Report No. 20991 -IND
Indonesia
Accelerating Recovery in Uncertain Times
Brief for the Consultative Group on Indonesia
October 13, 2000
Poverty Reduction and Economic Management Unit
East Asia and Pacific Region
Document of the World Bank



CURRENCY EQUIVALENTS
(As of October 9, 2000)
Currency Unit = Rupiah (Rp.)
US$l= Rupiah 8800
ABBREVIATIONS AND ACRONYMS
ADO            Automative Diesel Oil                   JPS            Jaringan Pengaman Sosial
AMC            Asset Management Company                               (Social Safety Net)
APEC           Asia-Pacific Conference                JSX             Jakarta Stock Exchange
BAPEPAM        Badan Pengawas Pasar Modal             KKN            Korupsi, Kolusi, Nepotisme
(Capital Market Supervisory Board)                     (corruption, collusion, and nepotism)
BI             Bank Indonesia                         Keppres        Keputusan President, Presidential
BIS            Bank International Settlements                         Decree
BPS            Badan Pusat Statistik (Central Bureau  KORPRI          Korps Pegawai Republik Indonesia
of Statistics)                                        (Civil Servants Association)
CAP            Corrective Action Plan                 LOI             Letter of Intent
CFAA           Country Financial Accountability       MIGA            Multilateral Investment Guarantee
Assessment                                            Association
CIEC           CIEC Data Company Ltd.                 MOF             Ministry of Finance
CGI            Consultative Group Indonesia           MPR             Majelis Pernusyawaratan Rakyat
CPAR           Country Procurement Assessment                         (People's Consultative Assembly)
Review                                 MSAA           Master Settlement Asset Agreement
CPI            Consumer Price Index                   NGO            Non-Governmental Organization
DPOD           Dewan Penasehat Otonomi Daerah         NPL            Non-performing Loans
(Regional Autonomy Advisory Board)     OPK            Operasi Pasar Khusus (Special Market
EAP            East-Asia Pacific                                      Operation)
FDI            Foreign Direct Investment              PER            Public Expenditure Review
FSPC           Financial Sector Policy Committee      PLN            Perusahaan Listrik Negara, Indonesia's
FY             Fiscal Year                                           national power company
GDP            Gross Domestic Product                 PP              Perusahaan Pemerintah, Government
GFS            Government Finance Statistics                         regulations
GOLKAR         Golongan Karya (Functional Group)      SAKERNAS    Survey Angkatan Kerja Nasional
IBRA           Indonesia Bank Restructuring Agency                   (National Labor Forces Survey)
IBRD           International Bank for Reconstruction  SIMA           Statistical Informnation Management &
and Development                                      Analysis System
IDA            International Development Agency       SME            Small Medium Enterprises
IMF            International Monetary Fund            SUSENAS        Survey Sosial Ekonomi Nasional
IPP            Independent Power Producers                           (National Socio-economic Survey)
IUCN           International for the Conservation of  US             United States
Nature                                 VAT            Value Added Tax
JIBOR          Jakarta Inter Bank Offer Rate          WATSAL          Water Sector Adjustment Loan
JITF           Jakarta Initiative Task Force          WDR             World Development Report
WTO            World Trade Organization
FISCAL YEAR:
April 1-March 31 till 2000
FY2000 is 9 months, Apr. I to Dec. 31
Same as CY from 2001 onwards
Regional Vice President:  Mr. Jemal-ud-din Kassum, EAPVP
Country Director:        Mr. Mark Baird
Chief Economist:         Mr. Masahiro Kawai, EAPVP
Sector Director:         Mr. Homi Kharas, EASPR
Task Team Leader:        Mr. Bert Hofman, EASPR



Acknowledgements
This report was written by a team led by Bert Hofman, and consisting of Keiko Kubota, Shan
Gooptu, and Magda Adriani. Vikram Nehru was lead advisor. Contributors were Michael
Edwards, Ruth Neyens, Paula Perttunen, Dara Lengkong, William Peter Mako, Thomas Walton,
Teddy Herman, Sarwar Lateef and Anthony Toft. Helpful comments were received from Hiro
Kawai, Tim Buehrer, David Ray, Sandy Lieberman. Document processing and Editorial support
was provided by Cynthia Abidin, Nina Herawati, Christina Setiadi, Adele Rosi and Muriel
Greaves. Peer reviewers were: Adam Schwarz, Anggito Abimanyu, Joshua Felman, and Zia
Qureshi. Overall guidance was provided by Homi Kharas and Mark Baird. The findings of this
report were conveyed to government officials on October 5, 2000.






INDONESIA
ACCELERATING RECOVERY IN UNCERTAIN TIMES
BRIEF FOR THE CONSULTATIVE GROUP ON INDONESIA
Table of Contents
Pages
EXECUTIVE SUMMARY .................................................................i
CHAPTER 1: RECOVERING AMIDST UNCERTAINTY ................................................................                                                   1
Growing again, modestly ...............................................................1I
Recovering wages, declining poverty ................................................................1
Shrinking deficits ...............................................................3
Inflation under control ................................................................4
Strong current account, fleeing private capital ...............................................................5
Politics and financial markets ...............................................................6
CHAPTER 2: ACCELERATING BANK AND CORPORATE RESTRUCTURING .............................9
Back from  the abyss  ................9................................................9
Remaining challenges are mounting ...............................................................                                                    10
IBRA performance ...............................................................                                                                     13
Improving  speed and quality of IBRA's operation ...............................................................                                     14
Corporate Restructuring ...............................................................                                                              16
Accelerating restructuring  ............................................................... 17
CHAPTER 3: MAINTAINING FISCAL SUSTAINABILITY ............................................................... 20
Deeply in debt ............................................................... 20
Development spending under pressure ............................................................... 22
The fiscal impact of decentralization ............................................................... 24
Policy options for fiscal sustainability ............................................................... 25
The role of the donors ............................................................... 28
CHAPTER 4: ATTACKING POVERTY ...............................................................                                                              30
Assessing Poverty  ............................................................... 30
Constructing a strategy for the future ............................................................... 32
CHAPTER 5: GOVERNING INDONESIA ...............................................................                                                            36
The political transition  ............................................................... 36
Legal and judicial reforms ............................................................... 37
Priorities for civil-service reform   ............................................................... 38
The war against corruption  ............................................................... 41
Managing the governance agenda  ............................................................... 43
TABLES IN TEXT
Table  1.1:   Regional growth forecasts ...............................................................7
Table  2.1:   Before and after ...............................................................9
Table 2.2:   Resolution of IBRA  credits, 30 September 2000 ...............................................................    14
Table 2.3:   Debtors and creditors ...............................................................                                                   16



Table 2.4:  Selected debt restructuring transactions ......................................................                           16
Table 2.5:  Illustrative restructuring measures ...................................................... 17
Table 3.1:  Budget fiscal year 00 and draft budget fiscal year 01 ......................................................  27
Table 5.1:  Public sector employment comparatives for Indonesia per capita ........................ ................ 40
FIGURES
Figure 1.1: Indonesia's fragile recovery ........................................................2
Figure 1.2: No pressure ........................................................4
Figure 1.3: Foreign dis-investment in Indonesia.... the odd man out in former crisis countries                                  .      6
Figure 1.4: Less vulnerable, but not safe ..................................6
Figure 1.5: Fledgling consumer confidence ..................................,.7
Figure 2.1: Indonesia: banking system  loan assets ..................................                                                 10
Figure 2.2: The bottom line ..................................                                                                        10
Figure 2.3: Basically bonds ...................................11
Figure 2.4: Diminishing expectations ..................................                                                               13
Figure 3.1: Mounting debt .....................                                                                                       20
Figure 3.2: Budgetary pressures ...................... .                   .       .        .        .       .       .       . . 21
Figure 3.3: Historically high .....................                                                                                   22
Figure 3.4: Not taxing .....................                                                                                          26
Figure 3.5: Falling short .....................                                                                                       28
Figure 5.1: Governance matters ..................... 37
BOXES
Box 1.1: Where did all the imports go?                                                        .3
Box 1.2: Indonesia's booming economy                                                           .5
Box 3.1: Contingent liabilities: the case of PLN .22
Box 3.2:  Using aid for sector reforms and investment: the example of WATSAL .28
Box 4.1:  Many different poverty lines; many different poverty measures .31
Box 4.2: Measuring vulnerability .32
Box 4.3:  Local capacity for collective action in Indonesia .33
Box 5.1: The National Law Commission .38
Box 5.2: Forestry - governance issues in a microcosm .40
STATISTICAL ANNEXES ..................                                                                                                     45
ii



Executive Summary
Indonesia is staging a modest economic recovery.  Market uncertainty was also fed by policy
For the country's first democratically elected  slippage. The new administration was quick to put
government since the 1950s, the recovery was the  together a comprehensive reform program, but did
good news, and the rapid decline in poverty gave  not live  up  to  implementing  it.   While
comfort. But it was a trying year for those who  macroeconomic policy remained largely on track,
expected a radical change in the way Indonesia is  structural policy reforms were implemented only
governed.  Issues ranging from  the unity of  after long delay. To its credit, the government did
Indonesia and the cabinet to the role of the military  raise domestic fuel prices in October, 2000, but
in politics and society consumed much of the  this was some six months late. Similarly, crucial
country's energy, leaving policy makers little time  steps in bank and enterprise restructuring took
for a serious debate on development strategy and  inordinately  long,  thereby  postponing  the
policy. Perhaps too little time, as the recovery can  resumption  of credit needed to  nurture the
still be derailed byjittery markets, fleeing investors  recovery. Finally, reversals in trade policy (in
and fragile consumer confidence. Investors and  particular the rice and sugar tariffs) and new limits
consumers need to be assured that, although  on foreign investment put in doubt Indonesia's
setbacks may occur, in the end the right policies  longstanding commitment to open markets.
will prevail.  Providing that confidence is the
challenge for the new cabinet.               It is hardly surprising, then, that the economic
recovery is still far from  secure.   Volatile
Recovery in uncertain times                  consumer  confidence   may   yet  suppress
consumption  growth.   Concerns with  fiscal
Indonesia's recovery has so far proved resilient to  sustainability will constrain government spending.
the political turmoil of the first year of the Wahid  And to continue expanding, investment and
administration. Growth took hold, and its base has  exports will need more credit than the banking
expanded beyond consumption. Inflation is under  system currently extends. Moreover, maintaining
control, real wages are rising again, and poverty  current growth rates is not nearly enough. GDP
has declined from a punishing peak of over 23  growth of four percent will only bring per-capita
percent (as estimated by BPS using its new poverty  income back to pre-crisis levels in 2007, three
line). Rapid export growth and high oil prices  years after the next elections. Four percent growth
were enough to offset capital outflows, and  also pales in comparison with pre-crisis rates of
Indonesia's cushion  of international reserves  over seven percent, and is unimpressive when
increased. Higher oil prices and incomes raised  compared to such crisis-hit countries as Korea and
government revenues, lowered the deficit and  Malaysia. And faster growth is needed to help the
limited financing needs. And the first results in  poor and protect the vulnerable.
bank and corporate restructuring emerged, albeit
after long delays.                           The agenda ahead
Financial markets were not convinced by the  The agenda ahead is formidable.  The new
developments in the real economy.  Political  Coordinating Minister's "Ten Point Program to
turmoil, regional unrest, and periodic outbursts of  Accelerate the Recovery" is an encouraging start.
violence drove the Rupiah and the stock market  The program recognizes the need to calm financial
down, interest rates up, and foreign investors away.  markets, and  continue  cooperation with the
Developments in East, and then West Timor hurt  international community. And it promises to make
Indonesia's standing in international fora, and  a difference for ordinary Indonesians by focusing
distracted further from  the economic agenda.  on agriculture and small and medium enterprises.
Allegations of corruption affecting various parts of  The challenge now is to translate the program from
government and slow progress in the prosecution  a statement of objectives into a development
of corruption cases rocked the belief that a new   agenda that elicits broad support at home and
government would be one free of KKN.         abroad.
i



In the short run, the Government can best restore  existing owners are not rewarded, the returns to
market confidence by acting decisively on three  taxpayers are acceptable, and the Government's
pressing issues that could derail growth and  reputation is not damaged. A set of principles
stability: bank and enterprise reform, next year's  should guide IBRA in all its restructuring deals to
budget, and decentralization. The larger agenda  ensure that the interests of the state are protected
includes a fundamental revamp of governance and  and the economy recovers quickly. At a minimum,
institutions, and mainstreaming poverty reduction  these principles should consider: the role of IBRA
objectives in all govemment policies, programs,  given its existing mandate; the importance of
and projects.                                 ensuring  transparency  at  all  times;  the
consequences  for  asset  recovery  and  the
Accelerating bank and enterprise restructuring.  implications for govemment debt and contingent
Accelerating bank and enterprise restructuring is a  liabilities; and protection of government's share in
must, because without new credit and investment,  any future upward revaluation of assets.
the recovery will run out of steam. After much
delay,  and   an   extremely  costly  bank  The hesitant progress of bank and corporate
recapitalization program, there has been some  reforms points to the urgent need for a consensus
progress. Banks have largely been recapitalized -   on the long-run goals of the financial and corporate
albeit only to a four percent capital adequacy ratio.  sectors.  In particular, there needs to be broad
Some banks have renewed lending on a modest  agreement on a strategic vision for the financial
scale, and some are even showing profits again.  system  and a thorough debate on the policies
IBRA's external governance and the pace of its  needed to get there. Implementation will be helped
recovery operations have improved.  Voluntary  immensely  if  a  frank  dialogue  between
settlements of debt -  through the JITF and  government, parliament, donors, civil society, and
directly between debtor and creditor -  have  sector representatives address such key issues as:
picked up as well, showing that there is life after  the future role of state banks and the mechanisms
debt for corporate Indonesia.                 for privatizing them, principles goveming the
restructuring of IBRA's assets, the role of foreign
The tenuous beginnings in corporate and bank  investment, the importance of a strong bank
restructuring must be nurtured. To start lending  supervision agency, and the relationship between
again in earnest, banks must regain profitability  banks and non-bank financial institutions.
and build their capital adequacy ratio beyond four
percent and toward international standards. For  Achieving fiscal sustainability. Next year's draft
this to happen, the Government must complete  budget focuses on fiscal sustainability. In contrast
bank recapitalization, while moving aggressively  to previous years, there is neither need for fiscal
in  restructuring  and  divesting  state  banks.  stimulus in a recovering economy, nor is there
Privatization of state banks is a priority, as no  budgetary room for one. Debt service, rising civil
financial sector can thrive if over 70 percent of the  service salaries, and politically  sensitive fuel
deposit base is in the hands of the state. The recent  subsidies are squeezing development spending, and
decision to postpone the planned divestments of  will do so for some time to come. The silver lining
two banks unfortunately runs counter to this  to this particular cloud is that it forces the
strategic direction, and Govemment could best  Government to focus on increasing efficiency in
limit damage by bringing this part of the program   development spending.  One way is to better
back on track quickly.                        allocate scarce public resources and emphasize
programs and projects aimed at poverty reduction.
To  maximize  asset recovery, and  minimize  For example, savings from cuts in fuel subsidies
opportunities for graft, IBRA's asset sales should  could be used to boost deserving social programs.
proceed according to a transparent and competitive  The Government must therefore create the political
process. The Government could deflect allegations  climate that allows for further cuts in fuel subsidies
of fire sales by sharing in the upward potential of  - by exposing their highly regressive nature and
the assets sold, as was done in Thailand and Korea.  the enormous waste involved, and by pointing out
When IBRA restructures its loans, it must ensure  the alternative uses of the money. Donors would
debtors  commit  to  restructuring  operations,  welcome and support a more cogent and strategic
ii



public expenditure program  that rests on an  as smooth progress in policy reforms over a broad
underlying framework of poverty reduction and  spectrum - from govemance to gas, from poverty
good govemance.                                to PLN.
Higher efficiency can also be achieved through  Managing Decentralization. Decentralization can
better  budget  processes,  stronger  financial  make or break Indonesia. It is a strong political
management, and strict observation of procurement  imperative for the country, and makes good
rules based on intemational best practice. This  economic sense, since Indonesia is unusually
will be especially important as Indonesia moves  centralized for a country of its size and diversity.
toward  a decentralized  govemment structure.  But if managed badly, the transition  to  a
Good financial management will require that the  decentralized  Indonesia  could  destabilize  the
same fiduciary standards apply to all levels of  economy, disrupt govemment services, and even
government.  This would mean training and  hamper intemal trade.  The August 2000 MPR
dissemination of infonmation on an unprecedented  session  called  for  a  gradual  process  of
scale.  It would also mean the involvement of  decentralization. But three months before the start
communities, civil society organizations, NGOs,  of implementation, few know what this entails.
and universities in monitoring the performance of  The law requires the central govemment to transfer
public institutions, blowing the whistle when  a substantial amount of revenues to the regions;
improprieties  are  observed, and  even  being  but if these transfers are not matched with a
involved in designing and implementing selected  devolution of expenditure responsibilities, the
public programs and projects.  Donors will be  center will find itself short of resources.  The
eager to support these initiatives if they see serious  sharing of natural resource revenues will put
effort by govemment - because it would enable  pressure on the budget and distribute fiscal
them  to  increasingly  support  decentralized  resources unequally  between regions.  It is
operations and improve aid effectiveness at the  important that general transfers from the center to
same time.  For their part, donors could build  the regions help rectify this, at least partially.
flexibility  into  project  designs  to  match
implementation capacity in different regions.  The Government intends to limit borrowing by
regions, thereby eliminating a key fiscal risk of
To regain fiscal sustainability, the Govemment  decentralization. But local governments should be
must also raise tax collections - first and foremost  allowed to borrow resources from the center in
by improving tax administration.   And asset  accordance with strict rules and procedures so they
recovery must contribute to financing the deficit,  can invest in high priority sectors; such as, health
even though revenues from IBRA assets will be far  and education.  Such  arrangements would also
below book value. As these measures take hold,  facilitate financial support from  donors whose
the Government can again shift towards rebuilding  statutes require them to lend only to the central
a public investment program  that reflects its  government. The center could on-lend these funds
priorities, and an appropriate role for the state.  to local governments for their intended purposes
using subsidiary loan agreements.
Next year's draft budget already includes measures
to raise more revenues, and makes a start to reduce  The best insurance against fiscal risks or a
fuel subsidies.  The budget deficit is therefore  disruption  in  service  delivery  is  orderly
expected to decline from 4.8 percent of GDP this  implementation of decentralization. In the short
year to 3.7 percent in FY2001. Privatization and  time left, the Government will need to focus not
IBRA  asset recovery  will cover some  2.3  only on finishing regulations, but also on achieving
percentage points of this, but the rest will need to  broad   agreement  with  the   regions   on
be  financed  from  abroad.    Together with  implementation  timing  and  strategy, and  on
amortization -  still kept relatively low by the  ensuring that civil servants get transferred -  and
agreement reached with the Paris Club -  gross  paid. To reduce uncertainty, the Government must
financing needs from the CGI will be in the range  widely  disseminate  as much  information  as
US$4.5-5 billion.  Achieving this target will  possible to all stakeholders. But even with perfect
require accelerated project implementation, as well  planning,  things  will  probably  go  wrong;
iii



fortunately, the draft budget includes some money  making, and implementation capacity. Indeed, a
to meet such contingencies. Parliament would be  poverty agenda is a govemance agenda. After all,
well advised to leave it there.               it is the poor who are hurt most by misdirection of
scarce  budgets,  by  monopolies  that  kill
MainstreamingPovertyAlleviation. Government's  opportunities for small enterprises, and by illegal
overarching medium-term objective continues to  fees that keep kids out of school. In this context,
be poverty alleviation. The President reinforced  decentralization should be used as an opportunity
this objective in his August 2000 speech to the  to improve public services for the poor.  In
MPR. Fortunately, economic recovery and lower  addition, better education, health care, and basic
food prices have helped lower the poverty rate  infrastructure that gives access to markets will be
from its crisis peaks. But over half the population  important. And land titling that gives access to
remains vulnerable to poverty, and many lack  land and collateral will assist rural investment,
access to essential services. Now that the crisis is  incomes, and employment.
subsiding, the Govemment must move beyond a
social safety  net, and  mainstream  poverty  Finally, there will be a continuing need for safety
alleviation in all its activities. In doing so, there is  nets that assist the poorest in coping with hard
a need to acknowledge the multidimensional nature  times. This would not be a dominant part of the
of poverty and design programs and interventions  overall poverty strategy, but will be aimed at
accordingly.   In  addition, Indonesia's  new  reaching the ultra-poor and those who suddenly
democratic and decentralized system will demand  fall on hard times.
the govemment does three things well: ensure
adequate information on development programs,  Improving governance.  Despite setbacks, the
give voice to the poor, and ensure officials are held  govemance agenda has seen some progress. The
accountable for their actions.                police was separated from the military, and the
latter was put under civilian control.  Various
A poverty strategy for the future should emerge  watchdogs of the Govemment and the judiciary
from  a reflective, factually informed dialogue  were appointed, a law reforrn commission took
among all stakeholders. Two areas of actions will  office, some judges were charged with corruption,
figure prominently.   The first is the policy  and a few courts even handed down bankruptcy
environment  for  reducing   poverty   and  judgements. Emerging political debates inside and
vulnerability.  This would include policies in  outside parliament promise more such actions to
support of rapid and sustainable growth, economic  come. But the rule of law in Indonesia is still far
empowerment of the  poor, and  a  public  from assured. The govemment must change the
expenditure program that is pro-poor.         way Indonesia govems itself -  from its political
process, to its legal system and its civil service,
The second area of action is the delivery of  from  the role of the military to the way the
effective services that reach the poor. Experience  Govemment handles its finances. No one expects
has shown that it is not just what government does  these profound changes to happen overnight, but a
or how much it spends, but also how well it  credible, comprehensive plan is due, with strong
provides services. To do this, the government will  leadership,  and  early  actions  that  signal
need to improve local govemance,  decision   commitment.
iv



