“Leprechaun economics”

Indonesia Economic prospects and

challenges in 2020
Luthfi Ridho Desty L. Fauziah
luthfi.ridho@ipc.co.id desty.fauziah@ipc.co.id
+62 21 5088 7168 ext. 721 +62 21 5088 7168 ext.722

Sept 2020
 Outline

• Current and contemporary issues

– Update on Covid-19 policy
– Update on PEN program realization
– Update on Monetary authority independence
• Macro Economics Update.
• Remarks

2
Current and
contemporary issues
 Update on Covid-19
• Vaccine candidate
(most possibly):
– Sinovac
– Sinopharm
– Astrazaneca

Source: various
4
Timetable of vaccine: January 2021

Source: coordinating minister of economics

5
Update on monetary authority independence
Summary of monetary and fiscal policy in other countries

Source: various
6
Update PEN program: good social aid absorption
Social Protection (total Rp203.91tr)
Realization Rp119.2tr (58.45% of total)

Plan Realization
Realization Details % of target
Rp tr Recipient Rp tr Recipient
1. PKH 37.4 10,000,000 29.14 10,000,000 77.89
2. BPNT 43.6 20,000,000 30.16 19,413,909 69.17
3. Jabodetabek food packages 6.8 1,900,000 3.9 1,900,000 57.29
4. Non-Jabodetabek cash assistance 32.4 9,000,000 23.56 9,189,259 72.73
5. Pre-employment card 20 5,600,000 13.78 3,880,922 68.89
6. Electricity discount 6.9 31,400,000 3.46 31,400,000 50.07
7. Logistics/food/groceries 25 19,000,000 4.5 19,000,000 18.00
8. Direct cash assistance for village funds 31.8 11,000,000 10.71 7,554,031 33.67
Total 203.9 107,900,000 119.21 102,338,121 58.45

Source: various
7
Update PEN program: need more acceleration

Source: various
8
Update PEN program: fund placement not yet used

Source: various
9
Macroeconomics update
Higher liquidity in the financial system

Government money starting to pour But partially went back to BI’s OMO, that reach an all-time high

Source: BI, CEIC

Banks | 14 September 2020 | Slide 11

Macroeconomic exhibit

Improving macro indicator in 2H20 3Q20 will be improving

Recent unofficial 3Q20 forecast:
- MoF : -2.0% – 0.0%
- Bappenas : -4.5%
- Coord. Min. of Econ : -2.0% - -1.0%
- Bank Indonesia : -4.0%

Source: EIU, Indopremier simulation

12
Liquidity in the financial system is quite ample

Liquidity in the financial system is ample But government spending needs to pick-up pace soon

Government's Liquidity Absorption

200 Rp tr
(as of July)

150

100

50

(50)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(Revenue + Financing) - Expenditure

Source: MoF, BI, CEIC

Banks | 14 September 2020 | Slide 13

 but yet to be channeled to the real sector

Money supply increasing But not private crredit

25 %YoY 30 %YoY

20

20
15

10
10
5

0
0

Broad Money (M2) Narrow Money (M1)

Private Credit Deposits

Source: BI, CEIC

Banks | 14 September 2020 | Slide 14

 Accommodative monetary stance

BI rate could be adjusted further to 3.5% Due mostly to weak domestic demand indicated by inflation

%
15
13
11
9
7
5
3
1
-1

Jul-20
Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
Nov-14

Nov-15

Nov-16

Nov-17

Nov-18

Nov-19
Mar-17
Mar-15

Mar-16

Mar-18

Mar-19

Mar-20
Brazil China USA Philippines India Malaysia Indonesia

Source: BPS, BI, CEIC

Banks | 14 September 2020 | Slide 15

 Rupiah will be affected, but will be relatively stable

Forex reserves is more than ample Other peer countries currency are also in depreciation trend

140
YTD changes of EMs currencies (as of 7th September 2020)
135 16

130
TWD -1.9%
15 HKD -0.5%
125
PHP -4.0%
120

137.0

Depreciation
MXN 13.9%

Apreciation
135.1
14

131.7
131.7

130.5
130.4
129.2
115 INR 2.4%
128.1

127.9
126.7
126.6
126.4
126.0

125.9
124.9

124.5

124.3
124.3

123.8
123.3
122.9

121.0
120.7

120.3
120.1

MYR
119.8

1.4%
118.3

110
117.9

117.2

13
115.2
114.8

IDR 6.3%
105
THB 5.5%
100 12
ZAR 18.5%
Aug-18
Feb-18

Sep-18

Feb-19

Aug-19
Sep-19

Feb-20

Aug-20
May-18

May-19

May-20
Jun-18

Jan-19

Jun-19

Jan-20

Jun-20
Apr-18

Jul-18

Oct-18

Dec-18

Apr-19

Jul-19

Oct-19
Nov-19

Apr-20

Jul-20
Nov-18

Dec-19

Mar-20
Mar-18

Mar-19

TRY 24.9%

Foreign Reserves (US$ bn) Spot Rate (Rp/US$) -6.0% -1.0% 4.0% 9.0% 14.0% 19.0% 24.0%

Source: BI, Bloomberg, Indo Premier

 Onshore US$ demand will be cap by oil price

Low oil import in volume – off by 15% since Jan Also oil import in value, hence lower onshore US$ demand
4,400 3MMA US$ m 3MMA KG mn Oil Imports (crude & refined) - volume
4,000
3,400
Oct-18
3,500
2,457.3 Jan-20 Jan-20
2,400 1,819.0 3,280
3,000

