

Despite the turmoil on various fronts, the fundamentals of the Indonesian banking system remain sound. Key banking indicators, such as the CAR and NPLs, reflect stable, strong resilience. Banking liquidity, which had undergone some tightening, has begun to ease. Even so, banks are demonstrating greater caution in lending, due to the escalation in future risks brought on by the weakening of the economy in the real sector.

Looking forward, the external turbulence is expected to impact Indonesia’s economic performance. Economic growth is predicted to weaken in Q4/2008 despite the overall growth forecast for 2008 at about 6.1%. In 2009, growth is set to drop further. A steeper decline in the global economy marked by economic contraction in various countries is expected to have significant impact on export performance. Exports will come under even greater pressure, especially if international commodity prices continue to slide in the coming year. At home, reduced export earnings and the tightening of bank financing sources will weaken public purchasing power. Consumer lending is predicted to decline due to rising perceptions of debtor risk, coupled with the tendency for banks to maintain high levels of liquidity in a climate of uncertainty. 

CPI inflation in 2009 is forecasted near the lower end of the projected 6.5%-7.5% range (yoy). Inflationary pressure is predicted to ease with support from significant slowing in domestic demand and forecasts of further decline in international commodity prices. This forecast for world prices are expected to offset the negative impact of the rupiah exchange rate, which is set to weaken further in 2009, thus keeping imported inflation from having significant impact on the inflation rate. 

Against the background of these developments, Bank Indonesia will maintain equilibrium within the policy framework with actions to prevent further slowing in the real economy balanced by unswerving orientation to achievement of the medium and long-term inflation target. To this end, on 4 December 2008, the BI Board of Governors decided to lower the BI Rate 25 bps to 9.25%. This easing in the policy rate is expected to sustain domestic economic momentum amid the world economic slowdown. In the real sector, the interest rate cut is necessary to deliver a much needed boost to business confidence in the Indonesian economy in order to reduce unemployment. In the financial sector, the BI Rate cut will also ease vulnerability to shocks, and thus mitigate risks. 

In addition, this policy will again be pursued through optimum use of other monetary instruments, such as forex market interventions to minimise rupiah exchange rate volatility. Bank Indonesia will keep a close watch and monitor global economic developments and make policy adjustments as necessary to safeguard economic stability and achievement of the medium and long-term inflation target.

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Obama becomes 44th US president

Barack Obama became the 44th U.S. president Tuesday, shattering American racial barriers as the first black leader of the nation he promised to free from the grip of its profound economic troubles and steer away from wars in two distant lands.

Before a crowd that swelled to more than 1 million on the National Mall, Obama assumed power over a country longing for change after former President George W. Bush's eight divisive years in the White House, an era that witnessed the Sept. 11, 2001 terror attacks, the beginning of wars in Afghanistan and Iraq and an economic collapse not seen since the 1930s Great Depression.

"Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met," Obama said in his first address to the nation as its new leader.

Speaking before the mass of humanity that spread across the nearly 2-mile (3-kilometer) National Mall from the Capitol toward the Lincoln Memorial, Obama recalled the words of George Washington, America's first president, and enjoined Americans against faint-heartedness "in this winter of our hardship."

"With hope and virtue, let us brave once more the icy currents, and endure what storms may come," the new president said in his 18 1/2-minute inaugural address. "Let it be said by our children's children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God's grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations."

Immediately after the inauguration ceremony, Bush and his wife Laura boarded a helicopter alongside the U.S. Capitol, as they began their journey home to Texas. The new president and his wife walked them to the chopper - keeping with tradition - to see them off.

It was a day of high spirits - jarred by sudden concern about the health of Sen. Edward M. Kennedy, a legendary Democrat who is suffering from brain cancer. He was rushed from a post-inauguration Senate luncheon in honor of Obama. "This is a joyous time but it's also a sobering time," Obama said. "And my prayers are with him and his family and (Kennedy's wife) Vicki."

"It looked like a seizure," said Sen. Orrin Hatch, a Republican who said he was with Kennedy until they reached the ambulance.

Kennedy was taken to Washington Hospital Center, where he was reported conscious, able to talk and under assessment.

When the luncheon finished, Obama lead off the inaugural parade from the Capitol to the White House, paying homage to pioneers who paved the way for the nation's first black president.

To rousing cheers, the new president and his wife stepped out of their limousine to greet part of the enthusiastic crowd that has lined the parade route.

Re-enactors from a black Civil War regiment, World War II's surviving Tuskegee Airmen and Freedom Riders who battled for civil rights were following Obama's limousine down Pennsylvania Avenue.

More than 13,000 people from all 50 states traveled the1.5-mile (2.5-kilometer) parade route jammed with joyous onlookers since dawn. Among the marching bands and military units are acrobats and even a drill team pushing whimsically decorated lawn mowers.