Chapter 1. Recovering amidst uncertainty
1.1.   Indonesia's nascent recovery proved  collapsed, both exports and imports are now growing
remarkably resilient to the political turmoil of  vigorously, and the latter perhaps more than shown in
the first year of the Wahid administration.  the statistics (see Box 1.1). Exports benefited from
Growth took hold and the expansion is no longer  buoyant world trade, which grew by 11 percent in
narrowly based on consumption.  Inflation  2000, twice as fast as the previous year.  Only
remains well under control despite a recent  inventories still show a decline, but this is a statistical
uptick, and poverty has continued to drop thanks  artifact rather than reality."' In all of this, Indonesia's
to lower food prices and recovering real wages.  pattern of growth now looks similar to other crisis-hit
But the transition from the law of the ruler to the  countries - albeit at a lower level of growth.
rule of law has not been a smooth one, nor can it
expected to be.  The accompanying political  1.4.   The Government's projection of 3-4 percent
uncertainty, policy  reversals, and  sectarian  GDP growth for the year 2000 is well within reach.
violence affected repeatedly financial markets,  But this target is modest, and Indonesia is still bottom
driving interest rates up, consumer confidence  of the class of the East Asian crisis countries. South
down, and foreign investors away at a time when  Korea is in the lead, projecting a whopping 8.7
the recovery has only just begun.            percent growth this year. And even the Philippines
- never a rapid grower, and less hurt by the crisis -
Growing again, modestly                      raked up 4.2 percent growth in the second quarter, a
sliver ahead of Indonesia. The output gap caused by
1.2.   The  nascent  recovery  the  Wahid  the crisis is nowhere as large as in Indonesia: the
administration inherited gained strength during  country's GDP is some 30 percent below  what it
the past year. Gross Domestic Product (GDP)  would have been if pre-crisis trend growth had
expanded by 4.1 percent over the year up to the  prevailed (Figure 1.1). For Korea - the champion of
second quarter of 2000, a sharp contrast with the  recovery -  the gap is barely 10 percent. And at
14 percent output loss in 1998, and no growth in  Indonesia's current pace of growth it will take up to
1999. The recovery is also becoming broader  seven years before GDP per capita will return to its
based: with the exception of agriculture, all  pre-crisis level.
sectors contributed to growth, with construction,
transportation   and   communication   doing  Recovering wages, declining poverty
particularly well.  Individual manufacturing
industries such as motorbikes and cars saw 50-  1.5.   The recovery has been decidedly pro-poor.
100 percent growth in their outputs, but these  Wage  increases  and  improving  employment
rates look less impressive once the low level of  prospects contributed to the rapid reduction in the
capacity utilization is considered. The cement  number of income poor. An important factor was the
industry output is now at pre-crisis levels, and  sharp decline in food prices - especially rice, which
electricity is even a remarkable 20 percent above  benefits most the poor who spend disproportionally
that level.' Agriculture did less well in 2000, but  on food. The 20 percent decline in the price of rice
even so, output remained well above the  since January 1999 added some nine percent to real
disastrous El-Nino years 1997 and 1998, and  spending power of the poor.1'i The headcount ratio of
abundant supply aided food prices to fall this  poor came down from  the 23 percent of the
year.                                        population at the peak of the crisis (Chapter 4). The
crisis also slightly improved Indonesia's income
13.   All demand factors are now growing as  distribution, confirming that higher income earners
well. Fixed investment growth has taken over  were hit harder by the crisis than low  income
the lead from consumption, which in Indonesia  earners.iV But despite these improvements, more than
never fell as deep during the crisis as in other  half of Indonesians are vulnerable, and risk a return
countries. Consumption continues to grow, but  to poverty.
at a slower pace in part because of fledging
consumer confidence. In contrast to 1998 and   1.6.   Wages are recovering from their crisis lows.
early 1999, when exports declined but imports  Real manufacturing wages are now only 12 percent



Figure 1.1: Indonesia'sfragile recovery
Indonesia's real recovery is taking hold...                        .. .and the recovery is broadening.,.
(GDP growth, YOY)                              (Contribution to GDP growth by expenditure category,
percentage point)
P-tq. _ . 
l                                             ~~~~~~~~~~~~~~~~~~~~~~~~~~Pnnoent.ae point
10 Percent                                                    5       .
Prin.t Cearonsptlen_
NO Tr_d.
-5.aQ
10                                       Fixed
'~~~~~~~ l"'    ;sll!ElWlj:/P#~~~~~~~~~~~~~~~~~~~~~~~~~~ll*S,ltt
-10                                                           15
20                                    Cotwnpue.
-25                                Change In In-ettonhi
*21)                                                          -30 --                               - _ _ _ _ _ _ _ _ _ _
1     0Q3    Q1    03    Q1    Q3   Q0                        01       03      Q1      03      Q1      Q3      01
1997          198          19S9          2m                    1997            1998            1999             2000
... inflation remains under control ...                          ... and incomes are rebounding.
(Percentage change in CPI and Food Price Index, YOY)             (Real manufacturing wages and consumption, Index
1996:QI=100)
In,pI-, In(Actuad-
Rupiat, .             120-
90                                      Foodt Price-                           /ie
11000                           -    .Wvo
650i                                                         100                         \
4Ct           /  ~~~~GertwtalCP                         0                              
90                                            8~~~~~~~~~~~~~~~~~~~~00
15                                     \                      8000             Red0rINct 
jarF97  JUF-97  Jan98  Ju1-98  JaJ99  JUF-99  Jan-00  Jut-00  Mar-96 Sep-96 Mar-97 Sep97  Mar-Se  Sap-98  Mar-99 Seel99  Mar-0
But politics still jitter thle markets ....                .......... ... and output remains well below capacity.
(JSE Ixdex, and Dollar per Rupiah, Index 10-10-99=100)           (Atual and simulated output, Rp Tr., 1993 prices)
130 -                                                          Ouadeted GDP (rillion RP, 1993 pnrMs)
120                                                          130,000
70                .    .        ,    t   so  ooo   I~~~~~~~~~~~~~~~~~~~~~~~~~.................   .   ........    .......
10 1037S I/YdII01  031  t/0 3Q 2C0710  .                                          IQQ30Q10Q30Q10Q30Q10Q30Q1Q31Q31
1894    1995    1996    1997    1998    1999    20(00
Note: Pre-crisis growth trend is a Hodrick-Prescott filter for quarterly GDP 1984:1-1997:3.
Source: BPS, Bl, CIEC, Staff estimates.
2



Box 1.1: Where did all the imports go?       informal sector, or return to their village and work on
family  farms.    During  the  crisis, agricultural
Indonesia's imports are growing again. In  employment swelled by some four million people.
fact they may be growing faster than official statistics  Now, that trend has reversed. Agriculture shed over
suggest. The data of major exporters to Indonesia  I    .
show about double the amount of exports to Indonesia
than the country reports in imports (figure). The  recovery is creating jobs. But perhaps not enough
difference has always been there, but became     jobs: the labor force is growing by 2.7 percent per
particularly pronounced since the crisis. Whether this  year -  that is roughly 2.5 million additional people
is a statistical artifact, a case of rampant smuggling, or  seeking jobs each year. Four percent growth barely
imports into free trade zones remains to be seen. But
the extra imports could explain the large residual in the  employs these new entrants at the prevailing wage,
national accounts which now shows up as strongly    let alone absorb the unemployed back to work when
declining inventory: it could be imports instead.  the historical labor productivity increase of some 1.2
Box figure; Imports to Indonesia         percent per year is factored in.
(USS million)                    1.9.    The wages and employment numbers over
US$m,,,.OD                                     the crisis suggest Indonesia has a highly flexible
30s0                                             labor market.  This flexibility is a strength, as it
2500                                             allows for temporary shocks to be absorbed in wages
2000 1       "1  J v 6\ _Z lil  \L)  Mr.iotradtng  rather than  unemployment.   This may  change:
/      ""''K   fvt I   <XX |Vsuppressed in the past, unions are now flexing their
i500                      /                        zZ'\-, /t  0 \ fi \ X /muscles, and labor unrest to reinforce wage demands
has become more apparent.  If done in an orderly
1I00                         -        O       m^n V vfashion, and in line with labor productivity, higher
500,                                             wages seem hardly a problem as some -  admittedly
weak - data suggest that the wage share of GDP
Jan-90 Oct-95 Jul-96 Ap,-97 Jan-98 Oct.98 Juk99 Apr-00  could be as low as 25 percent of GDP."' Moreover,
Source: CIEC, staff estimates.                    some institutionalized framework for labor relations
could prove useful since the market may have
difficulties in accommodating the size of shocks as
below their pre-crisis level-up from minus 33   Indonesia experienced during the crisis.
in the fall of 1998-and are rising at an annual
rate of 17 percent.                                Shrinking deficits
1.7.    The  Government has also  increased   1.10.  Government spending contributed to growth
minimum wages. On average, minimum wages  over the past fiscal year. However, anyone that was
were increased by some 20 percent country-wide   expecting  a large  fiscal deficit to  stimulate the
in this February, with regional variations. This  economy was again disappointed. The FY 1999/00
came on top of the 20 percent increase in   deficit which was planned at 6.8 percent of GDP
February 1999. The minimum wage in Jakarta  turned out at only 1.5 percent of GDP. But unlike in
area increased further by 25 percent in July   previous fiscal years, the cause was not so much a
2000. Now this minimum -  if paid at all -    shortfall in spending as it was high oil revenues. Last
closes in on the average wage in manufacturing.  year's budget assumed an oil price of US$10 per
Civil servants came  off best: after several  barrel, but the actual price proved to be twice as
increases their average pay is now  some 19   much. Not all of that difference is a windfall to the
percent higher in real terms than before the   treasury, however, because higher oil prices and fixed
crisis.V                                           fuel prices mean higher fuel subsidies than budgeted.
Nevertheless, the net effect was a lower deficit by
1.8.    Official  unemployment  is  at  6.40   some two percent of GDP. Other factors at work in
percent. But this is a misleading number. The   FY  1999/00 were higher than expected personal
truth is that few  Indonesians can afford to  income tax revenues due to high interest rates on
remain  unemployed  for long.   So  laid-off  easily taxable bank accounts, and higher trade taxes
workers tend to find low  wage jobs in the   and VAT.
3



1.11.  The FY 2000 budget looks like a replay   increases on October 1, 2000, and despite lower
of last year. The oil price was set at US$20 per  revenues due to the Government's policy reversal on
barrel, before it was increased to US$22 by   Batam  Island's tax exemption.  The lower deficits
parliament. The outcome is likely to be closer to   over the last and current fiscal year substantially
US$28, but much of the windfall leaked away   reduced the Government's financing requirements.
through higher fuel subsidies.  These will be   This was fortunate, because financing fell far short as
some Rp.45 trillion this fiscal year, larger than   well.  Privatization and asset recovery remained
the development budget, twice as large as CGI  below target in FY  1999/00, and this is likely to be
support to Indonesia,. and an astonishing ten   case this fiscal year for privatization as well. Foreign
times the disbursements on the social safety net.  financing fell short because the Government failed to
Barely one-tenth of the fuel subsidies benefit the   meet the policy conditions that could have prompted
poorest fifth of Indonesians.                      budget support. On the positive side, the lower-than-
planned deficits are in line with the MPR guidelines
1.12.  Government  debt  service  is  rising   to the Government which call for a reduction in
sharply in the course of bank recapitalization.  deficits and debt.
Interest payments took almost six percent of
GDP in FY 2000, on total government debt of  Inflation under control
some US134 billion"' or 84 percent of GDP at
the end of FY  1999/00.""V   Foreign debt as a   1.14.  Inflation remains well under control. In the
share of GDP declined over the last two years  first quarter of 2000 prices actually fell compared to
because the Rupiah recovered in real terms from   the year before. But the CPI climbed 4.35 percent in
the crisis lows, and disbursements remained   the second quarter, and six percent in August 2000
modest.  All of the increase in domestic debt  compared to the year before. Administrative price
was for bank recapitalization. Govermment debt  increases are in part to blame: the April electricity
is likely to peak at some 92 percent of GDP   price increase added some 0.6 percentage point to
upon completion of the recapitalization program   inflation, whereas price increases in transportation
later this year. Whether debt to GDP ratio will  and  telecommunications added  a full percentage
decline by much thereafter depends largely on   point.  And the Rupiah depreciation of some 20
the  Government's  fiscal  management,  and   percent since the beginning of 2000 may add some
growth (Chapter 3).                                2.3 percentage points to inflation over time.'x  The
upcoming fuel price increases could add another 0.2-
1.13.  It is too early to predict this year's  0.3 percentage point to inflation directly, and as
deficit. It may lie anywhere between 2.5 and 3.9   much as one percentage point indirectly.   Bank
percent of GDP, even if the Government forges   Indonesia therefore expects that it can no longer keep
ahead with the planned civil service salary  its end-of-year target of 5-7 percent inflation.
Figure 1.2: No pressure
Monetary policy is slightly off track                 But velocity is on trend
(Base money target and actuals)                  (Velocity of currency and M2)
Velocty of Curency                  Velcity of M2
100                          A                    31                     Velocity of Curency  I
' Actual         1\29  .                                (left scale)      3.3
90                                               27                _Trend   3\ .1
--------                ~~~~~~~~~~~~~~2.9
estimated J:I-55  Jan-99  JuJ-55  Jan-00 1'~Ju1400  2990    199OCIIY2  219  19    1
Note: Velocity is defined as nominal GDP divided by M2 or currency in circulation The plotted trend is an Hodrick-Prescott filter
estimated over 1983:Q2-2000:Q2.                                                  1.
Source: BI, IMF, WB estimates.
4



1.15.  Although Bank Indonesia failed to meet  Strong current account, fleeing private capital
the indicative targets for reserve money, little
inflationary pressure seems to be building. The   1.17    Indonesia's recovery was strongly supported
rise in reserve money reflects in part excess   by a booming world economy.  World output will
reserves that banks tend to stack up in the central  grow by more than four percent this year, and world
bank due to a lack of creditworthy borrowers.  trade even faster, by some 11 percent.xl' Indonesia's
The other part of reserve money, currency in  traditional openness paid off handsomely: during the
circulation, surged at the end of last year when   first half of 2000, exports in US dollar terms were up
people  took  out extra  cash  for Idul Fitri,  by 34 percent over the same period in 1999. High oil
Christmas and Y2K.  This cash was flowing   prices contributed, but the bulk of the increase came
back in the banks this spring, but growing   from the buoyant non-oil exports -  and most of it in
uncertainty increased the demand again in the   volume.x"I          Textiles,  furniture,  and  electrical
run-up to the MPR. Nevertheless, the velocity   equipment did particularly well while agricultural
of money which has a tendency to rise if the   and non-oil mineral exports actually fell.  Imports
public expects inflation continues to register a  recovered also, although much more slowly than
comforting decline (Figure 1.2). In the future,  exports, and are still about a third below the pre-crisis
with  further  administrative  price  increases  level (but see Box 1.1).  Leading the recovery of
ahead, the authorities should probably focus on   imports are raw  materials, while consumer goods
core inflation for policy, especially if the central  imports have stayed fairly stable even during the
bank moves to inflation targeting.                  crisis. Capital goods imports are still down by 77.6
percent from the pre-crisis height of June 1996, but
1.16.  Bank lending shows some encouraging   they too are recovering as investment picks up.
-   if early -   recovery.   On the back  of
recovering interest margins, recapitalization, and   1.18.  Indonesia fared far worse  on the capital
renewed profits, new lending has resumed at a   account.  In contrast with other recovering Asian
modest pace. Bank Indonesia reported that new    countries, private capital outflow  continues to put
lending in June and July alone was some Rp. 12   pressure on the balance of payments. Some of the
trillion  -   or six  percent of assets,'  and   short-term outflows is likely to reflect the hesitation
furthermore a survey of 15 IBRA banks found   of exporters to repatriate their export earnings. And
new lending to be almost Rp. 16 trillion in the   some foreign debt is being paid off or settled with
first semester of 2000, or a 5.8 percent growth   creditors abroad. In total, there was approximately
over the first semester last year.Xl A significant  US$4 billion worth of net private capital outflow in
part of the new  credit seems to go, without  FY 1999/00 -  about the same amount as donors and
government incentives, to SMEs rather than to   multilateral  agencies   disbursed   to  Indonesia.
the traditional, large borrowers that are still  Portfolio  investors are cutting  their exposure to
deeply in debt.                                     Indonesia -   and  luring  them  back  is proving
difficult, especially now that they can get similar
returns in the US high yield market.(lv
Box 1.2: Indonesia's booming economy
A consensus among Indonesian experts has it that the country's economic recovery remains fragile because
political uncertainty affects the market confidence adversely. Yet a visit to an industrial estate near Jakarta reveals that
neither fragility nor low confidence permeates the economy uniformly. The estate houses over a hundred manufacturing
firms, mostly but not exclusively in export business, whose products vary from automobile, electronics, metal to plastic and
chemical products. According to a survey conducted in September 2000, the output at the estate is up on average by 50%
from the pre-crisis peak. The production capacity increased by 1 07,000m2, or twenty average-sized factories in the first eight
months of 2000. The estate is dominated by subsidiaries of foreign firms, and to them, setting up new operations is a breeze:
financing comes mostly from the parent companies abroad; obtaining appropriate permits and licenses from the government
is no problem; unofficial fees levied by the authorities are unheard of. "Indonesia with its abundant, smart, and inexpensive
labor force is a great place to locate a factory" says one of the satisfied tenants. The experiences the occupants of the estate
have had are in sharp contrast to the plight reportedly suffered by small-scale entrepreneurs who struggle against obstacles,
both financial and otherwise, to set up and run their businesses.
5



Figure 1.3: Foreign dis-investment in       Politics andfinancial markets
Indonesia....
(FDI and Portfolio Flows, US$ million)     1.21.  Indonesia's recovering  economy  was not
U Smw                                           reflected in improved conditions on the financial
3,=20                                            markets. The Rupiah which strengthened to below
20ro.    1                                       7000 to the US dollar right after the presidential
oo hi       m L t  L            lelections hit a low of 9500 to the dollar briefly before
IfODO q  w    the  MPR   August  session  -    a  35  percent
AM :ol                              /            depreciation. It then strengthened to 8000 per dollar,
2,0                               F              only to be toppled by the unrest and killings in West
Timor and the bomb attack on the Jakarta Stock
-s.or    IrrVeS____I                             Exchange building. The capital markets fared little
4.W02                                            better.  The Jakarta Stock exchange drifted off its
1 02 03 04 c1 02 03 0c 01 02 03 04 or (c2 03 04 1 02  post-crisis peaks in October 1999, and was 30 percent
.....the odd man out informer crisis countries.  below  that level at the time of writing. Similarly,
(private capital flows, US$ million, selected countries)  Indonesia's risk premium  in international markets
,%        ,reversed its decline, and is now 650 basis points over
90                     Kora                     US  treasuries, comparable to Russia.   Domestic
so                                              interest rates followed suit, and by the summer of this
Thalad 1   \year, the prospects for rapid interest rate declines had
20y1Llhj l  w1{tt    l|f dl |h/|                dall but disappeared. Politics rather than economics
00                                 ~~~~~~~~~~~drove the markets, so it seemed.
4 0                                              1.22.  In a democratic Indonesia, politics do matter.
The days are gone that a small group of technocrats
determined the economic policies after a nod of the
.1001                                            President.   But the new  rules of the game in
9701  9703  9801  9£   9901  #KI   0001
Souce:BI 9EC.    Om   sow          ODIndonesia are -  not surprisingly -  far from  clear
Source: Bl, CIEC.                                yet, and any events that could shed light on these new
1. 19.  The downturn of FDI into Indonesia is a   rules move the markets.
concern (Figure 1.3).  In other countries, and
mos stikiglyin Korea, FDI inflows not only 1.23. The first Wahid cabinet did not present a
most strikingly vnKra   D    nlw   o   ny           ision for the country's development and economic
strengthened the currency, but also accelerated   v
corporate restructuring, and allowed an infusion   management that would put investors at ease. In part
of new  technology  and  management.   In
Indonesia, even the existing FDI is declining, as           Figure 1.4: Less vulnerable, but not safe
foreign head offices reduce  credits to their                 (Short-term external debt as a percent of
Indonesian subsidiaries.                                             international reserves)
1.20.  Despite  the net capital outflow, the             250
strong current account, donor money, and
rescheduling allowed for a further build-up of            200        1997
reserves. In addition, the Paris club agreed in          150
April to reschedule another US$5.8 billion in
repayments due over the next two years, thereby           100          March
further helping reserve build-up. Indonesia's net         50
reserves of US$18.9 billion dollars can now
cover a comfortable eight month of imports. But            o   _      _     _      _     _      _
Indonesia is still more vulnerable than other East
Asian countries given the size of its short-term
debt (Figure 1.4).                                      Source: BIS.
6



this was because the cabinet was not united, in           Figure 1.5: Fledgling consumer confidence
part because bigger issues ranging  from  the               (Index; above 50 indicates positive/optimist)
unity of Indonesia to the role of the military in        70
politics and society have consumed much of the
cabinet's energy, leaving policy makers little           ea
time for serious debates on economic policies.
The markets were also hit by allegations that
questioned  the  probity  of this  government,           64
sometimes at the highest levels, which cast
doubts on whether the Government would take              62
the mandate to eradicate KKIV  as seriously as           Bo
the Indonesian people did when they voted the
previous Government out of office.                       58
Od- 99 N0*99 Deo99 Jan4- Feb40 M;rO .w-J A0 May-SO SarO Ai.
1.24.   Slow  implementation of the structural
reforms also depressed market confidence. The           Source: Danareksa Research Institute
new administration was quick to commit to
reforms in January 2000 LOI, but was slow in   administration's handling  of the ongoing  dispute
implementing  the  agreed  reforms.   Among   between the state-owned telecommunications firm,
others, the Government hesitated on actions to   PT  Telekomunikasi, and  its  five  foreign joint-
accelerate   bank   and   enterprise   reforms,  operating  partners  could  further  affect investor
postponed the fuel price increases and phase-out  confidence, as did the stalemate on the IPPs -  an
of tax exemptions, and reversed its stance on   issue that now comes back to haunt the new cabinet,
rice and import tariffs. To its credit, among the   as a paid-up claim from one of the US partners in an
first decisions of the new  cabinet was the   IPP has become a claim  of a foreign investment
increase of fuel prices on October 1 (Chapter 3).   guarantee  corporation.xv    And  several regional
governments infringed on the rights of foreign
1.25.   On top of the slow  structural reforms   mining companies.  These disputes were ultimately
came  several policy  decisions  that ruffled   settled, but hardly inspired trust for a decentralizing
foreign investors. Among them was a July 2000   Indonesia.
presidential decree to ban or restrict foreign
investment  in   various   sectors  including   1.26.  Policies  are  also  affecting   Indonesia's
telecommunications  and  multimedia.    The   consumers. Consumer confidence boomed after the
Government partially reversed the decision amid   Presidential elections October last year, and quickly
a chorus of complaints but it remains to be seen   spilled over into spending on consumer durables, thus
whether investors perceive the government's  boosting manufacturing.  Now, consumers are no
flip-flop  as  unwelcome  capriciousness  or  longer so sure (Figure 1.5). More Indonesians think
encouraging responsiveness to their voice. The   they are likely to be in a recession than any of their
Table 1.1: Regional growthforecasts
(percentage change in GDP)
2000                                2001
1999    World Bank    IMF      Consensus  World Bank       IMF       Consensus
China            i  7.1                     7.0        7.9                      6.5          7.8
Indonesia            0.2        4.0         3.0        3.9         4.0          4-5          4.1
Korea                10.7       8.5         7.0        8.5         6.5          6.5          6.0
Malaysia             5.6        8.0         6.0        8.1         6.0          5.8          6.4
Philippines          3.3        4.0                    3.4         4.6                       3.7
Thailand             4.2        4.5         4.5        5.2         4.5          5.0          4.8
Note: Forecast dates are: IMF World Economic Outlook, September 2000; IMF Staff Report Indonesia, September 2000; Consensus
Forecasts August 2000; World Bank, September 2000.
7



