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Dorodjatun Kuntjoro-Jakti, PhD. Professor Emeritus

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Presentation on theme: "Dorodjatun Kuntjoro-Jakti, PhD. Professor Emeritus"— Presentation transcript:

1 THE 21C CHALLENGES TO BRIDGE INDONESIA AND AUSTRALIA AS A BASE FOR IORA
Dorodjatun Kuntjoro-Jakti, PhD. Professor Emeritus Faculty of Economics & Business University of Indonesia (SOCS5105 International Collaborative Study Experience, The University of Western Australia – Universitas Paramadina, Juli 2017)

2 INVESTMENT GRADE RATING
We finally succeeded in getting back our investment grade rating in July 2017, which we last seen in 1997 when the Thai Baht crisis hit the Rupiah abruptly and causing market panic. President Soeharto resigned in 1998 in the face of mounting social frustration and political anger. From end of 1997 all the way to the most liberal general election in April 2004, the drive of “Reformasi, Demokratisasi” continued. The interim government of President Habibie and President Megawati Soekarnopoetri cooperated fully with IMF and CGI to stabilise and restart growth. Indonesia’s rating by 2004 was CCC with a spread of 1000 bp. The general election of 2004 and 2009 – the first two open-democracy election exercises, which brought in President Soesilo Bambang Yudhoyono – occurred peacefully. The economy and businesses started moving beyond expectations, despite the global financial crisis.

3 Republic of Indonesia Rating Moody's S&P Fitch Foreign Currency Rating Long term Baa3 BBB- BBB Outlook Positive Stable Review/Credit Watch None Short term NR A-3 F3 Local Currency Rating Source: HSBC – The VIEW. Asia’s Bond Markets. July 2017 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

4 RATING Investment rating Baa3 Reformasi, Demokratisasi, Desentralisasi
1st Open & Direct General Election 2ND 3RD BBB+ BBB BBB- BB+ BB B+ B B- CCC+ CCC CCC- CC Investment grade Asia monetary crisis hit in Subsidized Oil price doubled Global economic crisis in 2008 BBB- Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Indonesia was “investment grade” before the 1998 crisis Baa3 BB+ Non Investment grade Prof. Dorodjatun Kuntjoro-Jakti, PhD.

5 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

6 Immense size of indonesia
The reasons for Indonesia’s long and costly to recovery and growth lie in the facts: Of its immense size of territory as indicated by hi-cost transportation Of its population size And by the continuing volatility in global commodity market

7 INDONESIA ARCHIPELAGIC
UNCLOS 1982 SOUTH CHINA SEA PACIFIC INDIAN OCEAN Jakarta Geopolitical Forum 2017

8 INDONESIA ARCHIPELAGIC SEA LANES UNCLOS 1982
SLOC MALACA SOUTH CHINA SEA PACIFIC INDIAN OCEAN ALKI I ALKI IIIC ALKI IIIB ALKI II ALKI IIIA Note: ALKI = SLOC (Alur Laut Kepulauan Indonesia = Sea-Lane of Communication) Jakarta Geopolitical Forum 2017

9 TWENTY LARGEST COUNTRIES AND THEIR POPULATIONS, SELECTED YEARS
(millions) Prof. Dorodjatun Kuntjoro-Jakti, PhD.

10 The Economist, Jul 8th 2017 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

11 (irrational exuberance)
- Too strong upside The Economis Jun 26th 2008 (irrational exuberance) Prof. Dorodjatun Kuntjoro-Jakti, PhD.

12 The Economist commodity-price index
- Too strong downside The Economist commodity-price index (irrational gloom) Prof. Dorodjatun Kuntjoro-Jakti, PhD.

13 Since late 1980s the global economy also continue to be unstable – the so-called New Normal

14 KRISIS EKONOMI MAKIN SERING TERJADI: “THE NEW NORMAL”
 Crisis: The worst in 3 decades (!) The Jakarta Post, November 15, 2008 Events which were calculated to occur once in 20 years in fact occurred much more regularly indicating that risk management assumptions did not reflect the distribution of the actual outcomes (Blankfein, FT, 9/2/2009) Prof. Dorodjatun Kuntjoro-Jakti, PhD.

15 INDONESIA

16 Source: The Heritage Foundation (2017)

17 Source: The Heritage Foundation (2017)

18 Source: The Heritage Foundation (2017)

19 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

20 The Economist, Jul 8th 2017 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

21 The Economist, Jul 8th 2017 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

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29 Macroeconomic stability and credibility
Budget deficit < 2% of GDP Current Account Deficit < 2% of GDP Debt < 30% of GDP Short-term Debt < 5% of GDP Unemployment around 5%

30 Source: HSBC – The VIEW. Asia’s Bond Markets. July 2017
Prof. Dorodjatun Kuntjoro-Jakti, PhD.

31 Source: HSBC – The VIEW. Asia’s Bond Markets. Juni 2017
Source: HSBC – The VIEW. Asia’s Bond Markets. July 2017 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

32 The Economist, Jul 8th 2017 Prof. Dorodjatun Kuntjoro-Jakti, PhD.

33 Challenges Dependency Ratio increases Poverty
Hingga 2030 – the beginning of aging society As life expectancy rise Poverty Gini Coefficient - remain stubborn at 0.4 The Poor – subsidy entitlement Funding for development will raise

34 Indonesia’s Potential: demographic bonus  BONUS DEMOGRAFI
DEMOGRAPHY is destiny Indonesia’s Potential: demographic bonus  BONUS DEMOGRAFI Indonesia has the fourth ranking population in the world, with million people (2010), and the working age population is close to 70% of the total population. Population growth rose to 1.49% in 2010. Indonesia’s window of “demographic bonus” (only if it accompanied by better quality education to produce skilled workers and more job creation) will close in the next decade, as the dependecy ratio (i.e. ratio of young and elderly to working age) will start to rise after 2030. INDONESIA: Age Structure of Population and Dependency Ratio (%), Source: Government of Indonesia (2011), “Master Plan: Acceleration and Expansion of Indonesia Economic Development Prof. Dorodjatun Kuntjoro-Jakti, PhD.

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36 Overview of Indonesia’s insurance industry

37 Non-bank Financial Services and GDP (annual Growth rate)

38 Key highlights - MAY OF 2017 -
LIFE INSURANCE Premium Adequacy to Claim Paid Ratio 169.0% Premium Adequacy to Claim Paid and General Expenses Ratio 144.6% Premium and Investment Yield Adequacy to Claim Paid Ratio 196.0% Premium and Investment Yield Adequacy to Claim Paid and General Expenses Ratio 167.7% Cession Ratio 3.5% Investment to Gross Technical Reserve Ratio 115.9% GENERAL INSURANCE 214.7% 157.2% 229.4% 168.0% 42.17% 123.5% REINSURANCE 266.7% 240.4% 278.8% 251.4% 38.2% 112.1% Source: Indonesia Financial Service Authority (2017)

39 Size of Life Insurance industry
Source: CEIC Data

40 Life Insurance Net Premium Number of Policy Source: CEIC Data

41 Distribution of Policy and Premium
Life Insurance: Distribution of policy insured in 2015 Non-Life Insurance: Distribution of Premium earned in 2015

42 Prof. Dorodjatun Kuntjoro-Jakti, PhD


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