Pre-inauguration polls show Americans believe Obama is on track to succeed and express confidence the new president can turn the economy around. But Obama has cautioned that recovery needs time, and that things will get worse before they get better.

As he moved on in his speech from some of the country's most difficultdomestic challenges, Obama promised the world a new America that listens to all voices. But he vowed to spare nothing to keep America safe, addressing terrorist foes directly.

"We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by induing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you."

And to the larger Muslim world, he vowed to "seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe wh seek to sow conflict, or blame their society's ills on the West - know that your people will judge you on what you can build, not what you destroy.

"To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extnd a hand if you are willing to unclench your fist."

Tuesday's ceremony was the culmination of a remarkable ascent for the 47-year-old Democrat, who moves into the Oval Office as the nation's fourth youngest president. In less than five years, he rose from a little-known Illinois state lawmaker to the naton's highest office, persuading Americans that despite his relative inexperience, he could turn around the economy, end the Iraq war and restore U.S. standing in the world.

A gifted, inspirational speaker, Obama raised the hopes of millions as he promised even before taking office to emphasize diplomacy, eek global solutions to climate change, reject torture and shut down the Guantanamo Bay prison.

Acknowledging the historic nature of his inauguration as leader of a nation with a deeply troubled racial past, Obama said:

"This is the meaning of our liberty and our creed - why men and women and childrenof every race and every faith can join in celebration across this magnificent Mall, and why a man whose father less than sixty years ago might not have been served at a local restaurant can now stand before you to take a most sacred oath."

The nation's 56th inauguration day began for Obama and new Vice Prsident Joe Biden with a traditional morning worship service at St. John's Episcopal Church, across Lafayette Park from the White House.

After the 45-minute service, the Obamas were welcomed to the White House for coffee. Bush and first lady Laura Bush greeted them at the North Portico, according to customMichelle Obama handed Laura Bush a square white box wrapped with a red ribbon.

Bush left a note for Obama in the top drawer of his desk in the Oval Office, following tradition. White House press secretary Dana Perino said the theme of the message - which Bush wrote on Monday - was similar to what he has sid since election night: that Obama is about to begin a "fabulous new chapter" in the United States, and that he wishes him well.

The festivities won't end until well after midnight, with dancing and partying at 10 inaugural balls.

Obama's election electrified millions across the globe with the hope that the new America leader would be more inclusive and open to the needs of people and governments worldwide, more collaborative and more inclined to attack problems with diplomacy than with military power.

Obama's presidency puts Democrats firmly in charge of Washington. They will control both chambers of Congress and the White House for the first time since 1994.

Though the new president faces monumental challenges, he should face an extended honeymoon as he takes over from Bush, who leaves Washington as one of the nation's most unpopular and divisive presidents.

The 43rd president's approval ratings, which soared after Sept. 11, plummeted over his handling of the Iraq war, his slow response to Hurricane Katrina and the economic meltdown.

Shortly after Obama became president, the Senate swiftly approved six members of his Cabinet, but put off for a day a vote on his choice to be secretary of state, Hillary Rodham Clinton.

Democratic hopes to add Clinton to that list were sidetracked when one Republican senator, John Cornyn, objected, saying he still had concerns about foreign donations to the foundation headed by Clinton's husband, former President Bill Clinton.

by Steven R. Hurst , The Associated Press , Washington | Wed, 01/21/2009 12:25 PM | World 

Source: http://www.thejakartapost.com/news/2009/01/21/obama-becomes-44th-us-president.html

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so good

Indonesia's economy and the election So far so good

WITH only three months until parliamentary elections, Indonesia’s six-month-old campaign has moved up a gear. For once, thanks to the global economic slump, it as much about substance as about style and personalities. And, unlikely as it seemed six months ago, President Susilo Bambang Yudhoyono’s government can hold its head pretty high. 

The data suggest the fourth-quarter slowdown in Indonesia was much less pronounced than elsewhere in South-East Asia. Economic growth for 2008 as a whole is likely to exceed 6%. Many other indicators are also robust. The 2008 budget deficit was 0.1% of GDP and the government has earmarked $3.5 billion to spend on tax breaks and infrastructure projects.
 

In late 2008 the currency, the rupiah, lost a fifth of its value against the dollar, but the slide has halted. The cost of insuring Indonesian government bonds against default has come down sharply. Inflation, still running at an annual rate of 11%, is falling, enabling the central bank this week to cut its benchmark interest rate by one-half of a percentage point, to 8.75%.

Most banks are healthy, thanks to radical reform after the Asian crisis of a decade ago. And in 2008 the country achieved rice self-sufficiency for the first time in 24 years. Manufacturing is starting to feel the heat but only 25,000 workers have been laid off since November. And, according to research by the Asia Foundation, an American NGO, the huge informal sector has yet to feel much of an impact of the crisis. 