East Asian neighbors.x"' Things may not turn as   Endnotes
bad as that, but pundits around the world expect
Indonesia's   growth  to   remain   modest  4-5                  Electricity output and consumption is somewhat of a puzzle. Except for
a few quarters in 1998, they never declined, and are now well above their
percent of GDP  in 2001 -   still the bottom  of   pre-crisis levels.  In part this could reflect a certain lumpiness in
the class of former crisis countries (Table 1.1).               consumption -  one still has to light the factory, even if production is
1.27.   Among  the  first  duties  of  the  new    down. In part, however, this could reflect a structural shift in reaction to
the crisis, which benefited tradable goods such as manufacturing, a large
cabinet is  to  restore  confidence  of markets,   electricity consumer. Electricity per unit of manufacturing has remained
investors,  and  consumers  alike.    The  new                 remarkably constant.
off  to   a   good   start:   "Unlike in other countries, inventory build-up is the residual category in
economic   team    is   off   to   a   good   start:   Indonesian statistics.  The large negative contribution of this factor
Coordinating   Minister   Ramli's   Ten   Point   reflects the quality of statistics rather than factories and shops running out
Program       is   the    first   statement   of   a   of goods to sell. Unfortunately, the statistical discrepancy is larger than
all of investment's contribution to growth, causing casual observers to
comprehensive    economic    policy    in    new               decide that the recovery is not supported by new investments.
Indonesia. The program  was smoothly integrated                   According to SUSENAS data, spending on rice constitutes some 44
in the Letter of Intent to  the IMF, which  was   percent of the total expenditures for the lowest.
"The Gini coefficient fell from 0.36 before the crisis to 0.32 in February
approved by the Board on September 14, 2000.    1999. But the measured Gini also suggest that Indonesia's Gini is equal
But the challenge is now  to turn the statement of   to that of the Netherlands - a statistical fact in sharp conflict with casual
observation - and the numbers should be interpreted with care.
objectives   into   a   strategy   and   -           more        The calculation is based on the averge wage bill per worker. The
importantly -   to  take those actions that lend    increases include wage drift of some five percent per year, and structural
credibility to the program.                                     increases. In April 1998, while former-President Suharto was still in
office, civil servants were awarded a 15%  across-the-board increase.
Under President Habibie, in April 1999, a flat Rp.155,250 per month was
1.28.   In the short-term, two issues are crucial   granted to all civil servants. Since taking office, President Wahid has
to  the  Government's goal of accelerating  the    approved three increases: an across-the-board Rp. 64,750 per month as of
April 1, 2000; an increase in functional and structural allowances as of
recovery:                                                      April 1, 2000, which was amended in June 1, 2000 in response to popular
protests; and an already approved Rp.65,000 per month for all civil
servants as of October 1, 2000.
*    intensifying  bank  and  enterprise  reforms.   v, Again, caution should be taken with these numbers -  as under-
Chapter 2 reports on recent progress in bank    reporting may be a big problem in the statistics. The labor share of GDP
and  corporate  restructuring, identifies  the    is calculated by adding up all wage income as reported by BPS for the
formal sector, and then extrapolating it to the informnal sector. The lower
remaining  bottlenecks,  and   sketches  the    estimate in the text is found by assuming that all informal workers eam
emerging  agenda  for Indonesia's financial   minimum income; the higher estimate results when average income is
reforms.                                           assumed. In general, the labor's share in developing economies is about
sector reforms.                                            1/3. For developed economies it fluctuates around 2/3. If the method
described is used for the United States, a labor share of 0.45 results, but
Y maintaining fiscal sustainability. Chapter 3    labor taxes and social security should be added to this. Source: BPS,
Keadaan Pekerja/Karyawan Di Indonesia (Labor/Employees situation in
describes the budgetary  pressure stemming    Indonesia) various issues.
from     debt   and    decentralization,   and    '..At the prevailing exchange rate of Rp.7000 per Dollar.
identifies  the  difficult choices government   Vl. Excluding Bank Indonesia debt to the IMF.
identifie   the dificult chices govmment   i.The contribution of electricity price increases is calculated on the basis
faces  in  maintaining   fiscal  sustainability    of electricity's share in GDP, and is therefore to be seen as an upper
while managing debt and decentralization.                  bound.  The impact of transport prices is taken from  the actual
contribution of transport prices from the CPI index. The contribution of
the Rupiah depreciation is based on elasticities estimated by the
In  the  medium-term,  Government  faces  two    Partnership for Economic Growth, Bappenas office.
critical issues:                                                'Jakarta Post, September 14, 2000.
This figure is overstated, as it includes rolled over and restructured
credits , and the number may be influenced by the effect a weakening
*   First, it must shift poverty alleviation  from              Rupiah has on loans denominated in foreign currencies.
id  World Bank, Global Economic Prospects, August 2000, Washington.
providing  a social safety  net to  a focused    Xfll' See Peter Rosner, 2000, Indonesia's non-oil export performance
strategy for attacking poverty in Indonesia's   during the crisis: distinguishing price trends from quantity trends.Bulletin
(Chapter 4).                                               for Indonesia Economic Studies, forthcoming.
x.v The US high yield market index now offers a yield of some 650 basis
points over Treasury-about the same as Indonesia, and up from less than
*    Second, to consolidate democracy, and to set   500 at the beginning of this year. Source: The World Bank.
the conditions for sustainable growth, it                  " Indonesia also became the first country for which MIGA, the World
must change the way Indonesia is governed                  Bank Group's private investment guarantee arm, paid out a claim of
U~S$15 million, also related to an IPP.
(Chapter 5).                                               x World Economic Forum, quoted in The Economist, September 9, 2000.
8



Chapter 2. Accelerating Bank and Corporate Restructuring
2.1.   After long delays, bank and corporate  2.3.   The crisis has had a profound impact on the
restructuring has begun to show progress. Banks  banking system. Since the start of the crisis no less
have largely been recapitalized, have renewed  than 68 out of 237 banks were closed, and another
lending on a modest scale, and some are even   12 banks nationalized in an effort to stabilize the
showing profits again.  Corporate restructuring   banking system. Now, Indonesia has 161 domestic
has shown  some early results, spurred by the  banks after some mergers and creation of a new
nascent recovery, and by a few favorable court  export-import bank (Table 2.1). In the course of the
judgements.  But these tenuous beginnings are  crisis, deposits migrated from private banks to the
under  threat  from   insufficient  operational  state banking sector in a flight to perceived safety.
restructuring of banks and superficial corporate  As the dust settles, the Government is directly in
restructuring. If this situation prevails, the banks  control of fully 70 percent of the deposits in the
will continue to lose money. They will neither be  banking system, compared to 40 percent in Korea,
able to rebuild capital nor lend. Their corporate  and 23 in Thailand. These deposits are held in 42
clients will remain vulnerable to shocks, and risk  Government-owned banks, four of which were
becoming a burden on the banks, and ultimately  state-owned pre-crisisi, 12 are newly nationalized,
on the government budget once again.   To   and 26 are regional development banks (Table 2.1).
safeguard  the  taxpayers  and  the  economic  In addition, the Government also holds significant
recovery the Government must (i) ensure further  stakes in the private recapitalized banks as a result
operational restructuring of banks; (ii) balance  of the recapitalization program.
speed and quality in corporate restructuring; (iii)
accelerate sales of assets IBRA cannot or will not  2.4.   The bank recapitalization program has been
restructure; and  (iv) remove  tax  and  legal  extremely costly. A total of about Rp.650 trillion of
impediments   against   efficient   corporate  sovereign bonds have been issued. Of this amount,
restructuring.                                    approximately Rp.268 trillion has been used for the
State Banks and an additional Rp.18 trillion will be
Backfrom the abyss                                needed to complete the program ii. Rp.218 trillion
was used to honor the government guarantee,
2.2.   More than two years after the economic  including reimbursement of the liquidity support
crisis decapitalized the nation's domestic banks,  provided by Bank Indonesia at the height of the
there are modest signs of a banking recovery: the   crisis."'   Despite the costs, banks were only
banks'  non-performing  loans  (NPLs)  have  recapitalized to four percent of (risk-weighted)
dropped because of transfers to IBRA, lending has  assets, half of the international minimum standard
resumed on a modest scale, interest margins have  of eight percent.
been widening, and a small number of banks have
returned to profitability.
Table 2.1: Before and after
(The structure of Indonesia's banking system)
Number of Banks                       Share of Deposits
(percent)
June1997        June 2000             June1997             June 2000
State Owned *                34               43                    37                   70
Private                     160               79                    57                   18
Foreign and Joint Venture    43               39                    6                    12
Total              237               161                  100                  100
* Include nationalized banks, regional development banks, and the export-import bank
Source: BI and World Bank staff estimates.
9



2.8.    On  aggregate, the banking  system  still
(Rp. Trillion)                    recorded a loss in the first half of 2000. This is
unlikely to improve any time soon, as rising market
11DR.0111-                           ~~~~~~~interest rates caused a deterioration  in  interest
Nonperfoming   Transfered toBRA  D    margins in the third quarter. Most deposits are in
sooeo       r dl*\                                 rate-sensitive 30 day time deposits which react
0 pe0oPrbloans I                                faster than lending rates to changes in market
conditions.  Moreover, the still substantial non-
30000                                              performing loan portfolio contributes nothing to
200 00   i 2   011      23      l      l linterest margins.   But the  biggest drain  on
profitability remain high operating costs due to the
oo00 0                                             lack of meaningful operational restructuring.
1 *7            De Dc.9  JW.00
Remaining challenges are mounting
Source: Bl and IBRA.
2.9.    Signs of early progress notwithstanding,
2.5.    The  banking  system's  non-performing   much remains to be done to restore viability of the
loans (NPLs) dropped sharply after some Rp.256   financial  sector.   Indonesia's  banks  are  still
trillion of them (as of June 2000) were transferred   considered to be among the weakest in the East
to IBRA  (Figure 2.1).  Even after the transfer,  Asia  region   and   the   world,  even   after
they still stand at 30 percent of the loan portfolio,  recapitalization (Figure 2.2).  Indonesia certainly
and few banks have been able to reduce them by   cannot afford another banking crisis, not even one
themselves. Provisions for loan losses stand at 94   that is an order of magnitude smaller than the one it
percent of NPLs, but the banks' thin capitalization   is currently emerging from -  which may prove to
leaves  little  cushion   against  any   further  be the most expensive in history in terms of GDP.
deterioration in their portfolios.                   In  the short run, restoring  profitability  to  the
banking sector, improving supervision, and shaping
2.6.    Banks are beginning hesitantly to lend   up governance of state banks are the core agenda.
again.   Bank  Indonesia's June 2000  lending   In the medium-term, the Government must develop
survey of fifteen banksiv representing 75 percent  and implement a strategy to reduce the State's
of total bank deposits found that Rp.15.8 trillion   involvement in the financial sector.
of new loans have been extended since the
beginning of 2000- a modest 5.7 percent year-                      Figure2.2: The bottom line
to-date growth. However, as this figure includes       (Bank rating various countries; 6=highest, O=lowest)
both renewed and restructured loans, genuinely           6
new lending is likely to be less than reported.          5 _                      %
2.7.    Interest margins have been widening but          4.
not enough to generate profits for all. Declining
deposit interest rates and fewer non-performing          3                       P=p, .               I
loans boosted the banks' net interest margins -          2-
the difference in interest they receive from  their
loans   and   what  they   pay   on   deposits.                  -d. - -…
Consequently, most banks are reporting positive    I7 ;9 l8                            .   Ol-
| F. 97  J-97  Ocl97  F.b 9a  J --98  Oct-9S  F.b99  Ju-99  Oc{-99  F D     J-n00
interest margins, and some even reported
operating profits in the first six months of the    I
year.                                                   Source: Moody's.
10



2.10.  Restoring bank profitability.  Globally,
commercila banks derive their income from tlnree         Fiur 2 *3 Baialod
(Bank asset composition, percent of deposits)
primary sources: (i) interest from loans; (ii) fees    -140
from services rendered, such as foreign exchange
transactions; and (iii) income from investments.
Their costs are operational costs of the bank itself,    10                   S51s  Bonds
the interest they pay  on deposits and other                                        /
liabilities, and the provisions on non-performing  **
loans.                                               W*
2.11.  In the near termn, operational restructuring  0
is key for restoring profitability. Bank lending     M 
will continue to be constrained by the lack of
creditworthy borrowers. Thus, the best hope for        e096    D9        D.      D
profits comes from operational restructuring
which cuts operational costs and reduces the drain  Source: BI
on profits by resolving non-performing loans.
Such   restructuring   must   entail  further  2.14.  For these reasons, the  Government is
rationalizing of branches and personnel as well as  currently contemplating issuing short-term treasury
reinforcing of debt work-out units to enable them   bonds to replace the longer term  recapitalization
to deal with non-performing loans.               bonds. These bonds could be made more attractive
than the current recapitalization bonds, and
2.12.  Over time, corporate  restructuring  is  therefore more liquid, but possibly at the expense of
likely to take hold, and new  credits would  taxpayers. Moreover, for the banking system as a
contribute to profitability. However, they will do  whole, liquidity does not seem to be the problem.v
so only if the banks have developed sound internal  And if some banks need  further capital, the
risk management procedures and a commercial  Government may want to make such a decision in a
credit culture by then. If these fail to emerge, the  transparent process.
new loans could turn bad quickly, and fresh
capital injections from  the Government may  2.15.  Balance  sheet  management  will  not
become necessary, at the expense of tax payers.  substitute for operational restructuring. Banks must
engage in serious restructuring to reduce their
2.13.  Banks could also improve their bottom   operating costs to an internationally competitive
line though higher returns on their investment  level. The central bank should take a keen interest
portfolio.  As a result of the crisis, the banks'  in restructuring  as the supervisor, and should
balance   sheets  are  now   dominated   by   continue to build the capacity for an in-depth
recapitalization bonds. (Figure 2.3).  But the  review of risk management, credit processes, and
interest rate on these bonds is too low compared   accounting systems of banks. But the Government
to the one banks have to pay on deposits. Deposit  should take an interest as well, not only to protect
rates closely follow the interbank rate JIBOR,  taxpayers, but because it owns the bulk of the
because this rate is approximately the maximum   banking system.
at which the Government guarantees the deposit.
JIBOR  in turn  follows closely  central bank   2.16.  State-owned bank reforms.  Although the
certificate rates.   Since  the interest on the  recapitalization  of  the  state  banks  is  near
recapitalization bonds equals the central bank  completion, their financial condition continues to be
certificate rate, they barely contribute to interest  extremely fragile. Like the rest of the banks, state
margins. These bonds therefore sell at a discount-  banks are slowly beginning  to report positive
And if they were valued at the market rate, some  interest margins, but their overall profitability
banks would no longer meet the minimum capital  remains very low  or negative due to continued
adequacy ratio.                                  losses on  loans and  the  lack  of meaningful
11



operational restructuring to reduce costs and  broadened to encompass all aspects of governance,
rationalize their activities.  For instance, only  including performance contracting and monitoring,
about 300 branches have been closed out of a total  standards for audits and audit firm selection, and
of over 1800 since December 1997.              procedures  to  select  the  management  and
Commissioners.
2.17. The dominance of state banks in the market
is a cause for concern.  These banks may be  2.20. In the short run, strong management is
considered 'too big to fail,' and the central bank,  critical.  Each state-owned bank should have a
the regulator, and the Government, the owner and  quorum  of Directors and Commissioners with
the protector of taxpayers, are both responsible to  international banking experience, supported by
work closely with  bank  commissioners and  accountants and professional bank managers. The
directors to  prevent the recurrence  of past  Ministry of Finance must be particularly vigilant to
practices that led to these banks' insolvency. The  prevent the return of political interference and other
state banks have historically had weak internal  related past practices-not just as a shareholder, but
and external controls, failed to provide the  as the ultimate guarantor of deposits.
stakeholders with regular access to essential
financial information, and have been burdened  2.21.  It is urgent that the Government determine
with excessive operating costs. Much more is  what role each state bank should play, and establish
required to strengthen the banks' governance  a  formal  divestiture  schedule  accordingly.
structure, develop a strong credit culture, and  Privatization is the most certain means of preparing
upgrade   risk   controls   and   operations  state-owned banks for the increasing pressures of
infrastructure. Governance and intemal controls  globalization and making them. better capitalized
remain unchanged substantially in many areas of  and nimbler. The Government has little time to
bank operations, and most of the banks' senior  waste. It must develop a comprehensive financial
staffs have been replaced with current or former  sector strategy, without delay.
state bank employees.
2.22.  Coordinating   Minister's  "Ten   Point
2.18. With the exception of Mandiri, state banks  Economic Recovery Acceleration Program" is a
have not taken the opportunity provided by the  useful start for building a financial sector strategy.
crisis to rethink and rebuild  their business  Implemented as a joint government and industry
strategies and their operations.  International  effort, a comprehensive strategy could serve to
experience shows that post-crisis competition is  expand access to financial services if the following
likely to be fierce, particularly from those banks  issues are addressed:
that  have  undergone  rigorous  operational
restructuring to correct past weaknesses and to  *  The future role and structure of the banking
refocus their activities on core businesses. The   system including:
winners within the sector will be those institutions
that have built a service culture, and can deliver  *  a plan for a market-led consolidation of
financial products and services at lower costs         Indonesia's remaining 161 banks.
while  managing  and  pricing  their  risks
appropriately.                                     *  a definition of the roles of state-owned
banks that  allows them  to target their
2.19. Changes in governance are at the heart of        customer profile most efficiently.
state bank reforms.  The Government, as the
owner of these banks, is responsible for exercising  +  a divestment policy for state-owned banks
proper oversight and governance through the           to optimize the use of scarce public capital,
MOF. To this end, the recent establishment of a        and reduce the risk of future bailouts.
Monitoring and Governance Unit within the MOF
represents a welcome first step.  To be truly      *  A clarification of the role of foreign banks.
effective, however, the Unit's mandate should be
12



*  A broadening of access to financial services  Rp.130 trillion, and claims on former bank owners,
through:                                     Shareholder Assets, add up to Rp.127 trillion.
Given this huge concentration of assets, a well-
*  deepening capital markets, so as to reduce   performing IBRA  is paramount for sustainable
enterprise dependency on debt financing;   economic recovery in Indonesia.
*  developing  a  secondary  market  for  2.25.  The pace of IBRA's asset disposition has
sovereign bonds, so as to provide the   been slow. Between its inception and September
recapitalized   banks   with  liquidity  2000, IBRA generated approximately Rp.35 trillion
necessary to lend;                        in revenues or only eight percent of its average total
asset value. Since a part of this is dividend and
*  reforming  the pension  and  insurance  interest rather than revenues from asset sales, asset
industries, so the Indonesians can benefit  sales themselves were even lower. IBRA's recovery
from  a more secure  future-and  the  target for the nine month FY  2000 is Rp.18.9
Government can reduce its liabilities;   trillion, of which Rp.12 trillion was realized as of
the end of September.
+  integrating the roles of finance companies
and pawnshops, which provide important  2.26.  The key reason for slow recovery has been
alternative sources of financing for many  the Government's reluctance to recognize the loss
micro borrowers; and                      of value that will necessarily occur. IBRA's assets
are currently valued at their book value   or
*  rationalizing thousands of rural banks.   estimated transfer values. But the bulk of them are
the most impaired assets of the banking system, and
*  The design of a limited deposit insurance  book values seriously overstate the realizable value.
scheme that incorporates market discipline,  Realized value on the sales to date give some
limits moral hazard  and reduces fiscal costs.   indication of future revenues. The recovery rate for
limits morahaard,andreduesiscacthe (partially restructured) retail and corporate loans
*  The  improvement  of  regulatory   and   disposed to date is about 57 percent, but the only
supervsoy o t of te esale of bank shares (BCA) yielded a mere 13
supervisor.   ovrihto  h  etr  innilpercent of book value. Estimating the returns on
the pledged shareholder assets may well disappoint
also, as many of the pledged assets have lost
2.23. Even with a well-implemented financial
sector strategy, however, no banking system can  significant value. IBRA is currently conducting an
be healthy without healthy corporate clients,.   in-depth valuation of individual assets, though the
Accelerating corporate restructuring is therefore
key to the future of the banking system. Again,           Figure 2.4: Diminishing expectations
the Goveyment carries a heavy  load here,              (Transfer value and market value of IBRA assets)
because IBRA is by far the largest creditor in
Indonesia.  Its performance will be a decisive       60
factor in  determining  the  future  health  of
corporate Indonesia.                                  0qlty in Banks
40
IBRA performance                                     30                 Ssmt
2.24.  The assets IBRA controls have a nominal       20
value of about Rp.546 trillion, or 57 percent of               _ ,   n            \    \
GDP: non-performing  loans and other assets
transferred from  the banking system  amount to   O   _
Rp.289  trillion; equity  investments  in  BTO                T-W., V.1-         EWti,.d M.,K.t V.1-u
(nationalized) and recapitalized private banks are  Source: IBRA and IMF, July 2000 estimates
13



Chairman  of IBRA   recently  estimated  that  2.30. Less progress has been  made  with  the
recovery would be between 30-40 percent."'  This  remaining Top 200 (i.e., the "22-200") debtors.
may still be too optimistic, because experience   These mid-tier corporations (loans with a combined
shows that assets rapidly lose value when they   book value of about Rp.140 trillion) have received
remain   warehoused   in   asset  management  little attention, and with its capacity constraints,
companies.                                            IBRA is unlikely to be able to add significant value
through restructuring.
2.27.  In recognition of this, IBRA has recently
accelerated disposition. Beginning second quarter  Improving speed and quality of IBRA 's operation
of 2000, the agency has committed to a new
aggressive schedule of asset sales to ensure that  2.31. IBRA is central to the Govemment's efforts
the FY  2000 budget targets would be met. It  to restructure corporate Indonesia. In managing its
therefore has begun to outsource or sell smaller  assets,  it  must  balance   several,  sometimes
loan portfolios. But BCA and Bank Niaga were   conflicting, objectives. Speed of asset resolution is
part of the disposition plan. Under pressure from    very  important,  because  delays  in  corporate
Parliament, the Government recently reversed its  restructuring could undermine the recovery. At the
long-stated   aim   to  privatize  these  banks.  same time, the Government is reluctant to sell
Therefore, revenues may fall short.                   assets  at significant losses.   In  addition, the
revenues derived from its asset sales are essential
2.28.  IBRA  has outsourced commercial loans   for financing the budget, and losing out on revenues
(borrowers between  Rp.5-50  billion) to  local  is a serious fiscal risk. Furthermore, irrespective of
financial institutions to be better able to service  the  way  IBRA   handles  its  assets, corporate
the 2,000+ debtor accounts.  While the loans   restructuring must be ensured to reinvigorate the
remain on IBRA's books, it is envisaged that  recovery, and limit future risks to the banking
greater value can be derived  from  aggressive   system.    Finally,  the  way  IBRA   and  the
collection and restructuring activities prior to their  Government  handle  the  disposition  of  large
anticipated sale in October 2001.  IBRA  also   amounts  of  assets  is  a  key  determinant  of
plans to dispose of its entire small and medium-  Indonesia's reputation  in  international markets.
sized enterprise (SME) and retail loan books by   Juggling these diverse interests is no easy matter -
the end of 2000. For the small loans under Rp.5   and it is even more difficult in an environment in
billion,  IBRA   has  launched   an  expedited   which weak courts could preclude the route of
settlement scheme, wherein  SME  and  retail  bankruptcy proceedings.  But holding on to the
borrowers who pay the full principal balance due   assets is no option, as they will lose value quickly.
will receive a waiver of all interest and fees'".
Concurrently, IBRA has concluded its first loan
sales: (i) two groups of non-performing residential     Table 2.2: Resolution of IBRA credits, 30 September 2000
mortgage loans; and (ii) a small group of larger,                       (Rp trillion and percent)
restructured commercial loans.  Each of these          Group of     Early    Middle    Late        Total
sales has been subject to a competitive public         Obligors     Stage     Stage     Stage
tender.                                                Top 21       8.3       16,5      62,3       87,1
(9)      (19)      (72)      (100)
2.29.  IBRA has been focussing its restructuring        22-200      21.7      52.1      13.1       86.9
efforts on the Top 21 obligors, the largest and                     (25)      (60)      (15)      (100)
most influential borrowers, and has committed to        Top 200     30.0      68.5      75.4      173.9
completing the restructuring of 70 percent of these                 (17)      (40)      (43)      (100)
Note: Numbers in brackets percent of total. Early Stage includes (0) no
loans by the end of December.  According to    action, (I) initial negotiation, and (2) standstill agreement, or (10) legal
IBRA, over 70 percent of the debt was in the late    process not initiated. Middle Stage includes (3) assignments of advisors, (4)
due diligence, and (5) restructuring negotiations. Late Stage includes (6)
stage of resolution by the end of September -          finalization of restructuring MOU, (7) implementation, and (8) full payment
either through an agreement or legal action (Table    or (It) commencement of legal action.
2.2), but far fewer have documented, signed and
implemented the agreements.
14



