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Indonesia: Macroeconomic Update and Progress on Structural Reforms

1. Indonesia: Macroeconomic Update and Progress on Structural Reforms. October 25, 2007. Outline. Recent Economic Development Progress on Structural Reform Efforts to Accelerate Infrastructure Development. 3. Indonesia’s economic recovery continues and persistent.

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Indonesia: Macroeconomic Update and Progress on Structural Reforms

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  1. 1 Indonesia: Macroeconomic Update and Progress on Structural Reforms October 25, 2007

  2. Outline • Recent Economic Development • Progress on Structural Reform • Efforts to Accelerate Infrastructure Development

  3. 3 Indonesia’s economic recovery continues and persistent Persistent Improvement over Time: GDP Growth 1998-2007 GDP has grown by 6% over last 4 quarters, While non oil GDP has reached 7% in Q2-07 Percent p.a -13.8%

  4. 4 Supported by recoveries in private consumption and strong external demand

  5. 5 Private Investment show a significant improvement

  6. Poverty and Open Unemployment is declining

  7. Macroeconomic Risks continue to decline

  8. 8 Structural Reform • Inpres 6/2007 consists of policy actions for • Improving investment climate • Accelerating infrastructure providing in Indonesia through improving policy environment which include de-monopolize SOEs, providing legal basis and incentive for PPP. • Encouraging SME development and • Reforming financial sector and SOEs • Partial and Gradual Administration Reform. • Revitalization Agriculture Sector • Energy Sector Reform • Poverty Reduction National Program (Including rural infrastructure program) • PNPM : coverage and size of allocation per sub district expanded significantly. • All sub district will be covered and allocation per district is risen up Rp 3 billion • Conditional Cash Transfer : Pilot Project in 6 Provinces in 2007 and 2008

  9. 9 Structural Reform: • Inpres No 6/2007; Some Highlights • Investment Climate : • Implementation Regulations of Investment Law • PP No : to provide clarity of authority and responsibility between central and local government and better mechanism for evaluation local regulations • Efforts to reduce days of setting up business near complete • PEPI is operational • Major improvement in VAT refund mechanism • Modernization in Custom and Tax Administration • Infrastructure Reform • Financial Sector Reform • Financial Sector Stability Forum is operational • BEJ and BES merger • Draft of Fiscal Incentives for Public Companies is completed • SME Sector Reform • Framework for SME Credit Guarantee System is completed • Business Plan for two SOEs : Askrindo and PT SPU completed and capital injected for those SOEs are approved by the Parliament • Bureaucratic and Institutional Reform (Ministry of Finance and some regional governments)

  10. 10 Progress on Investment Climate Monitoring surveys show a real improvement in investment climates and partly reflected in current investment recovery.

  11. 11 Efforts to accelerate infrastructure development • Multiple tracks strategy • Increase budget allocation for infrastructure including matching grant for region to encourage higher allocation for infrastructure from local government budget • PPP through partial guarantee: toll road • Crash program for electricity sector • Institutional Reform to allow private sector participation. • Partly implemented this year but majority in 2008

  12. Model Projects: • 0f 10 model projects, 4 projects are under way • Tangerang Water Project: tender was completed and now on the bidder evaluation stage. • Toll Solo Kertosono: Tender was completed but no interest; new scheme is prepared. • Central Java Power Plant: tender preparation with IFC assistance. • Telecom : Palapa Ring : the bid winner awarded through private consortium scheme.

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