Speech of the Deputy Governor of Bank Indonesia Handover Ceremony at the Bank Indonesia Representative Office in New York New York, 24 th August 2015 Honourable Consul General of the Republic of Indonesia in New York, Ghafur Akbar Dharmaputra; Distinguished guests from the Federal Reserve Bank of New York and our strategic partner institutions; Officials and staff of the Consulate General of the Republic of Indonesia in New York; Leaders of the banking community, Indonesia Investment Coordinating Board, academics, media, religious leaders and citizens of New York; Officials and staff of Bank Indonesia from head office and the Bank Indonesia Representative Office in New York; Ladies and gentlemen in attendance. Good morning and welcome: 1. Let me begin my expressing thanks to the Lord God Almighty for bestowing His blessings that we can all congregate here today to welcome Erwin Haryono at the Bank Indonesia Representative Office in New York, replacing Sugeng as Chief Representative. 2. Replacing the Chief Representative at Bank Indonesia is an ongoing dynamic that ensures the organisation of Bank Indonesia remains motivated and performs well,
thereby supporting the function, task, role and responsibility of Bank Indonesia in terms of developing the economy nationally and regionally. Ladies and gentlemen: 3. Just days ago, we commemorated the Declaration of Independence on 17 th August 1945, celebrating the struggle and victory of our predecessors, who sacrificed their lives and property. We are sincerely grateful because thanks to our fighters we can breathe deep the air of freedom as Indonesia was unshackled from colonial rule. 4. The long 70-year journey of independence has been replete with transformation efforts through development to realise the ideals of our predecessors, namely Indonesia as an independent, sovereign, unified, just and prosperous nation. 5. We are grateful and proud of the transformation achievements of Indonesia. We have enhanced the education system and extended it to the broader community. In terms of the economy, Indonesia has successfully become a middle income country, boasting the largest and fastest growing middle class population in Southeast Asia. Furthermore, in 2014 the Word Bank placed Indonesia as the eighth largest global economy based on Purchasing Power Parity. 6. From a political standpoint, the successful transformation of Indonesia is predicated upon Indonesia s standing as the third largest democracy in the world, after the United States and India. Through transformation, Indonesia is currently more unified, peaceful, prosperous and democratic.
Ladies and gentlemen: 7. Our successful accomplishments should not lead to complacency, however. Indonesia s interminable journey remains beset by increasingly complex challenges that demand a more active contribution from us to the problems faced. 8. Concerning the economy, Bank Indonesia acknowledges a number of onerous external and domestic challenges to current and future conditions in Indonesia. 9. The global economy is currently reeling from sluggish growth with a bias towards the lower end of the projection, accompanied by ubiquitous risk blighting global financial markets. Projected global economic growth of 4% for 2015 has been revised down to 3.3%, which is lower than actual growth achieved last year at 3.4%. 10. Potential bias towards the lower end of the projection is the result of weaker-thanexpected US growth, with Q2 actuals of 2.3% (yoy) coming in below the projected 2.6% (yoy). 11. In addition, concerns over the proposed Federal Funds Rate hike, which prompted market uncertainty, is also affecting the global economy. The normalisation policy of the Federal Reserve could trigger a deluge of capital outflow and, thus, pressures on financial markets in the region, including Indonesia. Based on surveys and observations of the latest US economic indicators, the FFR hike is expected as early as September but possibly as late as December 2015 or January 2016 if indicators do not improve.
12. Against the inauspicious backdrop of a protracted US economic recovery, the global economy continues to suffer due to economic moderation in China as a key driver of growth. Several real sector indicators, such as retail sales and industrial production, continue to show signs of weakness in China. The stock market crashed, accompanied by lingering volatility that continues to undermine domestic investor confidence in stock market stabilisation and economic rebalancing measures. 13. Furthermore, the decision of the People s Bank of China to devalue the yuan by 1.9% against the US dollar on 11 th August 2015 exacerbated pressures on the global economy. Market reaction was evident through a slump in exchange rate performance amongst trade partners of China, including the rupiah in Indonesia. Yuan devaluation policy wiped 8.3% (yoy) off exports from Indonesia in July 2015, the largest single decline in four months. Globally, yuan depreciation also adversely impacted trade partner countries that rely on exports of natural resources, including Indonesia. 14. On the other hand, the economic crisis that befell Greece demanded grater vigilance from countries in Europe concerning the negative spillover that could result. Crisis pressures eased modestly after the Hellenic Parliament approved preliminary reforms stipulated by the creditors of the bailout. Notwithstanding, the resignation of the Prime Minister, coupled with the bailout and restructuring of the Greek economy, continues to threaten economic stability in Europe and other regions. 15. The prolonged global recovery has also perpetuated the international commodity price slide. In Q2/2015, leading export commodities from Indonesia, including coal, palm oil, nickel and coffee, dropped in price. For a number of economies that rely on
primary commodities, such as Indonesia, this implies the upcoming challenges of economic recovery will become increasingly burdensome. Ladies and gentlemen: 16. Global economic conditions demand our vigilance due to their impact on developing economies, including Indonesia. The challenges we face are becoming increasingly complex, especially as Indonesia continues to confront a variety of challenges at home. 17. Indonesia is currently marred by economic moderation, balance of payment and fiscal deficits, spiralling foreign debt, low absorption of infrastructure spending, sluggish credit growth as well as the weather phenomenon known as El Nino that could decimate food production. 18. Economic growth was recorded at 4.67% (yoy) in Q2/2015, slowing from 4.72% (yoy) in the previous period on weak investment, government consumption and household consumption. 19. Confronting the challenges, Bank Indonesia instituted a policy mix that prioritises stability to ensure high-quality economic growth. Furthermore, Bank Indonesia policy is consistently directed towards creating stable macroeconomic conditions, primarily in the form of on-target inflation, while reducing the current account deficit to a more sustainable level.