2.32.  Those assets for which IBRA has neither  and  many  market observers are  once  again
the time nor the capacity to manage, sale is the  questioning  the  government's  commitment to
best alternative. Thus, aggressive sales for the  reform and to introduce market discipline through
loan portfolio of the "22-200" debtors is the best  accelerating the restructuring and sale of IBRA's
way forward. For the smaller loans this holds a   assets holdings. The lack of a framework within
fortiori, as IBRA simply cannot deal with the  which these decisions were made, and to some
restructuring of so many debtors within the time  extent sparse  information  on  the  agreements
the legislator has given the organization. For once  themselves caused a controversy and a negative
those loans are sold, corporate restructuring will  reaction from the financial markets.
be done by the buyers, and IBRA can focus on the
larger deals. To guarantee transparency, the best  2.36.  Therefore, a set of principles should guide
possible price, and buyers most capable of  IBRA in all its restructuring deals that ensure the
restructuring, sales should be done by competitive  interests of the state are protected and the economy
tenders. Like in Korea and Thailand, IBRA could  recovers quickly. At a minimum, these principles
structure the sales such that it can share in the  should consider: the role of IBRA given its existing
upward potential of any assets sold, thereby  mandate, the importance of ensuring transparency
defusing public and/or parliamentary criticisms of  at all times, the consequences for asset recovery
low sales prices.                              and the implications for government debt and
contingent   liabilities,   and   protection   of
2.33. If IBRA decides to further outsource loans,  government's  share  in  any  future  upward
it must ensure that the best possible buyer is  revaluation of assets. Once agreed, these criteria
attracted.  IBRA is responsible for finding the  should be clear to everyone, and all deals should be
agent who is capable of restructuring the loan.  subject to public scrutiny so as to determine
The structure of the outsourcing package is of the  whether the criteria are met.
essence, and IBRA should consider making the
packages big enough to attract reputable and  2.37.  IBRA governance. The Government has
experienced buyers.                            begun to strengthen IBRA's corporate governance.
The newly-created IBRA Oversight Committee (or
2.34.  IBRA has decided to handle the largest  OC) is composed of nine members, seven of whom
debtors itself. In doing so, it has taken on the  are independent of the Government.viii
responsibility for the quality of restructuring.
Deep restructuring would not only optimize the  2.38.  External oversight is inherently reactive,
revenues for the budget, but would also minimize  and the nature of IBRA's business demands strong
the risk that future credit from the banking system   internal controls as well. Asset disposition gives
is misdirected. This is important to give a fair  many opportunities for "rent seeking," and as the
chance to more deserving creditors, such as small  process picks up, IBRA's internal controls will
enterprises, for acquiring credit. IBRA will also  become increasingly important.  Although risk
be under intense public scrutiny in settling these  management and internal audit divisions have been
large debts with the high-profile debtors and  established, the agency has not yet been able to
accusations  of  insider  deals  are  a  large  mitigate its transactional and treasury related risks
reputational risk for Government.              properly, as shown by a recent audit.Ix In response
to the audit, IBRA has developed a robust
2.35.  The  Government must therefore  be  Corrective Action Plan ("CAP") to address the
scrupulous in concluding restructuring deals. In  numerous audit findings. In the interim, an audit
early  October, the  Financial Sector Policy  firm has been engaged to begin the mid-year 2000
Committee (FSPC) approved that IBRA enter into  audit of IBRA's operations. IBRA has also adopted
a complex, long-term equity relationship with two  a number of key measures to shore up its financial
of its largest borrowers in lieu of robust debt and  reporting and record keeping. Going forward, the
operational restructuring. These decisions could  focus should shift to strengthening the agency's
have a direct impact on the Indonesian taxpayers,  internal policies, procedures, and processes to
15



ensure any existing loopholes for undue influence           Table 2. Selected debt restructuring transactions
are closed.                                                                 (US$ billion)
Amount of Debt                          8.2
Corporate restructuring
Troubled Debt Restructuring:            8.0
Rate reduction, term extension, and/or grace  4.7
2.39. Corporate Indonesia is still deeply in debt,       period
but restructuring has started to take off. However,      Conversion to equity or convertible bonds  3.1
the quality of restructuring has fallen short of         Write off                                0.2
expectations, and  tax  and  legal impediments            Corporate Self-Help:                    3.1
continue  to  hinder  restructuring.        Deeper       Debtasset swaps                          1.4
restructuring will require massive efforts of debtor     New equity                               0.1
and creditor alike, but this is a price well worth       Other                                    0.6
paying  for a healthy  and  growing  corporate           Note: Selected cases consist of II IBRA transactions involving US$
Indonesia.                                               3.1 billion in IBRA credits and 23 JITF cases involving US$ 5.1
billion in debts.
2.40.   Indonesian business debt at the end of           Source: Staff estimates.
June 2000 amounted to at least US$120 billion -
US$85 billion for large private corporations and
US$35  billion for state-owned enterprises and   percent shareholdings in a number of well-known
SMEs (Table 2.3).' Of the total, 49 percent was   companies as a result of debt/equity conversions.
owed by foreign creditors and 72 percent was
denominated in foreign currencies. Of the large   2.42.  New procedures have given an impetus to
corporate debt, three-quarters is distressed and in  the Jakarta Initiative Task Force (JITF). As of mid
need of restructuring.                                September, 51 companies with aggregate debt of
US$9.38 billion were actively involved in JITF
2.41.  Restructuring volume. Some debtors and   mediation. To date, 25 cases, with a total debt of
creditors have started to reach agreements on   US$5.17   billion,   have   concluded   binding
corporate debt restructuring. As noted, IBRA has   restructuring  agreements between  creditors and
resolved tentatively 40 percent of its credits to its  debtors with JITF's assistance. The new structured
Top 21 obligors, either through an agreement on   mediation procedures and referral of cases to JITF
restructuring or through initiation of legal action.  by the FSPC  have allowed JITF to settle more
Corporate foreign debt also shows encouraging   cases.  The new  procedures, which have been in
signs -  The new Coordinating Minister recently   place since April 2000, pennit the FSPC to impose
noted that some US$10 billion was resolved '"'  sanctions  on  uncooperative  debtors,  including
Foreign  banks  indicate  that agreements  with  referral to the Attorney General Office for initiation
several large debtors have either been reached or   of bankruptcy  proceedings.   JITF's regulatory
are imminent. Creditors will end up with 20-40   facilitation role has also been strengthened through
increased coordination with BAPEPAM, Bank
Table 2.3: Debtors and creditors             Indonesia, the Ministry of Finance, and the stock
(US$ billion)                      exchanges.
State IBRA  other Foreign Securitie Total
bank AMC  local  banks s holders            2.43.   Quality of Restructuring.  Analysis of a
s         inc.
BTO                             sample of IBRA and JITF debt-restructuring cases
State      3.5  1.7   0.5   5.3    1.0   12.1         raises questions about the adequacy of operational
enterprises                                           restructuring and reduction of debt to sustainable
Large      4.0  22.9  3.4   50.7    4.1   85.0
private                                               levels.  For these thirty-four cases (Table 2.4),
corporations                                          US$8 billion in distressed debt was restructured as
SMEs       7.2  4.2   8.3   2.4    0.5   22.6         follows: 59 percent through rate reductions, term
Total     14.7  28.8  12.2  58.4    5.6   119.7       extensions, and/or grace periods on repayment; 38
Source: JITF, staff estimates.                        percent through conversions of debt into equity; and
only three percent through debt write-offs.
16



Exclusion of one transaction involving a US$1.1  improve this ratio to 266 percent. An additional 20-
billion debt/equity conversion would increase the   25 percent increase in equity and use of all proceeds
use of debt rescheduling technique to 68 percent.  to retire debt is required to bring the ratio down to
The  reliance  on  debt rescheduling, especially   200 percent.
grace periods on interest payments on US$1.3
billion in debt (i.e., one-sixth of the total), is   2.45.   This example shows that there is life after
worrisome.  Tlhe concem  is whether corporate   debt, but not for all. Most Indonesian corporations
debt has been reduced enough through debt/equity   could emerge from  the crisis fairly intact, but only
conversions and write-offs and whether operating   with massive efforts.  Without such restructuring,
cash flows will suffice to service remaining debt  these companies will remain in a weakened and
at market rates and terms when grace periods and   vulnerable condition, and corporate Indonesia is
other concessions expire.   If not, Indonesian   unlikely to sustain, let alone accelerate a recovery.
corporations could fall back into distress.              The Govenmment must therefore make every effort
to remove the remaining impediment to
2.44.   The 135 highly-indebted JSX-listed non-   restructuring.
financial companies illustrate the magnitude of
efforts  that are  required  to  return  distressed   Accelerating restructuring
Indonesian corporations back to sustainable debt
levels. At the end of 1999, these 135 companies   2.46.   Lack of "sticks."   The lack of reliable
had a cumulative liabilities to equity ratio of 1046   means to impose losses on debtors or force their
percent-i.e.,  liabilities are more than 10 times   cooperation   continues   to   bedevil   corporate
the equity.  A  20 percent assets/debt swap and   restructuring. Bankruptcy petitions by IBRA were
debt/equity conversion giving creditors 25 percent  until recently rejected consistently by the courtsii
ownership  reduces cumulative  liabilities/equity   The most recent decisions and the appointment of
ratio only to 588 percent -- still much too high   several ad hoc judges in bankruptcy cases give
(Table 2.5).  A  more drastic additional step of   some   hope.              Nevertheless,  even   relatively
liquidating companies with negative equity and   straightforward measures to protect creditor rights
settling/writing-off associated  liabilities  would   have not been effective, and taking control over
Table 2.5: Illustrative restructuring measures
(Example of 135 Highly-Indebted JSX-Listed Non-Financial Companies, Rp. trillions)
Restructuring Measure                    Assets             Debt         Equity      Debt-Equity
Ratio
Actual at end-1999                                   275              251            24            10.5
Swap of 20 percent of assets for debt               (55)              (55)
Subtotal                                            220               196            24            8.2
Debt/equity conversions (at 1:1 exchange; to give                     (8)             8
creditors 25 percent ownership)
Sub-total                                           220               188            32            5.9
Liquidation of 44 companies with negative           (59)              (71)           12
equity
Sub-total                                            161               117           44            2.6
improved earnings and new capital used to retire                      (10)           10
debt
Final Result                                         161              107            54            2.0
Note: The restructuring measures shown in the left column are typical measures taken in a corporate restructuring. Some of these measures
have already been taken in ongoing restructuring in Indonesia. Highly Indebted is defined here as companies with liabilities/equity ratios of
200 percent of more. Attainment of a 200 percent liabilities/equity ratio within 18 months vwas one benchmark imposed on Korea's largest
chaebols by that country's Financial Supervisory Commission (FSC). Liabilities/equity is a relatively simplistic measure and it would be
desirable to consider additional measures for Indonesian corporations (e.g., profitability, retums on investment, interest coverage), but
currently available JSX data do not permit this analysis. Source: Jakarta Stock exchange, World Bank estimates.
17



collateral remains fraught with difficulties. And  *  par value restrictions on the issuance of new
creditors that hold shares as collateral have found  equity;
it difficult to sell these shares without the approval
of existing shareholders.                      *  a BI requirement for banks to sell converted
equity within 5 years, or within 2 years if the
2.47.  Additional         "stick-strengthening"    company is profitable;
measures should include the appointment of more
ad hoc judges to insolvency cases; more technical  *  concerns about "intentional" LLL violations if a
assistance for insolvency judges, an Attorney      bank with diminished capital enters into a
General's   Office/Joint  Investigative   Team     restructuring agreement;
presence at insolvency hearings and prompt
investigation ofjudges who make dubious rulings,  *  possible JSX de-listing, which would make it
greater use by IBRA of its PP-17 powers, and       more difficult to sell converted equity;
withdrawal of permits - e.g., to do business with
the Government, access to Government credits,  .  limits on the ability of IBRA to take losses on
listing on the JSX - for recalcitrant debtors.     debt restructuring; and
Recent history suggests, however, that reform of
Indonesia's legal system will take time and in the  .  restrictions on foreign financial institutions in
meantime,  efforts  to  promote  corporate         obtaining good title to collateral.
restructuring cannot assume the availability of a
robust bankruptcy/foreclosure option.          2.49.  The  Government  has  committed  to
addressing   many   of  the   aforementioned
2.48.  Tax   and   regulatory  impediments.  impediments  and  various  agencies  (e.g., BI,
Numerous tax, and regulatory impediments to  BAPEPAM, JSX, Revenue, and JITF) are working
corporate restructuring still prevail. Of these, the  together to provide regulatory relief.  The new
most important ones are:                       economic team has a clear opportunity to ensure
that these barriers to restructuring are actually
e  requirement for tax withholding on accrued  removed.
but unpaid interest;
2.50. Availability of bank loans.   Diminished
-  creation of a VAT liability in the case of  access to financing is a final problem  facing
debt/asset swaps;                           Indonesian companies. Money is now available for
trade finance, and some companies have overseas
*  transfer duties on debt/asset swaps involving  funds for working capital. But several factors still
real estates;                              limit access to financing; e.g., the weak capital
positions of local banks, reluctance by foreign
.  recognition of income to the debtor upon  banks to increase their Indonesia exposure, and
cancellation of indebtedness in the course of a  mistrust in existing corporate management and the
cash  settlement,  debt/asset  swap,  or  Indonesian  legal system  and  opaque  capital
debt/equity conversion; and                 structures.  Especially in cases where existing
corporate management have acted in bad faith,
*  limits on the carry-forward of net operating  foreign creditors insist that they will sell converted
losses.                                     equity as soon as possible and no commercially-
motivated creditor will lend to these corporations
Regulatory impediments include:                anytime soon. On the other hand, foreign bankers
expect that lending will pick up again once
*  a BAPEPAM requirement for a tender offer to  memories dim  and  a  sufficiently  compelling
all existing  shareholders  if a  proposed  perception of recovery gains momentum. Access to
debt/equity conversion involves more than 20  new loans is likely to be the strongest incentive for
percent of a company's equity;              restructuring,  and  the  Government,  private
18



investors, and the IFIs should work together to
maximize this incentive.
Endnotes
i The four state-owned banks comprising 50 percent of the banking
system are banks Mandiri, BNI, BRI and BTN.
iBRI, BTN, and Bank Bali have not yet been recapitalized fully.
The bonds to the central bank reimbursed Bank Indonesia for the
liquidity support given to banks during the crisis, and to recoup the
losses on various Govemment credit and guarantee programs.
v The banks are BNI, BRI, Mandiri, BCA, Danamon, BII, Lippo,
Panin, Bukopin, BPD DKI, Buana, NISP, Ekonomi, Standard
Chartered and Deutsche Bank.
V In fact, excess reserves of banks in the central bank, and the over
RplOO trillion in SBIs outstanding suggest ample liquidity.
VI Adam Schwarz, Pain in the assets an interview with Cacuk,
Asiawise daily, September 28.
"' This expedited settlement scheme is not available to auto, home or
credit card borrowers.
vi The three stipulated tasks are: (i) uphold corporate govemance and
transparency at IBRA, including monitoring policy compliance; (ii)
monitor the performance of IBRA; and (iii) offer recommendations
to IBRA and the FSPC to further the success of IBRA.
' The first independent audit of IBRA's 1998 and 1999 financial
statements was issued with a disclaimer of opinion due to the audit
exceptions identified.
x These do not include any credits from non-bank financial
institutions, penalties, or accrued interest, or trade payables.
x This number is consistent with BI data on foreign corporate debt.
BI data show a decline in offshore loans to private companies from
US$61 billion at the end of 1998 to US$49 billion by May 2000.
"x For example, six separate bankruptcy petitions (including two by
IBRA) against Ometraco have been rejected by the courts.
Reportedly, however, a hurried May 2000 court decree authorizes
controlling shareholders to self-liquidate and oversee the sale of
assets in settlement of a US$400 million debt. On July 27, 2000,
IBRA did prevail in its first bankruptcy petition - against PT
Landasan Terus Sentosa for failure to repay a Rp270 billion debt. It
remains to be seen whether bankruptcy rulings by the courts will
show consistent improvement going forward.
19



Chapter 3. Maintaining Fiscal Sustainability
3.1.    Indonesia's economic recovery  has put  (Figure 3.1). These debt levels suggest that any
fiscal sustainability center stage.  The recovery   benefits from  running higher deficits to prop up
reduces the need to stimulate the economy, but the   demand are now outweighed by the damage extra
government debt accumulated during the crisis will  debt does to Indonesia's risk rating and investors'
dominate the budget for the foreseeable future.   perception. The good news is that with economy
Debt service together with politically sensitive fuel  recovery, the need for such a stimulus has also
subsidies and the growing wage bill have reduced   abated. The recovery itself also makes achieving
development spending, and decentralization may   fiscal sustainability more feasible (Figure 3.2).
add  to  these  pressures.    To  retain  fiscal   But debt aggravates the task of fiscal consolidation
sustainability    while    maintaining    essential   as ordered by the MPR.
development spending, Government must first
focus on the efficiency of spending by improving   3.3.    Debt features prominently in the budget.
budget management. It must also raise revenues   Interest payments took about 5.8 percent of GDP
through better tax administration, phase out fuel   of the FY 2000 budget -  a third of government
subsidies with time, recover assets at the best  revenues -  and will not take much less next year.'
possible price, and deliver on  its program  to   Even   after  rescheduling   foreign   debt,  the
accelerate growth.  When these measures take   Government has to repay about 1.1 percent of GDP
hold, the Government can rebuild development  this year and next.  Debt service will rapidly
spending to underpin sustainable growth. To focus   increase  in 2002  and  subsequent years, when
this spending on priorities and limit waste, the   budget-support loans from  the crisis years and
Government should work with donors to develop a   bank  recapitalization  bonds become  due, and
new generation of projects and improve financial  rescheduling agreements phase out. The high debt
management and procurement.                           also  increases the vulnerability  of the  state's
finances, especially to shocks in domestic interest
Deeply in debt                                        rates, as more than half the government debt is
domestic." A one-percentage point increase in the
3.2.    The crisis left the Government deeply in  real interest rate will cost the Government about
debt.  After completing the bank recapitalization   0.3 percent of GDP more in interest payments.iii
program, government debt will add  up  to  a   With debt already very high, the Government can
towering 94 percent of GDP, up from a pre-crisis  ill-afford' any further unplanned demands on its
figure of 23 percent of GDP.  Indonesia is now    coffers, even if they are an order of magnitude
among the larger government debtors in the world,  smaller than those triggered by the banking crisis
whereas before the crisis it ranked only modestly  (Box 3.1).
Figure 3.1: Mounting debt
(Government debt as a percent of GDP, selected countries)
1996                                                Latest
cbqio Dnns  =_              _Se1lzr                                                    n
Cm~~~~~~~Cdh~~C
Jord.m _      m         el
H.sP,y        ON                                      .f
Sri  1   l.                                                .
Zsin    b =   pw                                       Spain             B-41a
~~ vi,~~~~  U.dtod Kinodo ~ ~ ~ ~     UWk Ki9o
Pola.d    g    Indonesia's government debt                        Indonesia's government debt
Alb.     00          was small before the crisis  U  S_                    was large after the crisis
Nrr Td.o                                     Uhld 58lo
Nte:. Laet aa oLIdnei Mrhd00
C-~~~~~~~~~0
Coloolsi.~~~~~~~~~~~~~~~aai
0.00  50 00  100 00  150 00  200 00  2500 OD 0300  00  0 D 20.00  40 00  80500  80.00    10000 D 52000    140.00    10D00    1000
Note. Latest data for Indonesia March 2000.
Source: World Development Indicators 2000, World Bank (2000) Indonesia: Managing Governmnent debt and its risks.
:iU



Figure 3.2: Budgetary pressures
Indonesia's government is deeply in debt ...                   . . .interest payments and subsidies squeeze
(Government debt, US$ billion, March 2000)                             development spending
(share of total spending, percent)
USS billion. P..cOni ol to ml sponding
100%
l20                                 /          bO% 0 |    |    |    |    |    |    |~~~~~~~~~ *Dnvnloprnenl
100 1  /   70X -M*    *    *    *    *    *    e   *P.rso..l.
8c0 .                                      X   Dom0ti         so%   |    |    |    P    P    i    a   OMatenrals
80                    debt          50%~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ow.,tkri,
90                                                             40%                                           i ,nsin,o
30%                                          *ln,,rn-t
20%                                          O S,,blid,o
20                                            ~~~~~~~~~~~~~~~~~~10%
1994/95    1990/99   1996/97    1997198    1998/99    1999/00      1994195 1995/98 199,/97 1997/98 1990/99 1999/00 FY2000
... and debt repayment is about to increase ...         ... .shortchanging social, infrastructure, and agriculture
(Government debt service US$ billion)                    (Development spending, constant 1993/94 prices)
US$ Billion                                                  Rp. Billion., Conslant 1993194 prices
18                                                            30.00-
19
14                                           ~~~~~~~~~~~~~~~~~~~~~~~~~25.000 
12                                                            20.ODO -
Principal    15.000~~~~~~~~~~~~~~1990
Ff99/99      FYYW/00       2000         2001         2002           FY99/99  FY99197  0y7l97/9  FY99/99  FY99/00  072000'
Rut Indonesia has a history offiscaiprudenSesAnd with f scal adjus ment and growth,
(deficits and primary surpluses as a percent of GDP)                     debt remains sustainable
(Debt as a percent of GDP, projections)
Goveonniont~~~~~~~~~~~~~~~~~~iriato
1                      ~~~~~~~~~PBrimary Bat nco00,                                                       -0
3                -rr(non-inf.r nt) fi--- 
9,00
2-                                                                                                              other [   $   0     \7
3 lt*30 -/'3
-4                              Onnern Fiscln                    20 l2
0                                B.Ionc.                         10-                                                 1
94/95  F95/96   95/97   97199    9/99   99/00   20002                    °  8  97      O      S  S  O 00 8 
Note: The fiscal sustainability projections are based on scenarios for future growth, inflation, interest rates and deficits. In the
expected performance, the key assumption is four per cent real growth. In the poor performance scenario this drops to three per cent,
whereas in the strong performance scenario growth increases to 5.5 per cent.
Source: World Bank (2000) Managing Government Debt and its Risks. MOF, Bl.
3.4.    Debt  is  hardly  the   Government's  only    amount that is more than the combined spending in
headache. The single largest item on the budget one year of all of Indonesia's officially poor.t"
after interest payments is fuel subsidies. This year, Repeated attempts to cut subsidies -even while
these  subsidies  are  4.5  percent of GDP  -    an    protectingthepoor-haveprovedtobepolitically
21