1,400
2,500 Dec-18 Jul-20
Jul-20 3,841 2,088
400
576.9
2,000
Jan-10

May-12

Jan-17
Aug-17

May-19
Jun-09

Aug-10

Apr-15

Jun-16
Mar-11
Oct-11

Sep-14

Mar-18
Oct-18
Dec-12
Jul-13
Feb-14

Nov-15

Dec-19
Jul-20

Jan-10

Feb-14

Jun-16
May-12

May-19
Jun-09

Jan-17
Oct-11

Jul-13

Oct-18
Apr-15

Dec-19
Jul-20
Dec-12

Nov-15
Aug-10

Sep-14

Aug-17
Mar-11

Mar-18
Oil Imports (crude & refined) - value

Source: BPS, Bloomberg

Banks | 14 September 2020 | Slide 17

Quite successful state financing

Summary of latest FY2020 state budget financing

APBN 2020 APBN 2020 Realization YTD

Government Financing needs APBN 2019 Remaining 2020
Perpres recent (25-August-2020)

Budget Deficit -343.0 -853.0 -1,039.2

% of GDP -2.21 -5.07 -6.34
Bond Supply (gross) 902.0 1,289.3 1,533.1 896.4 636.7
Rupiah Bonds (gross) 753.0 1,113.3 1,317.6 690.8 626.8
Auction Program (incl Sukuk) 681.0 833.7 963.6 532.4 431.2
Retail Bonds (ORI & Sukuk) 48.0 62.5 72.2 32.7 39.5
Private Placement 24.0 217.2 281.8 125.7 156.1
Foreign Currency (gross) 149.0 176.0 215.5 123.5 92.0

Avg auction (Jun - Des) per month 91.0 636.7

Special Instrument 82.1

Source: Various

18
Appetite towards government securities very high

Government securities Government sharia securities

Rp tr SBN Rp tr SBSN
140 80
120 70
100 60
80 50
40
60
30
40
20
20
10
0 0
07-Jan-20
14-Jan-20
21-Jan-20

02-Jun-20
16-Jun-20
30-Jun-20
08-May-20
12-May-20
06-Apr-20
14-Apr-20
27-Apr-20
28-Apr-20
29-Apr-20

14-Jul-20
28-Jul-20
30-Mar-20

11-Aug-20
04-Feb-20
18-Feb-20
03-Mar-20
04-Mar-20
17-Mar-20

31-Mar-20

25-Aug-20
Indicative Target Incoming Bid Awarded Bid Indicative Target Incoming Bid Awarded Bid

Source: bloomberg

Banks | 14 September 2020 | Slide 19

Crowding out is inevitable
High reliance on the Central Bank and the Banking Sector

Net Buy (sell) - Rp Tr

YTD as of
2013 2014 2015 2016 2017 2018 2019 25-August- 2020F
20
Bank (w/o reverse repo) 42.1 25.4 63.1 26.9 77.8 63.8 53.2 288.9 321.4
Central Bank 35.1 11.9 18.7 7.8 22.0 37.5 55.8 263.5 469.2
Foreign Entities 53.3 137.5 97.2 107.3 170.3 57.2 168.6 -124.4 53.5
Insurance and Pension Fund 29.1 24.9 27.5 104.1 23.3 65.6 57.2 37.1 104.1
Mutual Fund -0.7 3.3 15.8 24.1 18.3 14.6 12.2 15.4 18.5
Others 16.1 11.7 29.6 41.3 14.7 30.0 37.2 63.2 35.4
Total Net Issuances Rupiah
175.0 214.7 251.9 311.4 326.5 268.7 384.3 543.6 1002.1
government bonds

Source: Various
20
Reasonable stimulus plan
Central Bank Asset (% GDP)
160
140 US, 143

120
Japan, 109
100
80
60 Thailand, 52
China, 37
40 Malaysia, 34
Philippines, 32
20
South Korea, 26
0 Indonesia, 17
Dec-16

Dec-17

Dec-18

Dec-19
Jun-16

Jun-17

Jun-18

Jun-19

Jun-20
Sep-18
Mar-16

Sep-16

Mar-17

Sep-17

Mar-18

Mar-19

Sep-19

Mar-20
Source: Various
21
Summary of global monetary policy

Source: Various
22
Summary of global fiscal policy

Source: Various
23
 Remarks
• Economic growth will be picking-up pace in 2H20, propelled by
consumption as the gradual reopening of large-scale social restriction
continues
• Inflation will be declining as household purchasing power yet to reach pre-
covid outbreak level
• Relatively stable currency will prevail until year-end as low oil price will
continue
• Government spending for real sector needs to pick-up pace as the
economy needs fiscal stimulus
• Monetary stimulus will be much needed. Expect further downward
adjustment to 3.5% from current level of 4.00%.

24
Thank you
Disclaimer

This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept
any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This
document is prepared for general circulation. Any recommendations contained in this document do not have any regard to the specific investment
objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a
solicitation of an offer to purchase or subscribe or sell any securities. PT Indo Premier Sekuritas or its affiliates may seek or will seek investment
banking or other business relationships with the companies in this report.

ANALYSTS CERTIFICATION
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and
no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in
the report.

SECTOR RATINGS
OVERWEIGHT : An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation
NEUTRAL : A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation
UNDERWEIGHT : An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute
recommendation

COMPANY RATINGS
BUY : Expected total return of 10% or more within a 12-month period
HOLD : Expected total return between -10% and 10% within a 12-month period
SELL : Expected total return of -10% or worse within a 12-month period

September 2019 | Slide 26