President Yudhoyono can certainly take some credit for all this. He courted unpopularity by raising the prices of government-subsidised fuel when oil was soaring last year, and has now been able to cut them twice. Measures have been taken to support the financial sector and the poorest in society, and his stimulus package will both offer tax incentives and finance additional infrastructure projects. Moody’s, a credit-rating agency, gave Indonesia a “stable” outlook in its annual report this week, expecting the authorities to manage the impact of the crisis competently. 


Factors that have nothing to do with the president’s policies are also helping. Domestic demand accounts for two-thirds of GDP, so though Indonesia remains vulnerable to sharp falls in the prices of commodities such as coal and palm oil, collapsing exports will not hit it as hard as its neighbours. The lack of infrastructure development in recent years means a few billion dollars will have a much greater impact than it might otherwise have done.

The government, however, needs to get the funds flowing fast and it is bad at disbursing money quickly. It also needs consumers to keep spending. Here the signs are ambiguous. Many Indonesians are not savers by nature. Yet carmakers, for example, are predicting a 25% contraction in sales. Food producers are less gloomy. 

However, Indonesia, which suffered worse than any of its neighbours in the crisis of the late 1990s, has not yet weathered this one. It is handicapped by the weakness of the rule of law, the poor investment climate (see article), labour militancy and creeping protectionism. 

The elections pose another hazard: the extent to which government ministers are ready to put the country’s interests ahead of their parties’ electoral prospects is in doubt. And then there are the global unknowns that could wreak havoc. But Mr Yudhoyono is probably sleeping better these days than most of his regional counterparts; and better than he himself could have hoped just a few months back.

Source: http://www.economist.com/research/articlesbysubject/displaystory.cfm?subjectid=348879&story_id=12896757

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Exports November 2008 Down 11% : Indonesia

Export of Indonesia in November 2008 decreased 11.09% to U.S. $ 9.61 billion compared to October 2008. But Indonesia still has a surplus due to a decrease in imports far greater to 17.87% for November 2008. Compared with November 2007 the export decline in exports was only 2.36%. Meanwhile, non-oil exports in November 2008 down 9.24% to U.S. $ 8.17 billion compared to October 2008. 

Exports decreased, but the percentage decline in imports was larger, so we still have a surplus. The cumulative value of exports in January-November 2008 of U.S. $ 128.09 billion, rising 24.17% compared to the same period last year. While cumulative non oil and gas exports reached U.S. $ 100.45 billion, rising 20.18% compared to the same period last year. 

The decline in non-oil exports in November occurred in mineral raw materials of U.S. $ 232.2 million. Meanwhile, the biggest increase occurred in the export garment knitting is not so increased U.S. $ 50 million. For imports in November reached U.S. $ 8.72 billion, down 17.87% compared to October 2008. Oil and gas imports reached U.S. $ 1.31 billion or 15.02% of the overall value of imports, and non-oil imports of U.S. $ 7.41 billion or 84.98%. During January-November 2008 the value of Indonesian imports reached U.S. $ 120.97 billion.

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Early indications strengthen purchasing power and increasing consumption

The decline BI rate is now entering the stage with a reasonable BI Rate 50 basis points, from 9.25 to be 8.75 percent. BI Rate fast or slow BI Rate will come down to about 8 percent. BI rate decrease will be a decrease in interest rates encourage working capital credit and investment and consumption credit. This step was taken in the government, in the hope that all parties to start working avert the impact of the crisis in the country. Decrease in credit interest rate of consumption in turn will strengthen the purchasing power or consumption. Thus the demand for goods and services can be improved. 

One impact of the crisis that will hold up to the front of the Termination of Employment Relations, as a result many companies experienced a decline of production capacity, followed dropped demand in the global market and domestic market 

Of course the government's stimulus should be able to respond to potential Termination of Employment Relations, especially in this industry labor groups. This is because the number of workers reached a dozen million people and expected production should be absorbed in the domestic market. Therefore, it is also necessary stimulus you up purchasing power of the people. A decrease in fuel price policy and fiscal stimulus should be the form of monetary stimulus reduction BI Rate. 

The signal Rupiah. 

Position currency rupiah at the end of the year 2008, which is Rp 11,000-Rp 12,000 per U.S. dollar, while at the beginning of the year 2009 more powerful, which is located on the level of Rp 10,000-Rp 11,000 against the U.S. dollar. Fluctuation of the rupiah is still very dependent on global conditions. To that end, efforts are expected to have with all parties to continue to maintain the rupiah. Rupiah still depends on global conditions, but perhaps more significantly to the future. Rupiah value at this time is considered sufficient to sustain permanent import and export activities nationally. Although the export activity, the more influence the global demand declined.

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