Box 3.1: Contingent liabilities: the case of PLN
The state electric company, PT Perusahaan Listrik Negara (PLN), recently announced a twelve-fold increase in
losses of up to Rp. 11.58 trillion (US$1.4 billion and equivalent to about one percent of GDP) in the first six months of 2000
compared to Rp.974 billion for the same period last year. This occurred despite a 30 percent increase from last year in net
revenues. The primary reason for this was the currency depreciation that resulted in a doubling of debt service payments (to
Rp.5.3 trillion in the first half of 2000 compared to Rp.2.9 trillion during the same period last year), and surging operating
costs (to Rp.12.3 trillion between Jan-June 2000 compared to Rp.8.76 trillion during the same period last year). The company
suffered Rp.3.5 trillion in foreign exchange losses during this period. Because PLN is a wholly state-owned entity, these
financial losses will impose a fiscal burden on the Govemment - eitier through explicit budget support, or through reduced
revenues from PLN.
Source: Jakarta Post, September 1, 2000.
difficult with the May  1998 riots still fresh in   Development spending underpressure
people's minds. The necessary price increases
have also become too steep to handle in one go. At  3.7.    Development spending  has seen  better
an oil price of US$28, the price of ADO  would   days.  Its share of the total budget has declined
have to go up by 150 percent, and the price of  from almost half in 1996 to what is now less than a
kerosene by as much as 400 percent.  The new    quarter. In real terms, spending has been cut by
cabinet has now made the brave decision to make a   almost a third  between  FY   1994/95  and  FY
start, and increased fuel prices by an average 12   1999/00. The decline was partly due to the crisis,
percent on October 1.                                  which compressed all spending except subsidies
and interest payments. Moreover, the crisis may
3.5.    The third  item  that looms increasingly   have reduced the need for development spending,
large on the budget is personnel spending. After   which is complementary to private investment. In
this year's 30 percent increase, the wage bill -    fact, public sector investment fell less sharply than
which also covers civil service pensions -  will top   private investment during the crisis' vi  Finally,
five percent of GDP.'   The amount spent on   compared  to  other  countries  in  the  region,
personnel could  change  over time  with  civil  Indonesia's  development  spending  has  been
service reforms (Chapter 5), but in the short run,  historically high, and despite its decline during the
even if the Government refrains from further wage   crisis, spending is now at Korea's pre-crisis level
increases, most of this spending is fixed. In fact,  -  hardly a sign of gross neglect (Figure 3.3).
the wage bill will increase automatically by about  True, Indonesia as a developing country may have
five percent a year due to promotions, aging and   more  government  investment needs, but the
the  changing  family  circumstances  of  civil  question is whether current fiscal circumstances
servants.)i                                            allow for them.
3.6.    Taken   together,  interest   payments,                      Figure 3.3: Historically high
subsidies, and personnel spending  absorb more           (Capital spending average 1995-98, percent of total and of GDP)
than four-fifths of government revenues. They put               P=t
severe pressure on the budget, and it is particularly      VW-
evident in the development budget, which has                Thd
decreased by more than a third in real terms since         b   -
the onset of the crisis.  This pressure may well           -R
increase when decentralization begins next year.
This chapter, therefore, first addresses the question
whether the cuts in development spending  are               .                                   rotal
undermining  sustainable  development.  It then
assesses the fiscal impact of decentralization, and
concludes with outlining fiscal policy options that            0o0  5s '00   Iso a 00    a  30.0  M5,  00
can resolve the dilemma of development spending          Source: World Bank SIMA.
and fiscal sustainability.
22



3.8.   Intemational comparisons are hard to  these  funds  were  diverted  regularly  from
make, because Indonesia mixes development  reforestation.
spending with expenditures that other countries
consider recurrent.   Wage elements such as  3.11.  Military spending has traditionally taken
honoraria  and  project management fees are  only a modest share of the development budget.
included in the development budget, and routine  But appearances deceive: the military has had
maintenance is often "projectized" and put on the  access to substantial off-budget funds, mainly
development budget. Donor funded projects -   through the business interests of the foundations
fully included in the development budget -   under its control."x  Thus, although budgetary
regularly finance recurrent spending such as books  spending on the military and the police combined
and medicine.   Defense spending, which by  is only about Rp.10 trillion, or barely one percent
international convention should be included in the  of GDP, independent observers estimated the true
recurrent budget, shows up largely as development  amount to be closer to three percent of GDP (about
spending in Indonesia. Finally, there is a general  0.5 percentage point higher than the average in the
impression that part of the development budget is  East Asia region).X Even that is not a huge sum,
used less than efficiently.viv                though, and it is probably decreasing, because like
any business, military firms suffered during the
3.9.   Despite these difficulties, there is little  crisis. The downside of this funding squeeze is the
doubt that development spending declined. Within  increasing reports of extortion by military units
this shrinking pie, spending on infrastructure  across the country.'" On the upside, there is a way
suffered the most, sometimes at high costs. For  for the  Government to   pay  all military
instance, the 500-volt transmission network has  expenditures from the budget, in exchange for
gaps that prevent power suppliers from hooking  which the military would have to give up control
up, forcing PLN to pay for expensive power that  of its business interests.  Revenue from these
cannot enter the grid. And the inadequate and  businesses would then finance the military's extra
poorly   maintained  rural  infrastructure  is  on-budget spending, or better still, these business
undermining the Government's efforts to reduce  interests could be sold to reduce state debt'x" In
poverty (Chapter 4). The Government's emphasis  1998, such a deal was struck between China's
on community-based infrastructure therefore seems  government and its military, and the signs are that
appropriate.                                  the deal sticks.
3.10.  The declines in the social sector spending  3.12.  The decline in the development budget
is of concern. While the Government managed to  notwithstanding, it still contains various shades of
channel funds towards a social safety net, overall  white elephant, with more waiting in the wings.
social spending  in  the  development budget  For instance, the Government still invests in ports
dropped. This fiscal year, it is about 40 percent  and airports, an activity that could be left to the
below spending in FY 1995/96 in real terms. True,  private sector.  Instead of concentrating on the
because of large physical expansion in the past less  provision of a sound regulatory framework to
physical expansion in schools and hospitals is  allow such investment to happen. The same goes
needed now. And despite lower spending, school  for  telecommunications,  and  indeed,  the
attendance has hardly come down -  in part  Government has already taken up plans to this
because of the Government's scholarship program.  extent. Expensive and large infrastructure projects
But maintenance, material, and equipment costs  should be shelved at the current state of the
are usually paid for from the development budget  economy and the budget
too, and continued low funding could therefore
affect the quality of social services. Agriculture,  3.13.  In  sum, it is hard  to  say  whether
forestry and irrigation spending dropped even more  development spending falls short of needs on
in real terms -  about 50 percent since FY   aggregate.'""    But some  sectors have been
1994/95.  And the reality is even harsher: the  particularly hit during the last several years,
figures for the last two fiscal years include  whereas in others there is still "fat." This suggest
commitments from the reforestation fund for this  that the best way forward is re-allocating scarce
sector. However, a recent audit confirmed that  budgetary resources towards those sectors essential
23



for sustainable growth, and to save on the cost of  projects; approvals by the MOF are required for
investment by better budget implementation (see  foreign loans.
below). However, now is not the time for a rapid
expansion of the development budget- especially  3.17.  The    Government's   decentralization
when  decentralization  may  make  budgetary  program  carries significant risks for both state
pressures worse before they get better.         budget deficit and  service  delivery.    The
fundamental reason for the risks is that despite
The fiscal impact of decentralization           high expectations in the regions, decentralization
will initially be a zero-sum game at best. The
3.14.  Indonesia  is on  the  verge of major  existing government apparatus and most ongoing
decentralization. If managed well, the archipelago  projects must be financed after decentralization
stands to gain much, because it is unusually  also. Moreover, there will be less fiscal means for
centralized for a country of its size and diversity.  the general government, because the deficit is set
Moreover, there is a strong political imperative to  to shrink according to commitments in the LOI.
decentralize, to counter the centrifugal forces  Only over time will resources free up because of
within the country.  Laws 22 and 25 of 1999  retiring civil servants, closing projects or larger
stipulate a drastic increase in the regional share of  government revenues.  However, most regions
general government spending. Estimates suggest  want the money now, preferably without the
that when decentralization is fully implemented,  expenditure responsibilities that come with it.
the regions will spend about eight to nine percent
of GDP, or well over 40 percent of general  3.18.  The coincidence of administrative and
government spending, and more than double what  fiscal decentralization is also problematic.  The
they spend now.  Three hundred and fifty plus  center's deficit tends to widen if more revenue than
districts and cities will control the bulk of this,  expenditure is decentralized, or if the revenue is
because the provinces will play only a minor role.   allocated to regions that do not receive equally
large expenditure.  If more expenditure than
3.15.  In contrast to the increase in regional  revenue is decentralized, services may fail due to
spending, the regions' own revenues will rise only  lack of funding.  On aggregate, the minimum
slightly. Revenue sharing, a general grant, and  transfer to the regions - about 5.3 percent of GDP
specific grants will make up  the difference  - is not particularly large because it is already 3.7
between the two.   Revenue sharing will be  percent. Nevertheless, the risk of a shortfall is
significant, but is largely for the few lucky regions  possible for two reasons.  Firstly, only a few
that have natural resources. Benefits will mainly  regions receive significant resource revenue shares,
accrue to six provinces, and eight districts within  and these are unlikely to be matched by an equal
those provinces, which have abundant natural  amount of spending obligations -  for example,
resources -  particularly oil and gas.xIv  Other  Riau is unlikely to take on external debt service.
minor sources of revenue sharing include mining,
forestry and the real estate transfer tax. Together  3.19.  Secondly, the general grant allocation will
they will take up about 1.3 percent of GDP next  be distributed by a formula, which by law should
year.                                           equalize fiscal capacity across the country, based
on objective indicators of needs. This is sound in
3.16.  The main source of revenue for most  principle, but the resulting distribution of funds
regions will be the general grant. This grant will  across regions may not match the distribution of
be a minimum  of 25 percent of 'domestic'  expenditures  resulting   from    administrative
revenues'v and about four percent of GDP. On top   decentralization. Those regions that receive more
of that, central government can award special  revenue than spending obligations will use the
grants, but the amount will have to be small in the  extra money for other things. Those that receive
current  budget  environment'v"       Regional  too little will come back to the center for more,
governments will also be allowed to borrow, but  backed by a guarantee in the law that decentralized
there will be a ceiling for the total debt and debt  functions should be financed. Moreover, resource
service for each  region.   Law  25  reserves  revenue sharing  is likely to put a limit to
borrowing for revenue-generating infrastructure  equalization.
24



3.20.  At this point in time, a major change in the  consider whether restricting regional borrowing
decentralization plans no longer seems to be an  should be limited to infrastructure projects with
option.x"i However, next year's budget suggests  financial rates of return only, as Law  25/99
that not all spending will be decentralized in one  prescribes. And the Government should develop a
go. The Government should now focus its efforts  framework that gives regions access to donor
on containing the risks of decentralization. Firstly,  finance, as the regions will become responsible for
a proper strategy is essential to devolve the  the functions that the donors traditionally finance.
administration in an orderly way.  The more
expenditure responsibilities the center can devolve,  3.25.  Finally, the Government should plan for
the less the risk of a larger deficit; and the more  implementation setbacks.  It should have crisis
orderly the devolution, the less danger of service  units in the line ministries and core agencies; such
breakdown. Agreement with the regions on such a  as, MOF and Home Affairs, to respond quickly to
strategy can be reached through the DPOD, an  major or minor hiccups in the decentralization
important consultative body that has only recently  process. It will also need to allocate resources to
become operational.                            build capacity at a local level.  And it should
budget for contingencies to ensure sufficient funds
3.21.  Secondly, the regions should be briefed  are  available when needed.  Such contingency
thoroughly on the decentralization plans, the new   allocation will further limit the funds at the
regulatory  framework,  and  the  expenditure  disposal of the development budget, but it will be
responsibilities and funding that they can expect  money well spent.
next year.  It is urgent that the Government
organizes meetings among districts, cities, and  Policy options for fiscal sustainability
provinces to sort out any uncertainty about
responsibilities, to arrange for a process to re-  3.26.  The  Government can  maintain  fiscal
delegate district functions to provinces, and to  sustainability while safeguarding the spending
agree on joint operations of functions with large  necessary for sustainable development. Beyond
spill-overs across districts.                  implementing the policies that accelerate growth, it
-must do more by improving budget management,
3.22. Thirdly, the Government should ensure raise revenues, and cut wasteful spending.
that the regions' financial accountability is in  Privatization and asset recovery will help reduce
place. The devolution of large amounts of state  the need for foreign financing, and will, therefore
resources to a level of government that has had  reduce foreign debt and financing in time But for
little past experience risks the money being abused.  now, for  financing     in time.
Establishing strict internal and external financial  now, donor financing remains crucial.
reporting rules -  including sanctions on non-  3.27.  Improving fiscal management. Improving
compliance -  enhances the chance for auditors  fiscal management would not only save taxpayers
and the civil society alike to limit such abuses.  money, but would also contribute greatly to better
movenneybuwol (Calsor conriut gReatlys to better
3.23.  Fourthly, regional finance should be put  goverance (Chapter 5).  Reforms in budget
onto a firmer footing. The reliance on transfers  processes, financial management and procurement
ont afirerfoomg  Te rllnceontrasfrsare  all urgently  needed.    The  analytical
from the center is devastating for accountability,  unerpinningsnare  neede d   The Goveytment
because the regions can always blame Jakarta for  hadaready  are implementing them  several
sending toolittle mone. Expandingthe regions   has already started implementing them: several
sending too lttle money. a Expanding the regions   draft budget-management laws have been in
own tax base and allowingemth                  circulation for some time now, and Keppres
change tax rates are therefore urgent.         18/2000  aimed  at improving  the rules and
3.24.  The Govemment should carefully consider  regulations   for   govemment   procurement.
However, both fall short of what is needed to reach
the regulatory framework for regional borrowing. international standards.
Macroeconomic concerns would call for control
over total regional borrowing in addition to the  3 28.  Particularly in the case of procurement,
affordability  constraints  on  borrowing  by  i
idvdarein. Th  Goemn shul als  intemnational standards are playing an increasing
role in agreements ranging from WTO to APEC,
25



and the Government should prepare to meet them.  risks to the budget such as contingent liabilities in
International standard procurement rules -  such   banks and state enterprises should be monitored
as those laid down by the World Bank - allow for  and managed. A well-resources debt unit could
equity considerations, like the ones Indonesia has  take on that task as well.
for small enterprises. But they do so in a non-
distortionary manner, by giving generic preference   3.30.  Raising revenues. Excluding oil revenues,
to domestic firms through a price margin, for  Indonesia's tax take of the economy is too modest.
example.  Even so, experience in intemational  With about 11 percent of GDP in taxes, the country
competitive bidding shows international or large  is out of line with the region (Figure 3.4) --and
firms are generally eager to tie-up with smaller,  consequently appears to have the potential to raise
local firms, and provide capital and technology   more taxes. The Government has already passed
transfer in the process. Limiting certain contracts  revisions to several tax laws that can increase
for small, domestic firms, on the other hland, is  revenues by broadening the tax base.xIx  At the
merely  an  invitation  for  inefficiency,  and   same time, the measures to phase out Batam
sometimes graft. Transparency and civil society  Island's tax advantages have been delayed, and
oversight should  become part and  parcel of  plans to expand rather than limit tax-free zones
procurement to avoid the latter.                  continue to be under debate. Indonesia's low taxes
are probably not a decisive factor for investors at
3.29.  The sheer size of the government debt has  this point in time. Instead of generating further
made its management a crucial part of fiscal  investment, granting generous exemptions will
management. In the short run, the Government  lead to a windfall for those who had already
faces issues of liquidity of recap bonds, fiscal risks  decided  to  invest -   or worse, for foreign
entailed in the debt, and the exposure to further  treasuries.
contingent liabilities. Over time, it must address
the huge task of (partially) refinancing the debt, for  3.31.  For now, rate increases are not necessary
which  it will need  a  thriving  market for  for raising revenues. The weak link in Indonesia's
government bonds. The Government has already   efforts to raise revenues is administration. Take
created a debt management unit in the MOF to  personal income tax: the Government's assessment
handle these and other issues.   Staffing and  is that out of a potential 20 million income-tax
equipping such a unit is a priority, as well as  payers, only a pitiful 1.3 million are actually
linking its activities to fiscal policy, the treasury  registered - half of whom are untraceable because
and cash management.  In addition to debt, the  their listed addresses are incorrect'Y  Some of the
tax dodgers are found in the best circles: the tax
authorities revealed that hundreds of MPR
Figure 3.4: Not taxing              members did not pay their taxes. For those that do
(Tax revenues GDP, average latest available 5 years)  p
pay taxes, the administration IS a nuisance: If one
25.0 of GDP                                     dares to ask for a perfectly justified refund, one is
most likely to be audited - and frequently end up
20.0                                            having to pay the auditor rather than the treasury.'
1.0.                                            3.32.  The state of the tax administration makes
the current plans for a tax amnesty a risky one.
10.0                                            Rather than raising more revenue, the amnesty may
actually reduce it, as those paying taxes now may
5.0                                             stop doing so, if they know  they obtain an
amnesty. Only if the tax administration is ready to
0.0                                             perform, and is serious about penalizing tax
Tax revenue. percent of GDP     dodgers, would there be an incentive to pay up
but, in that case, no amnesty is required.
Note: Indonesia includes tax revenue on oil and gas, but excludes
resource rents.                                   3.33.  Phasing out subsidies. The Governuent is
keenly aware of the burden fuel subsidies place on
26



the budget. On October 1, after six months' delay,  privatization,  these  sectors  require  a  firm
fuel prices were increased by an average  12  regulatory framework, a break-up of monopolistic
percent. The Government plans a further increase   elements, and independent regulators.  In cases
of 20 percent on April 1, 2001. This is a good   where  state  enterprises  already  operate  in  a
start, but there is a long way to go before fuel  competitive  market (e.g., cement and  steel),
prices equal opportunity costs of energy. To retain  privatization   can   be   effected  immediately.
its political resolve, the Government must turn the  Unfortunately,  revenue  prospects  for  those
reduction in subsidies into political capital, rather  enterprises are not great, and even less so in the
than the liability it is now. It has already started   current  state  of  investor  confidence.    The
doing so by announcing it will use the savings  Government should also start to plan to privatize
from the fuel price increase on community-based  the state banks (Chapter 2) and sell its equity
infrastructure.  A  more aggressive campaign is  stakes in the recapitalized banks.  According to
likely to be needed to support the further increases  current estimates, this could raise about 2.5 percent
-  and to take the wind out of the sails of fuel  of GDP -  but only if the Government seeks
smugglers, the only ones who will never be   strategic investors rather than floating minority
convinced of the merits of market-based fuel  shares.
pricing.
3.35. Recovering Assets. The Government must
3.34.  Accelerating  privatization   and   asset  continue to recover assets inherited  from  the
recovery. The Government's privatization plans as  bankrupt banking system, and not solely for fiscal
detailed in the Privatization Master Plan should be  reasons (Chapter 2). The sheer size of the IBRA
accelerated. The Government is keen to move on   assets make a shortfall in sales receipts probably
telecommunications,  which  tends  to  have  a  the Government's largest fiscal risk, and  an
concentrated market structure, along with others  aggressive recovery effort is called for. However,
such   as  petroleum    distribution.     Before  expectations of recovery are now  more modest
Table 3.1: Budget fiscal year 00 and draft budget fiscal year 01
Percentage of GDP                     US$ billion
Budget 00  Estimated  Draft budget  Budget 00    Estimated    Draft budget
outcome 00       01                    outcome 00        01
Revenue                     16.8        19.6        17.2         21.8         23.2          33.3
Expenditure                 21.6       23.0         21.0         28.1         27.2          40.4
Deficit                      4.8        3.4          3.7          6.3          4.0           7.2
Domestic financing           2.8        2.3          2.3          3.6          2.7           4.4
Bank financing          0.0        0.0          0.0          0.0          0.0           0.0
Privatization           0.7        0.3          0.4          0.9          0.4           0.7
Asset recovery          2.1        2.0          1.9          2.7          2.4           3.7
Net External Financing       2.1        1.1          1.4          2.7          1.4           2.8
Amortization                 2.6        2.8          2.7          3.4          3.3           5.2
Gross External Financing     4.7        3.9          4.1          6.1          4.6           7.9
Non-CGI Financing*           1.7        1.9          1.7          2.2          2.2           3.0
CGI Financing requested      3.0        2.0        2.3-2.6        3.9          2.4         4.5-5.0
* includes Paris Club and London Club Rescheduling.
Note: Figures may not add due to rounding.
Source: MOF.
27



than  last January, when  the World Bank  still                       Figure 3.5: Falling short
anticipated  total recovery to be above Rp.200              (Pledges and actuals of project and program finance,
trillion.  First and foremost, this is due to the                     FY98/99-FYOO, US$ billion)
sizable debt forgiveness implicit in recent IBRA            us$
deals with its large debtors. It is also caused by the    go
deterioration of the medium-sized loan assets held        so                   pg
by the AMC, as well as shareholders' assets               70    |
pledged in the MSAAs, which have proved to be              so
worth much less than expected. The Government is          4         _
still contemplating who should make up for the                           Program
difference.                                               3 'L
20
The role of the donors                                    o .
FY IS1         F 19SIW           FY 2W-
3.36.   Donors have supported the Government              *'preliminary outcome.
through the crisis and on into recovery. Through          Source: World Bank, MOF, BI
project and program finance and rescheduling,
such  support has prevented  a collapse of the   money played its role as a line of credit the
development budget, and enabled a quick return to   Government could draw on in times of need. This
macroeconomic  stability, because  of the  non-  helped to stabilize the markets.
inflationary nature of foreign financing. Yet, more
often than not, the Government has not used all the   3.37.   Even   with   significant  fiscal  policy
support pledged at CGI meetings (Figure 3.5). This   measures to reduce the deficit, foreign financing
was partly  due  to  the  rather chaotic  budget  remains crucial. Next year, the deficit is budgeted
implementation  during  FY   1997/98  and  FY   to be about 3.7 percent of GDP (Table 3.1), lower
1998/99,  which  led  to  a  dip  in  project  than the FY  2000 budget, although roughly the
disbursement.   Project disbursement has much   same as this year's expected  outcome.   This
improved since then, but the shortfall in program    projection, which is based on a conservative oil
financing remains. In part, there was simply less   price  estimate  of  US$22/barrel,  includes  a
need for it over the last 18 months, because of the   contingency of about 0.5 percent of GDP, both for
windfall in oil, but the Government also did not  decentralization and for uncertainties in the budget.
meet all the policy objectives that would have   Asset recovery and privatization are expected to
triggered financing. Nevertheless, the committed
Box 3.2: Using aidfor sector reforms and investment: the example of WA TSAL
To improve the fiscal, economic, environmental and social performance of its vital water resources and irrigation
sector, Indonesia is undertaking a comprehensive policy paradigm shift and sector management institution reform as part of
IBRD balance-of-payments support commitment. The principles of the reform are transparent sector governance, greater
agency accountability, and public-private partnerships, community participation.
The reform agenda includes: (a) a national water resources and irrigation policy; (b) a new water resources law and
a new sector legal and regulatory framework; (c) redefinition of the roles, mandates, organization, financing mechanisms
and, management control and information systems of national, provincial, river basin and district level agencies; (d)
integrated inter-govemmental decision-support and data networks; (e) improving water pollution control to include financial
and fiscal regulatory instruments; (f) transferring irrigation network management to autonomous, legally empowered and
self-financing water user associations their federations; (g) stakeholder participation in all provincial and river basin policy-
making bodies including a National Water Resources Council; and (h) sector adjustment to administrative and fiscal
decentralization legislation.
Based on public consultations, the reforms are being prepared by an inter-governmental and NGO task force under
the Coordinating Minister for Economy and Finance with support from several donors. The donors will collaborate with the
Government in preparing a national water sector management program which will consolidate the new policies and
institutions emphasizing sustainable sector management over infrastructure development. The program will consist of
individual donor projects, all following common program principles and strategies under joint oversight.
28