20. Exchange rate policy aims to maintain rupiah stability in line with the currency s fundamental value, thereby avoiding excessive expectations of depreciation that could undermine economic stability. 21. Bank Indonesia considers recent rupiah depreciation the result of overshooting, leaving the currency undervalued. Addressing the challenge, Bank Indonesia has and will continue market intervention efforts to stabilise rupiah exchange rates. 22. Facing the current domestic and global economic dynamics, Bank Indonesia will optimise its policy mix, supported by tighter coordination with the Government and relevant authorities concerning macroeconomic policy management. Ladies and Gentlemen: 23. It is important to note that inflationary pressures through to July 2015 were controlled. National inflation was recorded at 0.93% (mtm) in July 2015, or 1.90% (ytd) cumulatively for the year or 7.26% (yoy) on an annualised basis in line with anchored inflation expectations. Based on the current trend, Bank Indonesia is satisfied that the inflation target of 4±1% in 2015 will be achieved. 24. The BI Board of Governors decided on 18 th August 2015 to hold the BI Rate at 7.50%, while maintaining the Deposit Facility rate at 5.50% and the Lending Facility rate at 8.00%. The decision was consonant with efforts to control inflation within the target corridor of 4±1% in 2015 and 2016. Furthermore, the policy mix instituted by Bank Indonesia is consistently directed towards preserving rupiah
stability, despite persistently uncertain global financial markets, as well as optimising monetary operations on the rupiah money market and foreign exchange market. 25. A consistently tight monetary policy stance taken by Bank Indonesia is expected to restore investor confidence in the consistency and quality of macroeconomic policy management in Indonesia as the proposed FFR hike looms. We consider investor confidence crucial to maintain global liquidity flows to our stock and bond markets, in particular government bonds. This, in turn, will reduce the burden of development financing through tradeable government securities (SBN). Ladies and Gentlemen: 26. We view investment an important pro-growth sector in Indonesia, especially as other supporting sectors, such as exports and consumption, are decelerating. Consequently, ongoing efforts to attract more investment into Indonesia require greater optimisation. 27. Therefore, the international role of representatives of the Republic of Indonesia is vital. Indonesian Embassies and Consulate Generals, which are located in nearly every country in the world, are expected to extol the economic potential of Indonesia, thereby attracting investment to the country. 28. Such efforts would be greatly improved if, in their function, the Embassies and Consulate Generals were supported by the Indonesia Investment Coordinating Board (BKPM), Bank Indonesia, the banking industry and other state apparatus available in each country.
29. Hitherto, the mutually supportive roles played by RI representative offices, the Indonesia Investment Coordinating Board (BKPM), Bank Indonesia and other related parties in the United States to attract US investors to Indonesia has borne fruit. Consequently, the United States has ranked in the top ten largest investors in Indonesia for the past five years. In 2014, actual US investment topped USD1.3 billion, ranking the country sixth, while there remains clear room for further growth. Ladies and Gentlemen: 30. We consider the US position as an engine of the global economy vitally strategic for Indonesia, especially in line with the US status as one of the leading investors in Indonesia. Furthermore, as our exports attest, the United States is also an important trading partner of Indonesia as one of our leading export destinations. 31. In 2014, total exports from Indonesia to the United States amounted to USD16.5 billion, making the US the third largest export destination for Indonesian products after China and Japan. In the case of non-oil and gas shipments, the United States represents the second largest export destination after China, totalling USD15.8 billion, increasing 5.56% (yoy) on the position in 2013. 32. The prevailing facts and data confirm the close links enjoyed between the United States and Indonesia. Therefore, we sincerely hope that the clear communication, intensive coordination and synergic collaboration built between representatives of the Republic of Indonesia, the Bank Indonesia Representative Office, the Indonesia Investment Coordinating Board (BKPM), the banking industry and other relevant
parties in the United States will continue and improve. The positive contribution of all parties will help to create a cordial relationship and mutually beneficial cooperation between Indonesia and the United States towards the betterment of society in both countries. 33. In light of the positive accomplishments and fruitful coordination enjoyed so far, allow me to express our heartfelt appreciation to the Honourable Ambassador and Consul General, along with their corresponding staff, as well as to all those here in the United States who have backed and supported our efforts. Ladies and Gentlemen: 34. I would like to take this opportunity to graciously thank Mr Sugeng, who has served the mandate of Bank Indonesia emphatically. As Chief Representative of Bank Indonesia in New York, Mr Sugneg has built a solid foundation through harmonious coordination and collaboration with all stakeholders, in particular the Honourable Consul General of the Republic of Indonesia in New York. 35. Armed with vast experience and insight, Mr Sugeng will fill his new role as Head of the Bank Indonesia Institute with gusto, tasked with creating a competent and highly motivated workforce at Bank Indonesia. 36. To Mr Erwin Haryono, the new Chief Representative of Bank Indonesia in New York, we extend great expectations to maintain existing performance, while optimising Bank Indonesia s role and growing the relationships with all stakeholders and strategic partners in country.
37. In closing, on behalf of the Governor of Bank Indonesia, we would like to thank the Honourable Consul General of the Republic of Indonesia in New York and his staff for their assistance with the organisation of this event here today. I would also like to thank all of you in attendance for sparing your valuable time this morning. May all our undertakings to advance the country, state and people be blessed by the Lord God Almighty and let Him give us the strength to carry on. Thank you. Deputy Governor of Bank Indonesia Ronald Waas