raise about the same share of GDP as this year's
expected outcome.  Net foreign  financing needs,   i According to WDR  2000/01, the poorest 10 percent of the
therefore, amounts  to  1.4  percent of GDP, or   population spends about 3.6 percent of all household expenditures in
lndonesia.
US$2.8  billion.   Amortization  will be  US$5.2    vlncludingpensions and personnel transfers to the regions.
billion  next year, resulting  in  a gross  financing    vi For next year, however, the Govemment has decided to consolidate
need of US$7.6 billion.  However, Indonesia will   some allowances with the base wage. Because family allowance is
the  benefit  of rene ed rescdefined   over  base  wage,  this  causes  an  extra  increase  in  personnel
enjoy  the  benefits  of renewed  rescheduling  of   spending.
US$2.8 billion under the Paris Club, and US$0.3    v Whereas over 1993-1997, the public share of domestic investment
billion under the London Club. The CGI financing    declined from 25 percent to less than 21 percent, it shot back up to
almost 35 percent in 1999. Source: BPS, Staff estimates.
needs will therefore be to the order of US$4.5-5    viii This impression is confirmed by findings of the World Bank
billion.  The higher number is slightly more than    (March 2000) Country Procurement Assessment Report. The new
the fgurepleded fo  FY   000,but nxt fscalyear economic team  also buys into this perception: the "Ten Point
t f r l e o 2f l y Program" states that by cutting waste in the development budget, the
will comprise  12 months, instead of only nine in   same results with less spending can be achieved.
FY 2000.                                                          it The Yayasan are: I)Armed Forces (TNI-AD): Yayasan Kartika Eka
Paksi, Yayasan Kesejahteraan Korps Baret Merah (KOBAME), Induk
Koperasi AD-INKOPAD, Primer Koperasi AD-PRIMKOPAD; 2) Air
3.38.   For       donors,    improving            budgetary    Forces (TNI-AU): Yayasan Adi Upaya, Yayasan Dirgantara, Induk
processes  and  project management takes  on  a   Koperasi AU-INKOPAU, Primer Koperasi AU-PRIMKOPAU; 3)
Navy Forces (TNI-AL): Yayasan Bhumyamca (Yashbum), Induk
particular  importance.   Now   that the  crisis  is   Koperasi  AL-INKOPAL;  4)  Police   Department:  Yayasan
abating, donor contributions will shift from  budget   Bhayangkara, Yayasan Brata Bhakti Polri, Induk Koperasi Polisi-
support back to project financing   Inthe course of   INKOPPOL,  Primer  Koperasi  Polisi-PRIMKOPPOL,  Yayasan
supprt bck t  proectfinancing. In tecusof Keluarga Besar POLRI; 5) The Headquarters: YayasanMarkas Besar
fiscal consolidation, more room   for a revamped    ABRI (YAMABRI); 6) Department of Defense & Security: Yayasan
development budget will open up. The WATSAL    Sudirman, Yayasan  Maju  Kerja, PT. Asuransi Sosial ABRI
(ASABRI). 7) Ground Forces-Strategy Commando (Komando
is  a  fine  example  of  how   Government,  civil   Strategi  Angkatan  Darat-KOSTRAD):  Yayasan  Darma  Putra
society, and donors can work together to change    KOSTRAD; 8) Special Ground Forces (Komando Pasukan Khusus-
policy, programs, and project management to best   KOPASSUS): Yayasan Kobame. An informal review of 88 Yayasan
firms reveals that they have a tumover of Rp.2.9 trillion 1998 or 1999
meet  Indonesia's  needs  (Box  3.2).    Improved    (0.2 percent of GDP).  Profits, however, are low, and some 21
financial management and procurement processes   companies closed down over the crisis.
and  ciil soiety  mnitorng  shuld  enure  tat,   ,Source: The World Bank SIMA, based on IISS data.
and  civil society  monitoring  should  ensure that,  xi Michael Ross: Civil conflict and natural resources-The case of
once allocated, the money gets spend as intended.   Indonesia, mimeo, World Bank.
Donors are  eager to  work  with  Government to    'i The military foundations have recently been audited, but at the time
of writing no details of the audit were available. BPK did not release
support  all  of  these   elements   of  a   sound    the total amount of funds available in the foundations, but did publicly
development program.                                              give its stamp of approval over the use of funds by Kostrad, the
strategic arny reserve. Jakarta Post, September 20, 2000.
"' Judging the adequacy of spending would be aided greatly by
3.39.   Indonesia          can        matntain         fiscal   information on ex-post rates of retum  on completed projects but,
sustainability, but it will be  hard  work.   The    unfortunately, the Govemment has no such data - nor for that matter
Government must increase  spending  efficiency,   maintains data on the impact of spending on the poor.
Govemmentmust incrase   spening   efficency'   ."Fifteen percent of non-tax on-shore oil revenues is shared with the
reduce wasteful subsidies and raise more taxes. It   producing region, three percentage point of which go to the province,
should    also    contain   the    fiscal   risks    of   six  to the producing district and  six to the other districts in the
region. For gas, the figures are 30, 6, 12, and 12 respectively.
decentralization, state-enterprise operations and the   xv Apparently, 25 percent of revenues before revenue sharing. This
banking system. But perhaps the decisive factor in    effectively increases all sharing rates.
the  short  run  is  IBRA's  asset  recovery  and    xv Some of the development spending of the central govemment
implemented at the regional level should be considered an alokasi
enterprise  restructuring.  Not  only  should  this   khusus.
maximize  government income, but it should also   'vs In the previous CGI brief, the World Bank suggested a phased
*                                            ~~~~~~~~~~~~~~~~~approach to decentralization.
achieve the enterprise restructuring  necessary  for aprchtdenrlito.
achieve   xv""' See  the various IMF Technical assistance reports on budget
more  rapid  growth.   And  rapid  growth  is  the    management, the World Bank (April 2000) Public Spending in a Time
Government's best hope for fiscal sustainability.                 of Change, the (draft) Country Financial Accountability Assessment,
and the (draft) Country Procurement Assessment Report.
"' One of these changes is likely to affect donors to some extent.
Endnotes                                                          Whereas contractors on donor funded projects were previously
income-tax exempt, PP No. 43/2000 suggest this is no longer the case.
At this point, it is unclear whether the various bilateral aid treabes
' The expected decline in interest rates will be offset by the higher  Indonesia has signed with donors override this PP.
level of debt due to the completion of the recapitalization program this  Based on statements of the Director General of Taxation, MOF, as
year.                          .                                  quoted in the Jakarta Post, July 31, 2000.
Oil revenues provide a hedge against fluctuations in the Rupiah.  -i Investnment Coordinating Board, Directorate General of Taxes and
The World Bank 2000, Public Spending in a Time of Change.       The Joint Chamber Forum, August 30, 2000.
29



Chapter 4. Attacking Poverty
4.1    The previous chapters focused on short-  4.5    And then the crisis hit. The deficiencies of
term challenges to growth and stability. With this  Indonesia's development approach, which had
chapter,' we proceed to Indonesia's medium-term   been praised by many including the World Bank,
challenges. And where better to begin than with  were exposed to increasing scrutiny and criticism.
poverty reduction the most important challenge  This forced a critical re-evaluatiop of Indonesia's
facing   Indonesia.     All  other   efforts:  approach to development, and most especially its
decentralization,  civil  service  reform,  bank  policies toward the poor and near poor.
restructuring, debt management, macroeconomic
policy, education reform and even political reforms  4.6    The economic crisis raised fears of large-
will, and should be, judged by the extent to which  scale social unrest, creating an imperative for
they contribute to raising the broad standard of  action.  In response, the government launched
living of Indonesians, especially the poorest.  several "social safety  net"  (JPS) programs.
Experience from these programs reveals pattems
Assessing Poverty                             which also shed light on the strengths and
weaknesses of the development approach that had
4.2    Poverty is often described in terms of  contributed so much in the past, but had come up
material deprivation based on measurements of  short. In particular, it shows:
expenditures (Box 4.1).  While this provides
insight into one of poverty's dimensions, it does  * that government has the capacity to bring to
not do justice to the daily realities of life faced by    scale quickly and implement reasonably well
many Indonesians, who confront a wide range of    programs that have simple objectives and clear,
deprivations, including: inadequate shelter, health,    easily communicable, benefits (for example,
nutrition, and education; lack of access to safe    OPK- Special Rice Operation);
water; inadequate means of mobility; extreme
vulnerability to ill health, economic dislocation,  * the implementation of programs that require
and  natural disasters;  social exclusion  and    quality of service, institutional commitment,
exposure to ill treatment by institutions of the state    complex objectives, and local discretion was
and society; and powerlessness to influence key    much  more  problematic  because  socially
decisions affecting their lives." Losing a job, a    legitimate decision-making and accountability
problem with health, a family emergency all of    mechanisms are not in place; and
these can make even the well-off vulnerable to
poverty.                                      * government programs did not work in synchrony
with the variety of "informal" safety nets, as
4.3    Once the multi-dimensional breadth and    individuals, communities, and groups galvanized
dynamics of poverty are acknowledged, poverty is   themselves to help each other cope with the
a reality that, in one form or another, confronts    consequences of the crisis.
more than half of all Indonesians (Box 4.2) and
hence must be of concern to all Indonesians as  4.7    Even before the crisis, limitations in the
well as those aspiring to support Indonesia's  govemment's strategy and capacity were apparent.
development.                                  Government programs, whether financed from own
resources or by donors, were chronically:
4.4   In the thirty years between 1967 and 1997,
Indonesia's growth rate was among the most rapid  * underfunded for routine operations and reliant
in the world. That rapid growth had broad-based    on  the  development budget -   creating
benefits and was accompanied by enormous    incentives to use informal mechanisms for
improvements  in  living  standards  of  the    raising funds;
population.   Poverty by most standards fell
dramatically, infant mortality declined, school  . unresponsive to local needs -  programs were
enrollments climbed, and the provision of basic   top down in design with no one accountable;
infrastructure (water, roads, electricity) increased.
30



Box 4.1: Many different poverty lines: many different poverty measures
Different institutions use different poverty lines, based on different methodologies, for different purposes.
The poverty line used by the World Bank when making comparisons across countries is expressed in US$
a day - say, US$1.50 per person per day. To ensure strict comparability, the poverty line is based on a
purchasing power parity (PPP) exchange rate anchored in 1993 prices which adjusts for different relative prices
across countries. This is appropriate because the resulting poverty measures for different countries is useful
information when allocating development resources across the developing world.
In the case of Indonesia, the national poverty line is calculated by BPS (Central Bureau of Statistics).
BPS' poverty line is set lower than the international poverty line set by the World Bank. Not surprisingly, the
poverty rate calculated from the BPS poverty line is lower than the World Bank's estimate using its international
poverty line. National poverty lines are set when analyzing poverty within countries. They are useful because
they provide a national reference point based on some socially-accepted norm of when a person or family is
considered poor. These poverty lines allow countries to identify the poor - where they live, what they do, and
how they can be reached - so that development programs can be designed accordingly.
But even national poverty lines yield different estimates of poverty rates, because different surveys lead to
different results. While a large number of surveys are available for the crisis period, they are not all comparable
with one another. We are reasonably certain that the poverty rate peaked sometime in late 98-early 99 and has
declined since. Here we show estimates based only on SUSENAS data but even so, there are issues of
comparability between the mini SUSENAS and the full SUSENAS surveys, both on account of sample size and
unknown effects of seasonality. So while it is reasonable to conclude that poverty levels have declined between
December 1998 and August 1999 based on the mini SUSENAS, it is not possible to specify the magnitude of the
decline since the last full SUSENAS was only in February 1999.
Boxfigure: Trends in the poverty rate
(Using BPS' revised poverty line)
Poverty rate (%)                     Mini-Susenas
24                                       24.2
23                                                  Full Susenas
22
21
20-
19 
18 -                                                    18.2
17.6                            ~~~~~~~~~~Mini-Susenas
17 -Full Susenas
16 
1996           1997           1998           1999
31



Box 4.2: Measuring vulnerability
Half of the Indonesian population is at risk of falling into material poverty.
Measuring a "vulnerability-to-poverty rate" that is directly comparable to the more standard headcount measure
of the poverty rate has never really been done before. But a draft World Bank report: Poverty Reduction in Indonesia.
Constructing a New Strategy tries to do just this. It defnes a household's level of vulnerability as the risk a household
faces of seeing its expenditures drop below a pre-defined poverty line. We define a household as vulnerable to poverty
if this measure of risk exceeds 0.5 over a three-year horizon. In other words, a household is defined to be vulnerable if
the probability of its expenditures falling below the poverty line over three years is greater than 50-50.
The key innovation was to use data that tracked individual household expenditures over time and measure their
variability. Remember that such a measure of expenditure variability already accounts for whatever "smoothing" of
incomes that households do -  through informal insurance, savings, and other coping mechanisms.  Despite such
smoothing, expenditures of households are very variable, and this is confirmed in a variety of surveys. The bottom line
is that over half of Indonesia's households are vulnerable to poverty over a three-year horizon
The concept of vulnerability applies to other dimensions of poverty as well. The health of household members,
or the education status of children in a household, can suddenly change. Even the social situation of households can
alter over time, for better or worse. Unfortunately, data on these different dimensions are scarce, and the World Bank
report does not measure these characteristics of vulnerability.
These dynamics means that it does not make sense to think of "the poor" as a distinct group. Those who are
experiencing poverty are a very fluid group, changing from year to year while most households face some substantial
risk of experiencing poverty at some time and hence will at some time find themselves 'poor."'
* inflexible with government officials possessing   credit to privileged firms, seize communal lands
little  discretion  at the  "client"  level and  for  "development"  projects,  and  manipulate
receiving little support; and                    contracts.
* uncooperative  with  pre-existing  community   Constructing a strategy for the future
groups: instead of harnessing local initiative,
government efforts to co-opt or supplant local  4.9    Poverty is most successfully addressed
groups resulted in duplicate efforts.            when  there  is a  coherent strategy  a broad
consensus of purpose about the range of actions
4.8    One might conclude that the government's  that need to be undertaken and how  they fit
top-down  approach  was  needed  because  it  together. A poverty strategy should emerge from a
compensated for a lack of capability at the local  reflective, factually  informed  dialogue  of all
level.  But the reality is different. Indonesia's  stakeholders, including national and sub-national
villages have vibrant, resilient and resourceful civil  governments, religious organizations, labor unions,
societies (Box 4.3). Centralized control, top-down   universities, research institutes, women's groups,
orientation of local government, and replacement  producer groups, other civil society organizations,
of traditional social groups by vertically oriented   and donor agencies.  Most important of all, the
"interest" groupings all these changed social and   dialogue should include the poor themselves who
political relationships  at the  local level and  are seeking to exercise control over their own
reinforced  central control in  the  interest of  destiny.
"nationalization" and stability. Centralized power
and accountability helped in some ways but hurt in  4.10   Indonesia needs a new poverty strategy for
others. It helped provide schools in every village,  two reasons. First, it needs to acknowledge the
extend electricity, and build roads. But it was also   broader, multidimensional, more dynamic reality
used to form marketing monopolies, channel bank   of poverty  that includes the broad  array  of
32



deprivations, vulnerabilities, and risks people face.  multiple channels of communication about the
Alleviating poverty means creating economic and       content of programs, the resources allocated to
social conditions that empower Indonesians to use     them, and those who are accountable for their
their own assets and skills, live free from fear of   effective implementation.
material deprivation, and take an active part in the
social and political life of their community and  *  second, it must give voice to the poor. With
nation.                                               "voice", the poor can affect outcomes of
programs that are of greatest importance to
4.11   Second, the country needs a new strategy       them. Where there is only one supplier of a
because times are changing.  Indonesians have         public good such as police services or roads
launched into a historic political transition from a  the participation of citizens should be an
centralized, authoritarian system to a democratic    integral part of monitoring their performance
and decentralized government. Over the next few       and providing feedback. Where there could be
years the fundamental structure of government in      more than one supplier of a public good or
Indonesia is going to change. To combat poverty       service, the participation of citizens should
effectively,  Indonesia's  new  democratic  and       ensure that the chosen  supplier is selected
decentralized system will need to do three things     transparently for the maximum welfare of the
well:                                                 community. One voice that is often excluded
is that of women. And yet women are an
*  first, it must ensure adequate information on      integral part of poverty reduction responsible
development programs before  and  during          for a significant portion of earnings in addition
implementation. The government's monopoly         to playing their traditional role within families
over information will need to be replaced by      and households.
Box 4.3: Local capacityfor collective action in Indonesia
Despite the tendency of the Suharto regime in Indonesia to centralize development efforts and ignore local
organizations, capacity at the local level has remained quite high. A study of local institutions found that:
4  more than 80 percent of respondents had participated at least once in commnunity activities to meet collective
needs during the last year;
4  communities had initiated 38 percent of all development activities, far more than outside groups or NGOs, and
not that many fewer than government (53 percent);
4  most religious facilities (83 percent) are the result of community effort; more striking is that many credit (53
percent), infrastructure (47 percent) and public facilities projects (36 percent) are the result of local initiative;
4 only 67 percent of government-initiated projects were found to be reaching their intended beneficiaries, while
for locally-initiated projects, the proportion was 83 percent;
4 community infrastructure projects are better maintained; 85 percent of all community infrastructure projects
that had created facilities were still in use, whereas this was true for only slightly more than half of government-
funded facilities.
Of course, capacity across villages and communities varies widely. Unsurprisingly, those with more capacity
tend to have more, more diverse, and better quality projects. Moreover, although community projects were
generally better than government-initiated activities, failed community efforts pointed to the same persistent
problems: lack of information, skills, poor design, and intermittent and unpredictable funding.
33



*  third, is accountability.  Officials should be   the concerns of employers;  reforming the
held accountable for their actions so they react  system  for allocating  timber concessions;
to feedback with better service. Indonesia's     promoting best practice land policies including
new  democratic institutions and processes      titling; and removing distortions in formal
from the capital of the country to its thousands  credit markets.
of villages will need to develop such
mechanisms in due course, and an integral part  *  Poverty focused public expenditures.  Fiscal
of this development will be the establishment    constraints mean tough choices.  For the
of a functioning legal and judicial system.      government budget to benefit the poor, the
government needs to: reduce fuel and credit
4.12   As  Indonesia  constructs  a    poverty      subsidies that go largely to the non-poor;
strategy, the World Bank is preparing a reporl?`1   reallocate the savings to expenditure programs
aimed at providing factual analysis, presenting     that are pro-poor;  design regional transfers
themes and areas of action that are important, and  that are sensitive to the needs and capacity of
pointing to a process for making further decisions.  the poorest regions; and ensure the pattern of
The report highlights two areas of action:          spending across and within sectors at all levels
of government benefits the poor, recognizing
4.13   The policy environment. For the most part,   that program design is more important than the
families and individuals will escape poverty and    level of resources allocated.
reduce their vulnerability through their own
efforts. The government's economic policies can  4.14   Effective public services that reach the
either stymie or assist these individual efforts. In  poor.   For long-term  and  sustained poverty
particular, there are three elements of a policy  reduction, the government will inevitably be
framework:                                      involved in community development, supporting
rural strategies for raising rural incomes (for
•  Resumption  of rapid  sustainable  growth.  example, through agricultural extension), health
Policies that lead to a growing economy with  and education, infrastructure, and safety nets. This
rising real wages, expanding employment, and  second area of action for poverty strategy therefore
limited inflation will create an environment for  includes:
poverty  reduction.   Creating  a just and
competitive economy will need to go beyond  *  Improving local governance, decision making,
the standard prescriptions for growth, and       and implementation capacity. Next fiscal year
include other initiatives of special importance  onward, public service delivery and regional
to Indonesia such as eliminating "policy" and    development will become the responsibility of
petty corruption, keeping open internal trade,  sub-national governments. Though closer to
and  enabling  small  and  medium-sized          the people, these sub-national governments are
enterprises to thrive.                           still far removed from  interactions between
service providers-teachers, health workers,
*  Economic empowerment of the poor.  For           planners,  policemen,  local  officials-and
growth to be effective in reducing poverty, the  citizens. So even in a decentralized setting,
poor need to be able to have equitable access   improving public service delivery will require
to, and fair returns for, their assets and       that basic ingredients of good governance
products.   Policies governing markets for      information, voice, and accountability be built
labor, capital (finance, savings), land, and     into policy choices, budget processes, and
natural resources will help.  This is not an     program design.
agenda for redistributing assets; rather it means
policies that actively work for the poor: such  *  Basic health and education. The crisis brought
as enforcing protective legislation for labor,  into  sharp  relief the  achievements  and
including prevention of abusive child labor      problems in existing policy packages. It also
practices;  allowing labor unions to bargain     highlighted the need for reforms in education
collectively on an equal basis so that the       and  health  to  assist the  poor (and  the
interests of workers can be balanced against     population  overall).    Social  safety  net
34



programs introduced complaint resolution and       from the poor. In this context, the experience
community  involvement  approaches  that           with  formal  sector  social  insurance  in
should be retained. Future programs will need      developing countries has not been promising
to improve capacity - raise the quality of civil   but, as Indonesia develops, the evolution of
servants through training, provide workers         social protection schemes must eventually be
more  professionally  demanding  tasks and         addressed.
adequate   facilities,   provide    adequate
compensation   for  those  that  perform,  4.15   In each of these areas experience has
encourage  service-users  to  give  service-  shown that it is not just what the government does,
providers feedback, and help the poor to  nor just how much the government spends, but
articulate their needs.                        how well these services are provided.
Basic infrastructure, mobility and access. The
public sector finances the provision of services  Endnotes
that support the ability of the poor to make a
living.    But  funds  are  wasted  when   iThis chapter borrows heavily from: World Bank (September 2000).
Poverty Reduction in Indonesia: Constructing a New Strategy (draft).
infrastructure, or other investments to improve  ii World Bank 2000. Attacking Poverty: World Development Report
mobility and access, are not what people want,  2000/2001 (New York: Oxford University Press).
or poor materials and shoddy workmanship are    World Bank (September 2000), ibid.
used, or if the intended beneficiaries are
incapable of maintaining services provided.
Indeed, top-down approaches have often led to
these outcomes. To turn around the situation
will require greater community involvement
from planning to implementation, better
incentives for maintenance, and stronger
support for user groups.
* Safety nets for the poorest and coping with
shocks. Even with all of the above, there will
be individuals, groups, and regions, that cannot
cope and need assistance.  These types of
directly targeted transfer programs (like the
crisis SSN programs) are not the dominant
part, but are an important component of an
overall poverty strategy. There are four major
issues with safety nets. First, it is now time to
end the "crisis" programs and refocus on safety
nets that can be sustained while mainstreaming
poverty concerns through longer-term sectoral
agendas. Second, the ultra poor will still need
to be reached with special long-term programs
aimed at the basics: food and nutrition, health
care, and shelter through community level
targeting and expanded participation of non-
government organizations in program delivery.
Third, programs will be needed to help those
who fall on hardship but who can recover and
spring  back.   Finally, pressure  from  an
increasingly vocal and affluent urban middle
class for "social protection" must be resisted or
it could draw  attention and resources away
35



Chapter 5. Governing Indonesia
5.1.   Governance appears to have received only     media  is  exercising  its  new  freedom,
scant attention by the new  Government, and         subjecting  the  political process to  close
several scandals and disputed personnel decisions   scrutiny.
have shed doubt on the Government's eamestness
to deliver on the anti-KKN agenda that put it in  *  Civil society is broadening and deepening,
office. Although some initiatives have advanced, a  with a rapid proliferation of non-government
lack of coordination and haphazard follow-through   organizations,  which  are  spreading  the
has yielded the impression that no progress has     democratic web, and making themselves heard
been made at all. The Government must change        on issues such as human rights, corruption, and
this perception, committing to an explicit strategy  the role of the military.
of improving governance, and following through
with concrete actions.                          *  Forthcoming regional autonomy is making
local governments increasingly active, and
The political transition                            local legislatures are starting to control their
executive branches.
5.2.   Indonesia's transition from  the personal
and authoritarian rule of the New Order regime to  5.3.   These changes are not easily received,
a rules-based democratic society continues its  however, and there have been setbacks.  The
turbulent path forward.   Such a transition is  military's political role was extended until at least
inherently chaotic because the country requires a  the end of the decade, and a constitutional
dramatic transformation of various institutions.  amendment reduced the chances of its prosecution
The scope of the changes involved equals those  for past wrongdoings. Resistance from parts of the
faced by Eastern European and former Soviet  armed forces and the police is compounding the
Union states. Its unruliness is in stark contrast to  Government's difficulties in curbing the communal
the order of the Soeharto regime, but this is the  violence in Maluku and militia activities in West
cost of building democracy, and the Indonesian  Timor.  Long-repressed secessionist movements
people and the international community alike must  are becoming increasingly active in Aceh and Irian
be patient. Some progress has been made:        Jaya. Deterioration in law and order is also a
consequence of the vacuum created by reducing
e  The supremacy of civilian authority over the  the role of the military before civilian law
armed forces is being increasingly asserted: the  enforcement has obtained a firm  hold."  Self-
role of the military  in political life has  policing has yet to accompany the new-found
declined; the Minister of Defense is now a  freedom of the press, and there are no penalties for
civilian; military personnel in civilian positions  poor or distorted reporting. And the entrenched
have resigned their commissions or returned to  bureaucracy and judiciary systems stymie cases
active duty; and the police has been separated  involving corruption and human rights abuses.
from the armed forces.
5.4.   As noted in the last CGI brief,iii the sheer
*  The power of the executive branch has been   magnitude  of reforms  required  makes  the
curbed by a more assertive legislature. The  governance agenda daunting. But fulfilling this
President is now truly held accountable, as  agenda is essential for a Govemment brought into
witnessed at the lively annual session of the  office on an anti-KKN platform. Moreover, better
consultative assembly in August 2000. The  governance pays off in terms of higher growth
role of the Presidency itself is also evolving.  (Figure 5.1).  In this chapter, we focus on the
efforts to improve governance, particularly in the
*  Operating without the over-powering influence  legal and judicial system and the civil service, and
of the abolished information ministry, the  review the progress of the anti-corruption agenda.
36



Figure 5.1: Governance matters
Indonesia has weak governance for its level of     ...and beiter governance would pay off nicely
income (Indicator of corruption; higher means less corruption) (GDP projections, Billion Rupiah, Constant 1993 prices)
Absence of CoruptIon                               BI5n. Rupish. 1595 .on..n... pl.a.
(oher--Iess corrupbon)                            750,000
20           CNn.al 1                .  .:.       70,00.000
8    <   |      7i lsnd              ~~~~~~~~     ~~~~4COCCC         Bae Scnario
Ms.nOb                                         350,000
.25
6          T          8l         9          10   300.000
Log per Capita Incoms              1693    1680  1557  19S9    2001    0003    2005    2007    2006    2011
Note: The corruption indicator is taken from Kaufmann, Kraay and Zoido-Lobaton 1999, Governance Mauers, mimeo World Bank. It is a
combination of 12 corruption indicators. The range indicates the 90 percent probability that the country is in the interval. GDP estimates
based on an augmented Cobb-Douglas function. The contribution from better governance is estimated from a cross regression of a World
Bank evaluation of institutions and policies on productivity. Better govemnance is taken to be a 20 percent increase in the scores.
Source. World Bank (2000): East Asia Recovery and Beyond, Washington DC.
Legal and judicial reforms                              *   Several  laws   were   passed   on   matters
concerning corruption in public life, which had
5.5.    Although orderliness preoccupied the New            consequences  for  the  judiciary  and  law
Order regime, the rule of law was not an important          enforcement agencies (see below).
concern. The result was a judiciary that functioned
largely as an instrument of the executive, and when   *   A new commercial court was established by a
this was not necessary, acted in its own narrow              1998 amendment to the Bankruptcy Law. This
self-interest.  The court system, from  the judges          court must prepare and publish written and
down, was viewed as fundamentally corrupt, while            reasoned decisions.  About 70 percent of the
prosecutors   were   considered   facilitators   of          Court's leadership was replaced in June 2000
extortion  and  bribery.   The  courts were  also           and new ad hoc judges were appointed.
inefficient with a large backlog of cases, poor
filing and information systems that typically did   *   During  the  latter  stages  of the  Habibie
not publish  decisions.    The  publication  and            presidency, a law was passed providing for the
dissemination of new  laws and regulations were             independence of the judiciary by phasing out
haphazard, and  law  enforcement was  equally               the  Ministry  of Justice  from   running  the
problematic.    Court orders  were  carried  out            system.
erratically, the police force was seen as corrupt,
and the Attorney General 's of fice was not regarded   .   President Wahid has appointed a National Law
any more favorably. Weak legal education tended             Commission to advise the President on legal
to produce mediocre lawyers, whose poorly drafted           questions and to promote a broad-based legal
laws lowered the reputation of the legal profession         and judicial reform (see Box 5.1).
in general.
*Reform of the Supreme Court is underway.
5.6.    The legal system  today is still plagued by         Parliament completed public  fit and proper
such problems, but it is no longer an instrument of         tests for candidates and 17 nominees have now
control for the Government.  Instead, it is the             been  appointed.   A  Chief Justice will be
subject of intense  debate  among  civil society,           elected shortly.
public officials, and the legal profession itself.
Since the fall of the Soeharto  government, the   .   An audit of the Attorney General's office is
authorities have initiated a flurry of actions:             about to begin.
37



Box 5.1: The National Law Commission
The National Law Commission has established six sub-commissions to set national priorities in the following areas:
.   Administration of justice focusing on tackling the problem of corruption in the judiciary.
.   An integrated criminal justice system focusing on restoring cooperative relationships between the courts, the
prosecution system and the police and, in particular, between the Supreme Court, the Attomey General and the National
Police, as well as further defining the role of the National Police.
.   The role of the legislatures, both national and provincial, focusing on the development of capabilities for research and
legal drafting.
*   A disciplinary system for the private legal profession focusing on the implementation and policing of a standard code of
ethics and entry requirements into the profession, and ongoing legal education.
.   The role of law in economic recovery focusing on the role of the Commercial Courts and other legal institutions in debt
restructuring.
.   Good govemance and administrative law focusing on the role of law-enforcement bureaus in government departments
and the reform of administrative procedures in public services.
0
Each sub-commission will supervise a number of working groups comprising the Government, NGOs and legal
professions. The Commission is conducting public hearings on each of the six areas, and national priorities are to be ratified
by the Govemment by the end of 2000.
5.7.    These  important  initiatives  are  both   court system  to settle disputes and protect their
welcome and necessary, but considerable mistrust  rights. However, a country aspiring to become a
of the legal and judicial system  persists, fed   fully-fledged democracy needs a credible judicial
regularly by erratic court decisions. At the heart of  system  so that its citizens respect the rule of law.
this mistrust is the  failure to  indict -   until  And a country that is already integrated heavily
recently- any judge suspected of bribery, and the   into the global economy needs a legal system that
slow  progress of the  Soeharto  trial and  his   meets  international  standards,  attracts  foreign
subsequent acquittal.                                  investors, and is capable of handling bank and
enterprise restructuring efficiently.
5.8.    Inadequate  progress  in  addressing  the
problems with the courts, the Attorney General's  5.10.  Indonesia must adopt a comprehensive
office, and the police has led to ineffective law   time-bound program of legal and judicial reforms.
enforcement. A Joint Investigating Team aimed at  The Law Reform  Commission's work provides a
improving coordination between the investigative   good basis for moving  forward, but it is not
and  prosecutable  arms  of  the  Government,  empowered to implement its recommendations as
focusing initially on corruption in the judiciary, has  an advisory body.  Strong leadership from  the
now been in existence for six months but has had   highest level and better coordination among the
limited success so far.'v Corruption in the Attorney   key players under the direction of the Coordinating
General's office and the police is compounded by a   Minister for Political and Social Affairs are crucial
lack of capacity to effect successful prosecutions.  for making  headway  with  the  Commission's
Poor coordination among the various arms of the   agenda and translating it into a plan of action for
legal and judicial systems -   the Ministry of  reform.
Justice, the Attorney General's office, the judiciary
and the police -   has thwarted efforts by the   Prioritiesfor civil service reform
National Law Commission to push the reform
agenda. And the independence of the judiciary has   5.11.  The rhetoric of civil service reform  has
had the unfortunate effect of giving judges with the   been on Indonesia's development agenda for years.
least interest in judicial reforns a large say in   But in the past, high  growth  and a dramatic
them.                                                  reduction in poverty masked the problems of the
inefficient and unaccountable civil service. There
5.9.    After 30 years without an effective legal  was consequently little incentive to reform the way
system, the Indonesian people rely on informal  the Govemrnent worked.  That has all changed
networks and personal connections rather than the   since the crisis, which exposed weaknesses in the
38



civil service and the social costs of mediocre or  well thought through retrenchment policy that
corrupt governance. While the civil service had  would  be  implemented  in  the  wake  of
effectively delivered top-down services to the  decentralization, and to get a clear idea of the
public, the crisis revealed it had failed to deliver  number of public employees through a better
the services needed to support a rapidly globalizing  information system on public employment.
middle-income economy.  Democratic reforms
have  made  the  top-down, control-orientated  5.15.  The   logistics   of   civil  service
approach no longer acceptable, and have increased  decentralization are highly complicated. Up to 2.7
the demands for transparency, accountability and  million  civil servants will have  to  change
performance.  Finally, fiscal constraints have  affiliation, about 700,000 will have to work in
forced higher levels of cost-effectiveness.   different organizations, and an unknown number
will have to relocate. Ensuring this happens with a
5.12.  The new Civil Service Law 43/99 reflects  minimum disruption to service delivery is difficult
this change.  The law emphasizes the goal of  at the best of times.vi And it is risky to combine it
creating a civil service that is law-abiding,  with simultaneous fiscal decentralization, because
civilized and democratic. The civil service is to be  there is a danger that certain civil servants will not
a servant of the people, providing just and  get paid. Time is running out. However, it is still
equitable services, free from  the practices of  possible for the Government to agree with regional
corruption, collusion and nepotism.'  Whether  govemments   on   various   principles  for
these objectives will be met will depend on how   decentralization.   These  should  include the
the civil service is reformed in response to the law.  acceptance by the regions of existing civil servants
The Government has committed to such reforms in  in exchange for guaranteed funding for at least the
the latest LOI, and should have a strategy ready by  first couple of years. And the Government should
the end of the year. Moreover, decentralization  allocate the budget to make it work (Chapter 3).
will fundamentally change the nature of the civil
service. The Government must therefore define  5.16.  In time, the Government must consider the
what kind  of civil service  it needs in  a  extent of centralization in its civil service. Most
decentralized administrative environment.     decentralized countries do not run a single, unified
civil service, but some countries consider it a tool
5.13.  How large should the civil service be?  for nation building and for delivering a minimum
Government data shows there are four million civil  standard of service across the country.  The
servants on the payroll, plus 650,000 members of  Government has already concluded that a centrally
the armed services - not particularly numerous by  managed  civil  service  would  conflict with
international standards, but this number is larger  decentralization, but it could still maintain some
than the more populous countries in the region  unity  through  common  training  and  shared
(Table 5.1).  Moreover, there is considerable  standards for particular posts.  It could even
evidence that many full- or part-time workers,  continue -  on a voluntary basis -  to make
funded from  the development budget at the  central civil servants available for regional duties.
regional level, do  not show  up  on  the  Maintaining   common   salary  levels  and
Government's books. There is also allegedly a  employment conditions throughout the country is
large number of workers associated with the  likely to be counter-productive, because it would
military or the education sector, who are not listed  negate potential cost savings resulting  from
in government records.                        varying wage levels across the regions. Moreover,
it would result in unfunded mandates in the regions
5.14.  Decentralization  is  likely  to  create  if the capital decided on a wage increase.
significant  staffing   redundancies,  because
functions now carried out centrally will overlap  5.17.  Is the civil service really underpaid? The
with  those  working  in  local and  regional  size and structure of public-sector employment is
governments.   Certain local governments are  closely related to the question of civil service
hesitant to absorb staff from the capital, and some  salaries.  The prevailing view, held by many
centrally located staff do not want to move out of  including the World Bank, has contended that
Jakarta. This suggests the urgent need to develop a  Indonesia's civil service is poorly paid, especially
39



Table 5.1: Public sector employment comparatives forlndonesia per capita
Ref. year                         Central    Subnational
(government Per capita Population  government  government Education    Health     Police    General
employment GDP 1998    1998       (percent of   (percent of  (percent of  (percent of (percent of   civilian
Country    figures)    (US$)   (million)   population)   population)  population) population) population) government
India        1998       439      979,673       0.3         0.6         0.3        0.1        0.1        1.3
Indonesia    1999       462      203.678       0.8         0.2         0.9        0.1        0.1        2.0
Pakistan     1997       482      131,582       0.5         0.3         0.7        0.1        0.2        1.8
China        1997        774     1,238,599     0.8                     0.8                   0.1        1.7
Source: World Bank (2000) Priorities for civil service reforms, processed, Washington DC, September.
at higher levels, compared to the private sector. A    differentials are likely  to have been eliminated
recent  World   Bank   studyvil  suggests  that   since then, due to the large pay increases in the
inappropriate methodologies may have led to this   public  sector, especially  when wages for most
conclusion: the relative wage differentials between   Indonesians were only improving slowly after the
govemment and private employment have been   crisis.  Moreover, official govemment wages do
based on comparative surveys of limited pay (also   not reflect  the  substantial  opportunities  civil
cited in our last report to the CGI). These surveys   servants sometimes appear to enjoy -  both legal
of the highest paying enterprises in Indonesia paint   and illegal -  which provide additional income to
a biased picture of overall market opportunities for   their salaries.ix
work and, therefore, cannot be used for calculating
the true opportunity cost of government workers.          5.19.   This  suggests  that  any  further  wage
increases should wait until a more systemic study
5.18.   The Sakemas workforce survey suggests   has been carried out. Moreover, the reassignment
that even in 1998, prior to the large government   of a large number of staff and functions associated
pay increases of the last two years, the average   with decentralization will make it necessary to re-
government worker eamed more than his or her   evaluate  jobs,  which   in  tum    will  require
counterpart in  the  private  sector, with  slight  adjustments  to  wages.   In  the  meantime, the
shortfalls in  the  upper level.v"ii   Even  modest   Govemment needs to develop:
Box 5.2: Forestry - governance issues in a microcosm
Illegal logging is flourishing in Indonesia's forests. With an estimated annual volume of 30 cubic meters of roundwood,
it is a bigger business than legal logging. The combined logging volume is three times the sustainable yield of the natural
forests. The immediate impact is at least US$650 million losses a year in royalty and Reforestation Fund payments. Illegal
logging contributes to deforestation, for which the Ministry of Agriculture and Forestry now calculates the average rate to be
1.8 million hectares a year. It degrades forest quality: the Ministry now defines the area of productive forest as 46.7 million
hectares (62 million was reported in pre-1999 statistics), and considers 14.2 million of that amount is damaged or cleared.
The volume of logs harvested from timber concessions has shown a steady decline since 1994. lUCN's latest "Red Book"
ranks Indonesia as the country with the greatest number of threatened mammal and bird species - testimony to the amazing
biodiversity and the rate at which it is being lost. In the protection and conservation of forests, 20 percent of the 29.8 million
hectares is deforested.
Good govemance is fundamental to any solution, because illegal logging is rooted in governance failure:
*   Wood-processing industries have expanded beyond the limits of sustainable log supply, abetted by favorable regulations
that insulated them from market forces. The gap between log supply and demand is 37 million cubic meters. Strong
demand for illegal timber is one result.
*   Past government policies and procedures for forest use have alienated forest communities. The resulting discontent and
poverty within such communities ensure there is a supply of labor for illegal logging.
*   Illegal logging is big business: it attracts investors with ample capital, and the means and influence to protect themselves
from prosecution.
*   Public officials are involved not only as protectors but also patrons and investors. Of 23 unlicensed sawmills located
near Bukit Tigapuluh National Park, at least 18 had the backing of officials: 12 were backed by the army, three by the
provincial Forestry Department, two by the Kabupaten Department of Public Works, one by the police. A large sawmill
that buys wood from Tanjung Puting National Park belongs to a member of the MPR.
40



*  A capable and institutional infrastructure for  *  A  law  (Law  28/1999) that requires state
an ongoing wage policy formulated through a    officials to report their assets on a regular basis
pay determination unit or commission.          to a new independent body (The Committee
for the Audit of Assets of State Officials).
*  A  systematic methodology for determining
appropriate salary standards for civil servants  *  A   Steering  Committee  to  oversee  the
that rewards merits and performance, and takes  establishment  of  an  Independent  Anti-
into account market alternatives, competition   Corruption Agency, which must come into
for government positions, the turnover in the  effect by August 2001, as required under Law
civil service, and the value of relative jobs.  31/1999.
*  A consolidated budget classification system for  *  A Joint Team for the Eradication of Criminal
civil service  wages  to  ensure  a  single    Acts of Corruption, also known as the Joint
transparent source of funds for civil service   Investigating Team, which was established
remuneration.                                  pursuant to the Anti-Corruption Law intended
to serve both as an investigating and
*  An awareness among civil servants that parity   prosecuting agency, and as a testing ground for
between    private-    and    public-sector    the Independent Anti-Corruption Agency. In
remuneration is the exception rather than the   August 2000, it questioned three sitting judges
rule in developing and industrial countries.    of the Supreme Court.
Perhaps most importantly, wage increases must  *  A National Ombudsman Commission focusing
wait for credible  actions against corruption.     on corruption  in the judiciary has been
Without them, informal and illegal levies can      established to handle claims from the general
continue unabated, and wage increases are likely to  public.
stir public resentment against the civil service.
- Fit and proper tests, which have been applied
The war against corruption                        to  a selection  of heads of state-owned
enterprises, banks and the Supreme Court by
5.20.  Much of the justification for the recent    the  Ministry  of State  Enterprises, Bank
large salary increases for the courts and the civil  Indonesia and Parliament.
service has been the assumption that corruption is
motivated by poor compensation. This assumption  5.22.  All these initiatives have been largely ad
is not supported by experience in advanced  hoc and often overlap. They have also faltered
countries. Corruption is often a response to an  because of inadequate or no funding. To address
opportunity rather than to low pay, and it is likely  these issues, the Attorney General has taken the
to thrive if the risk of getting caught and  initiative to ask the Governance Partnership to help
punishment is minimal. Pay increases do little to  initiate a national dialogue on an anti-corruption
change that equation, and are only one factor in the  strategy. Although this process is now under way,
overall policy package needed to improve civil  its success depends on strong leadership and
service ethics.                                responsibility from the Government for a set of key
actions. These actions would bear results over the
5.21.  The Government has moved on a wide  medium to long term, as well as scoring a few
front to attack corruption, going far beyond the  strategic "quick wins" to build political support for
civil service. These measures include:          the agenda.   Priorities include reducing the
opportunities  for   corruption,  strengthening
*  A new anti-corruption law (Law 31/1999),  accountability in the public sector through better
which significantly increases the penalties for  government   procurement,   and   financial
corruption and eases the burden of proof to be  management and audit.
met by the prosecution.
41



5.23.  Reducing  opportunities for corruption.  prone to misuse and reduces the value of public
There are several ways in which the opportunities  funds.   A  multiplicity  of legal instruments
for corruption can be reduced.                  establishes    confusing    and    overlapping
jurisdictions, and there is no single agency that
*  Reducing the role of the state. The financial  formulates and monitors compliance with the
crisis has inadvertently made the Government  procurement policy. Weak compliance with rules
a substantial owner of industrial and financial  and procedures, a lack of follow-up of complaints,
assets in  addition  to  the  sizable  public  and poor management and capability combined
enterprises  sector.    Rapid  progress  in  with  competition-reducing  rules  make  rich
privatization -  through a transparent and  breeding grounds for corruption.  Agenda for
competitive process -and bank and financial  reforms in this area would include:
restructuring will remove the temptation these
assets present for corrupt government officials.  *  Enacting   a  public  procurement  law,
embodying the basic principles and policies to
*  Subjecting    policy-making    to    more        ensure  a  market-driven  system  that is
transparency. Corruption, particularly in the   conducive to competition.
late Soeharto period, often took the form of
policy decisions aimed at assisting a particular  *  Establishing a robust and credible complaints
group or groups in exchange for bribes. To      review and sanctions mechanism.
reduce the opportunity for this type of
corruption, all major policy decisions with  .  Creating an independent public procurement
financial implications must be subjected to (i)  office to  formulate  policies and  monitor
a cabinet review; (ii) a parliamentary review;  compliance.
and (iii) a public hearings process, which could
be passed through Parliament and directly by  *  Enhancing transparency and competition by
the executive. While decisions will be made     the wide dissemination of public procurement
more slowly under this procedure, they would    opportunities and by removing competition
be owned and supported by all participants,     limits on the grounds of size and origin.
and thus are likely to be more sustainable.
i  Improving  procedures  and practices  for
*  The systematic review of all regulations and     selecting  tender  committees  and  project
controls to reduce the intrusiveness of the state  managers, for  certifying  contractors  and
and eliminate excessive discretionary powers    consultants, for standard bidding and contract
of officials. These range from simple matters,  documentation, and for disclosing evaluation
such as extending the validity of official      criteria.
documents such as passports, driving licenses
and national identity cards, to complicated  *  Building  professional  capacity  through
issues such as land titles. The latter are an   training and the creation  of a cadre of
example of an increasing source of lawlessness  procurement practitioners.
and abuse of those in a weak position.
*  Strengthening  enforcement  through  better
5.24.  Repairing  the  broken  accountability      internal controls, clear standards of ethics,
mechanisms. Urgent action is needed to address the  random ex-post and independent procurement
core accountability mechanisms of Indonesia's       audits,  annual  corruption   surveys   of
public sector, which are in a serious state of      contractors, suppliers, and consultants, and by
disrepair after years of ongoing abuse. Recent and  working  effectively   with  civil  society
forthcoming World Bank reports on procurement,      watchdogs.
financial accountability and public expenditure
management' provide clear agendas for change.   5.26.  Financial  Accountability.  Indonesia's
control environment is weak. The budget process
5.25.  Procurement.  The public procurement  is inadequate, reflecting the lack of an integrated
system is dysfunctional. Not market driven, it is
42



macro-framework, the absence of a unified       responsibilities for the internal and external
framework  for budgeting, the  existence  of    audit functions.
considerable off-budget funds, and the lack of
interest in spending results. Budget execution and  Managing the governance agenda
monitoring remain weak, with considerable funds
wasted due to corruption, collusion and nepotism.  5.28.  Progress  on  governance  has  been
Various unreconciled budget reports and annual  handicapped by the lack of a clear focal point in
financial reports to Parliament are two years  the Government, which sees itself as responsible
behind  schedule,  disabling  oversight  from  for these agenda.  The agenda have been left
Parliament. Accounting and financial management largely to a few key reformers, who have been
systems are fragmented and centralized payment moving forward  in their respective spheres,
controls are weak, as is internal monitoring at the  garnering whatever political support they can
level of spending ministry  agency.   Cash-  muster from  senior leaders.  These initiatives
management functions are not well coordinated  appear ad hoc and are floundering under resistance
across the 27,000 plus official bank accounts -   from well-entrenched vested interests. Inadequate
not counting unauthorized bank accounts where  funding in the budget for some of the new
off-budget funds are kept. The independence of  institutions is a measure of the lack of commitment
the Auditor General is not assured, and his staff is  and leadership in this area. With a new Cabinet,
weak, whereas the various internal auditors  which   has   much   stronger  coordination
constitute a source of costly duplication, and  mechanisms, this problem could and should be
sometimes abuse.                            addressed quickly. A top priority is the need for
the Government to articulate a clear statement of
5.27.  To overcome this state of affairs, actions  vision and a strategy - of where it wants to go in
are needed on several fronts:               this area and how it wants to get there.?l
*  Strengthening the control environment by  5.29.  The Government must develop broad
adopting a modern Budget Law; establishing a  national ownership around the implementation of a
Parliamentary Public Accounts and Audit  governance strategy, while exposing such a
Committee; and developing a professional civil  strategy to international standards to benefit from
service with a professional accounting and  the positive and negative experiences of other
auditing stream.                         countries. Such a process would help to bring a
shared understanding among all the stakeholders of
*  Improving    budget   preparation    and  the complexity of the reform effort in this area and
management by adopting a unified budget  its intrinsically long term  nature, and enable
based on the IMF's GFS  classification;  coalescence around some "quick wins" that help to
enhancing the political input into budget manage public expectations.  The Governance
preparation; and moving to a performance-  partnership - initiated at the January 2000 CGI -
oriented budget.                         can be, and is, a vehicle for such a dialogue, with
broad support in the Government, civil society and
*  Strengthening  financial  management  by  the donor community.
consolidating responsibilities in an Accountant
General in the MOF; establishing a financial  5.30.  A  government endowed  with  better
controller  in  each  spending  unit; and  capabilities and skills than Indonesia's government
improving  treasury  management through  has at its disposal today would find the governance
clearly defined policies for the management of agenda forbiddingly large. Success will therefore
bank accounts and cash.                  depend on strong leadership to steer a strategic
course and move decisively on the issues that
*  Strengthening the audit function by revising  matter most, while laying the foundations for more
the current draft law; effecting the compulsory  progress in other areas. Indonesia's government
report of an independent auditor general to a  has little option but to try, and for its partners in
well-functioning parliamentary public accounts  civil society, private  sector and the donor
committee; and clarifying the relative
43



community, there is little altemative but to try to
help. The stakes are very high.
Endnotes
' For a useful account, see the report of a conference held in Tokyo
entitled Transition Indonesia - Political Reform A Major Work In
Progress, East Asian Institute, Columbia University, New York, April
2000.
i The deterioration manifests itself in incidents such as violence
accompanying neighborhood crimes, land-grabbing, and industrial
unrest.
See the chapter entitled Improving Governance in Indonesia, Seizing
the Opportunity, World Bank Office Jakarta, January 26, 2000.
i The latest disappointment was a court-ordered halt to an
investigation of the Joint Team into possible corruption of two judges.
v The law ended the practice under the New Order regime that
required civil servants to be members of GOLKAR and KORPRI, a
civil service organization founded by the New Order regime. Civil
servants now cannot be members of any political party under penalty
of dismissal.
n In 1994, South Africa went through a similar exercise when it
created its seven provinces. However, it did so with a much smaller
civil service, it already had an autonomous municipal level, and it
went through fiscal decentralization only three years later. Thus the
centet could target the money better.
v' "Indonesia, Priorities for Civil Service Reform", The World Bank,
East Asia and Pacific Region, Poverty Reduction and Economic
Management Sector Unit, draft: mimeo August 26, 2000.
The survey reveals a pattern common to most countries, including
advanced countries: lesser skilled govemment workers eam  a
premium over their private sector equivalents, while higher skilled
workers eam slightly less, with the average premium for those with a
university degree at about 20%.
i These include special fees and after-hours practice eamings of
medical specialists, fees and bonuses associated with projects, etc.
Illegal activities include surcharges on government-provided goods
and services, kickbacks on govemment purchases, per diem on travel
never undertaken, and payments made to evade taxes or import duties.
References to CPAR, CFAA, and the PER.
The Partnership for Govemance Reform in Indonesia under the
sponsorship of the United Nations Development Program, the World
Bank and the Asian Development Bank provides a useful vehicle to
advance the govemance agenda. The Partnership brings together the
Govemment, civil society, the media and Indonesia's intemational
partners. A Govemance Fund can finance promising and innovative
initiadves from the Govemment and civil society to promote good
govemance. A Goveming Board consisting primarily of prominent
Indonesians from all walks of life, together with the three sponsoring
intemational organizations and six donor representatives leads the
Partnership. Its activities will be formally launched a few days before
the CGI.
44



Statistical Annex
STATISTICAL ANNEX a
List of Tables
Social Indicators
1.   Selected Social Indicators 1990-1999
2.   Key Social Indicators
3.   Poverty Line and Number of Population Below the Poverty Line
4.   Population and Growth Rates by Province, 1980-1999
5.   Distribution of Population by Age Group and Sex, 1961-1999
6.   Labor Force Participation by Province (%), 1980-1999
7.   Employment by Main Industry, 1990-1999
National Income Accounts
8.   Gross Domestic Product by Industrial Origin at Current Market Prices, 1990-2000
9.   Gross Domestic Product by Industrial Origin at Constant Market Prices, 1990-2000
10.  Gross Domestic Product by Expenditure Category at Current Market Prices, 1990-2000
11.  Gross Domestic Product by Expenditure Category at Constant Market Prices, 1990-2000
International Trade & Balance of Payments
12.  Balance of Payments, 1994-2000
13.  Selected Non-oil Exports, 1990-2000
14.  Value of Exports by Principal Country of Destination, 1990-2000
15.  Value of Imports by Principal Country of Origin, 1990-2000
External Debt
16. External Public Debt Outstanding of December 31, 1998
17. Services Payments, Commitments, Disbursements and Outstanding Amounts of Total
External Debt, 1980- 2013
18. External Debt Outstanding December 1997 - March 2000
Public Finance
19. Central Govermnent Budget Summary, 1994/95-2000
20. Central Govermment Revenues, 1994/95-2000
21. Central Govermnent Expenditures, 1994/95-2000
a With the exception of the tables on Extemal Debt, the Statistical Annex is a compilation of official data
from Govermnent sources. In some instances, these data may differ from data in the miain text due to
different Bank definitions and methodologies in constructing the statistical series.
45



Sttistical Annex
Monetary Statistics
22. Money Supply (MI), 1991-2000
23. Changes in Factors Affecting Money Supply, 1990-2000
24. Consolidated Balance Sheet of the Monetary System, 1990-2000
25.  Banking System Credits by Economic Sector, 1990-2000
26.  Banking Credits Outstanding in Rupiah and Foreign Exchange by Group of Banks, 1990-2000
27.  Commercial Banks' Outstanding Investment Credits in Rupiah and Foreign Exchange by
Economic Sector, 1990-2000
28. Conmmercial Banks' Outstanding Funds in Rupiah and Foreign Exchange by Group of Banks,
1990-2000
29. Interest Rates 1990-2000
Agricultural Statistics
30. Principal Agricultural Products by Subsectors, 1990-2000
31. Production of Major Crops by Type of Estate, 1990-2000
32. Rice-Area Harvested, Production and Yield, 1990-2000
Industrial Statistics
33. Production of Minerals, 1990-2000
34. Fuel Production by Company, 1990-1999
Prices
35. Domestic Sales of Petroleum Products, 1990-1999
36. Indonesia Wholesale Price Index, 1990-2000
37. Consumer Price Index, 1990-2000
38. Domestic Prices of Petroleum Products, 1986-2000
Investment Statistics
39. Approved Foreign Investrnent by Sector, 1990-2000
40.  Approved Domestic Investment by Sector, 1990-2000
46



Table 1. Selected Social Indicators 1990 -1999
1990         1993         1996         1999
Demoeraphv
Population (million)                                             179.5        189.1         198.3       206.5
Population ages 0 - 14 yr old (%)                                 36.5         34.9          32.0        30.0
Population ages 15 - 64 yr old (%)                                59.6         61.3          63.8        65.3
Population ages 65+ yr old (%)                                     3.9          3.8           4.2         4.7
Population growth rate (%)                                         2.0          1.7           1.6         1.6
Population density (per Km2)                                       94            99          103          107
Urban population, % urban to total                                30.9         34.0          37.1        39.4
Gender ratio, male to 100females                                  99.5         99.5          99.1        99.1
Dependency ratio (%)                                              67.8         63.4          57.0        53.1
Education
Elementary school net enrollment ratio, % of relevant aged group  83.2         91.5          94.8        92.7
Junior high school net enrollment ratio, % of relevant aged group  40.5                      48.6        59.2
Senior high school net enrollment ratio, % of relevant aged group                                        38.5
Population > 10 yr old not completed primary school (%)           37.5         41.8          28.3        25.4
Population > 10 yr old finished primary and Junior high school (%)  48.8       46.3          45.0        47.0
Population > 10 yr old finished high school and college (%)       13.7         11.9          14.9         17.6
Adult literacy rate                                               81.5         83.3          85.3         88.4
Health
Life expectancy tate                                              62.5         62.7          63.2         65.5
Fertility rate, births per woman                                   3.1          2.9           2.8         2.6
Infant mortality rate, per 1000 live births                       63.5         58.1          56.0        46.0
Mortality rate of children < 5 yr old, per 1000                   86.4         78.1          70.4         59.6
Children < 5 yr old that have good nutrition (%)                  54.2         55.5          63.9        69.7
Children < 5 yr old that had been immunized (%)                   69.3         76.3          88.2         89.9
Number of medical doctor per 100,000 population                                 10.4         10.7         11.0
Housine and Sanitation
Household with access to piped water (%)                          12.9         14.7          16.7         18.6
Household with access to own septic tank (%)                      17.9         22.0          26.1        30.4
Household with electricity (%)                                    46.8         55.3          72.2         83.7
Labor force
Employed (%)                                                      55.9         55.1          55.5         62.9
Looking for work (%)                                              1.44         1.56          2.85        4.27
Labor force participation (%)                                     57.3         58.0          58.3        67.2
Open unemployment rate (%)                                         3.2          4.3           4.9          6.4
Working children in 10-14 year old group (%)                       9.5         10.8           7.9          6.9
Poverty and inequality
Number of people under poverty line (million)                     27.2         25.9          22.5         48.4 /a
Population under poverty line (%)                                 15.1         13.7          11.3         23.5 /a
Expenditure share of the lowest 40%, (%)                          21.3         14.6          20.2        21.3
Expenditure share of the middle 40%, (%)                          36.8         41.6          35.0        37.0
Expenditure share of the highest 20%, (%)                         41.9         43.9          44.7        41.6
Gini Coefficient                                                  0.32         0.34          0.36         0.32
Data are not available
/a Using Susenas 1998 definition of the poverty line (the "new" definition).
Source: Central Bureau of Statistics.
47



Table Z  Key Social indicatom
Indicator                               Latest Period  Previous Period     Indicator                             Latest Period  Previous Period
Poverty Rate (%)                           Feb-99         Feb-9             Literacy Rate(%)                         1999           1998
- National                                  27.1           15.7              National                                88.4           87.9
- Urban                                     16.3           7.2             - Urban                                   94.0           94.8
- Rural                                     34.1           20.5             - Rural                                  84.5           83.9
Inequality (Gini Coefficient)              Feb-99         Feb-96           School Dropout (%)                        1999           Im
- National                                  0.32           0.36            - Primary school                          1.4             1.6
- Urban                                     0.33           0.37             - Junior high school                     2.2             2.6
- Rural                                     0.25           0.28            - Senior high school                      2.6             2.9
Mortality Rate                              1999           1996             Health Facilities                        1998           1996
- Infant Mortality Rate                     46.0           56.0            - Community Health Centers:
- Mortality rate of children < 5 yr old     65.5           70.4              * Total number                         36,307          35,425
* Per 100,000 population                17.8           17.8
Nutritional Status of Children under Five  Dec-98         Feb-95            - Hospitals:
-Good (l/)                                  61.1           63.9              * Total number                         1,112           1,074
-Medium(%)                                  21.2           23.0              'Numnberofbeds                         123,168        120,038
-Bad(%)                                     16.6           13.1              *Bedsperl00,0OOpopulation               60.3           60.5
- Medical doctor per 100,000 population  11.0           10.7
School Enrollment (%)                       1999           1998
-7-12 years old:                                                            Labor Force Participation                1999           1998
• National                                 95.3           95.2            - National                               67.2            66.9
Urban                                     97.5           97.6            - Urban                                  61.2            59.6
• Rural                                    94.2           94.1             -Rural                                  71.6            71.9
-13-15 years old:
* National                                 79.0           77.2            Hourly Real Wages (1"98 Rp)               1999           1998
• Urban                                    88.0           88.6            - Agriculture                            1,157           1,210
* Rural                                    73.6           70.6            - Mining                                 2,910           3,483
- 16-18 years old:                                                         -Manufacturing                           1,514           1,370
'National                                  51.1           49.3            -Utilities                               3,057           2,577
* Urban                                    68.8           67.7            - Construction                           1,627           1,433
* Rural                                    38.0           36.2            - Trade                                  1,595           1,449
- Transportation                         1,947          1,758
- Finance                               3,407           2,939
- Services                              2,522           2,033
Source: Central Bureau of Statistics.



Table 3. Poverty Line and Number of People Below the Poverty Line
Year 1976- 1996
Poverty Line                 Number of                             Percentage of
Year   (Rplcapita/month)       People Below the Poverty Line        Population Below the Poverty Line
(million)                                (%)
Urban    Rural      Urban        Rural    Urban+Rural    Urban          Rural    Urban+Rural
1976    4,522    2,849        10.0        44.2         54.2         38.8         40.4         40.1
1978    4,969    2,981        8.3         38.9         47.2         30.8         33.4         33.3
1980    6,831    4,449        9.5         32.8         42.3         29.0         28.4         28.6
1981    9,777    5,877        9.3         31.3         40.6         28.1         26.5         26.9
1984    13,731    7,746       9.3         25.7         35.0         23.1         21.2         21.6
1987    17,381    10,294      9.7         20.3         30.0         20.1         16.1         17.4
1990    20,614   13,295       9.4         17.8         27.2         16.8         14.3         15.1
1993    27,905   18,244       8.7         17.2         25.9         13.5         13.8         13.7
1996    38,246   27,413       7.2         15.3         22.5          9.7         12.3         11.3
Year 1996 - 1999 /a
Poverty Line                 Number of                             Percentage of
Year   (Rp/capita/month)       People Below the Poverty Line        Population Below the Poverty Line
(in million )                             (%)
Urban    Rural      Urban        Rural    Urban+Rural    Urban          Rural    Urban+Rural
1996    42,032   31,366       9.6         24.9         34.5         13.6         19.9         17.7
1998 /b  96,959   72,780      17.6         31.9        49.5          21.9         25.7        24.2
1999 /c  92,409   74,272      15.7         32.7        48.4          19.5         26.1        23.5
/a Using Susenas 1998 definition of the poverty line (the "new" definition).
/b Based on Susenas of December 1998.
/c Based on Susenas of February (regular) 1999.
Source: Central Bureau of Statistics.
49



Table 4. Populatlon And Growth Rates by Province. 1980-1999
Region                                            Population (thousand person)                              Average grow  rate (percent per year)
1971/a       1980       1990    1995/b      1996/b    1997/b    1998/b       1999/b     1971-80    1980-90    1990-99
Java                  76.086     91,270    107.528    114.980    116.525    118076    119,631    121.193           2.0        1.7        1.3
DKI Jakarta           4,579      6,503      8,225      9,144      9,259      9,374      9,489       9,605         4.0        2.4        1.7
West Java            21,624     27,454     35,380     39,340     40,082     40,828     41,578      42,332         2.7        2.6        2.0
Central Java         21,877     25,373     28,519     29,691     30,027     30,364     30,703      31,044         1.7        1.2        0.9
DlYogjakarta          2,489      2,751      2,915      2,917      2,951      2,984      3,018       3,052         1.1        0.6        0.5
EastJava             25,517     29,189     32,490     33,889     34,207     34,525     34,842      35,160         1.5        1.1        0.9
Sumatra               20,809     28 017     36.436     4098       41,727     42468      43.209     43.948          3.4        2.7        2.1
Lampung               2,777      4,625      6,006      6,680      6,782      6,882      6,982       7,081         5.8        2.6        1.8
Bengkulu                519        768       1,181      1,418      1,451      1,486      1,521      1,557         4.5        4.4        3.1
South Sumatra         3,441      4,630      6,278      7,239      7,363      7,486      7,610       7,734         3.4        3.1        2.3
Riau                  1,642      2,169      3,283      3,923      4,014      4,106      4,198       4,291         3.1        4.2        3.0
Jambi                  1,006      1,446     2,016      2,383      2,434      2,486      2,538       2,590         4.1        3.4        2.8
West Sumatra          2,793      3,407      4,001      4,334      4,401      4,466      4,531       4,595         2.2        1.6        1.6
NorthSumatra          6,622      8,361      10,254     11,144     11,348     11,552     11,754     11,955         2.6        2.1        1.7
Acch                  2,009      2,611      3,417       3,863      3,934     4,005      4,075       4,145         3.0        2.7        2.2
Kalimantan             5,155      6723       9111       10520      10,738     10.957    i2          11.396         3.0        3.1        25
West Kalimantan       2,020      2,486      3,237      3,650      3,724      3,798      3,871       3,943         2.3        2.7        2.2
Central Kalimantan      702        954       1,398      1,636      1,669      1,703      1,737      1,771         3.5        3.9        2.7
South Kalimantan      1,699      2,065      2,599      2,904      2,953      3,003      3,053       3,103         2.2        2.3        2.0
EastKalimantan          734       1,218      1,877     2,330      2,392      2,454      2,516       2,579         5.8        4.4        3.6
Sulawesi               8 528     10.409      12.519     13775      14.023     14.271     14.520     14,768         2.2        1.9        1.9
Central Sulawesi        914       1,290      1,705      1,946      1,991     2,036       2,083      2,129         3.9        2.8        2.5
North Sulawesi         1,719     2,115       2,480      2,655      2,692      2,730      2,767      2,804         2.3        1.6        1.4
South Sulawesi        5,181      6,062      6,983      7,578       7,706     7,834      7,962       8,090         1.8        1.4        1.6
Southeast Sulawesi      714        942       1,351      1,596      1,633      1,671      1,708      1,745         3.1        3.7        2.9
Other Islands          8 630      11.071     1365       15035      15,308     15.582     15.857     15212          2.8        2.1        1.2
Bali                  2,120      2,470      2,779       2,900     2,938      2,976      3,014       3,053         1.7        1.2        1.0
WestNusaTenggara      2,203      2,725      3,371      3,655      3,720      3,786      3,853       3,921         2.4        2.1        1.7
EastNusaTenggara      2,295      2,737      3,270      3,588      3,654      3,719      3,785       3,850         2.0        1.8        1.8
Maluku                1,089       1,410      1,853     2,095      2,128      2,161      2,192       2,223         2.9        2.8        2.0
IrianJaya               923       1,174      1,631      1,954     2,006      2,058      2,112       2,165         2.7        3.3        3.2
Indonesia            119,208    147.490    179,248    195.294    198,320    201,353    204.393    206,517         2.39       1.97       1.59
/a Includes adjustment for the exclusion of rural Irian Jaya.
/b 1997, 1980, and 1990 based on Population survey, 1995-2005 based on population projection by province.
Source: Central Bureau of Statistics.
Population density at main island (thousand person/km2)                                              Population average growth rate (percent)
1000 1                                                              951                   3.5
goo                                9~~~~~~~~~~~~~14
80018                                          19                   99              .     
690                                                             3.0                          1
5376                                                                                                   /,
600                                                               ~~~~~~~~~~~~~~2.5  ~' 
400                                                                                                      
20--       lian          -XSlws
20:1     4 S  11  2            9                  77    6691    77                        1.51
2            3                    417
1971                1980                1990                 1999            1.04
ED Java    FJ Sumsatera    0 Kalimantan     [a Sulawesi     U Irian Jays          91        18          90        19
-4-Java             -4- Sumatera
&   Kalirnasin      -X- Sulawesi
-*-Irian Jaya
50



Table 5. Distribution of Population by Age Group and Gender. 1961-1999
('000)
1961                      1971                       1980                       1990                       1995 a/                     I999/a
Age Group      Male Female   Total    Male Female   Total    Male Female   Total    Male Female   Total    Male Female   Total    Male  Female    Total
0-4           8.529    8,649   17,178    9,675    9,560   19,235   10,872   10,422   21,294    10,766   10,120   20,887   9,992    9,630   19,622    10,912    10,527   21,440
5-9           7,744    7,701   15,445    9,593    9,302   18,895   10,889   10,446   21,335    11,791   11,290   23,081    10,758   10,243   21,002  9,863     9,514    19,376
10-14         4,353    3,892    8,245    7,406    6,875   14,281    9,179    8,525   17,704    10,998   10,438   21,437    11,921   11,457   23,378    10,916    10,402   21,318
15-19          3,865    3,905    7,770    5,627    5,779   11,406    7,552    7,806   15,358   9,553    9,367   18,920    10,434   10,424   20,859    11,754    11,373    23,127
20-24          3,480    4,373    7,853    3,627    4,461    8,088    6,010    7,055   13,065    7,662    8,486   16,148    8,479    9,267   17,746    9,980    10,133   20,113
25-34          7,392    8,610   16,002    7,722    9,226   16,948    9,685    9,920   19,605    13,962   14,770   28,732    15,262   16,553   31,814    15,737    17,408   33,145
35-44          5,765    5,406   11,171   7,062    7,119   14,181    7,876    8,172   16,048     9,778    9,475   19,253    12,903   12,485   25,387    14,070    14,313   28,383
45-54          3,587    3,511    7,098    4,360    4,213    8,573    5,761    5,856   11,617    7,036    7,284   14,320    8,154    7,598   15,752    9,541     8,939    18,480
55-64          1,913    1,865    3,778    2,224    2,373    4,597    3,297    3,354    6,651   4,615    4,887    9,502     5,364    6,117   11,481    6,003     6,272    12,275
65+            1,183    1,245    2,428    1,450    1,539    2,989    2,200    2,593    4,793    3,213    3,749    6,962   3,926    4,329    8,255     4,458     5,321    9,779
Total         47.871   49.14   97,085   58.753   60A55  119.208   73332   74.158  147,490    89.376   89.872  179.248   97,193   98.102  195.294   103.233   104.203  207,436
Percentage distribution
0-4            17.8    17.6    17.7       16.5    15.8    16.1       14.8    14.1    14.4       12.0    11.3    11.7       10.3      9.8    10.0       10.6     10.1      10.3
5-9            16.2    15.6    15.9       16.3    15.4    15.9       14.8    14.1    14.5       13.2    12.6    12.9       11.1    10.4    10.8        9.6       9.1      9.3
10-14            9.1     7.9      8.5     12.6    11.4    12.0       12.5    11.5    12.0       12.3    11.6    12.0        12.3    11.7    12.0       10.6     10.0      10.3
15-19            8.1     7.9      8.0      9.6      9.6      9.6     10.3    10.5    10.4       10.7    10.4    10.6       10.7    10.6    10.7        11.4     10.9      11.1
20-24            7.3     8.9      8.1      6.2      7.4      6.8      8.2      9.5      8.9       8.6     9.4      9.0       8.7     9.4      9.1       9.7      9.7       9.7
25-34           15.4    17.5    16.5      13.1    15.3    14.2       13.2    13.4    13.3        15.6    16.4    16.0       15.7    16.9    16.3       15.2      16.7     16.0
35-44           12.0    11.0    11.5       12.0    11.8    11.9      10.7    11.0    10.9        10.9    10.5    10.7       13.3    12.7    13.0       13.6      13.7     13.7
45-54            7.5     7.1      7.3      7.4      7.0      7.2      7.9      7.9      7.9       7.9     8.1      8.0       8.4     7.7      8.1       9.2       8.6      8.9
55-64            4.0     3.8      3.9      3.8      3.9      3.9      4.5      4.5      4.5      5.2      5.4      5.3       5.5     6.2      5.9       5.8      6.0       5.9
65+              2.5     2.5      2.5      2.5      2.5      2.5      3.0      3.5      3.2      3.6      4.2      3.9       4.0     4.4      4.2       4.3      5.1       4.7
Total          100.0   100.0   100.0    100.0   100.0   100.0    100.0   100.0   100.0    100.0   100.0   100.0    100.0   100.0   100.0    100.0    100.0    100.0
/a End year population figures projected based on 1995 Intercensal Population Survey (SUPAS '95).
Source: Central Bureau of Statistics.



Table 6. Labor Force Participation by Province (%. 1980-1999
Region                  1980      1985      1990       1995      1996      1997      1998      1999
Java                     50.9     53.1      56.8       56.1      57.7      58.0      65.5      66.7
DKI Jakarta            42.3      42.6      44.3       48.6      51.2      53.1      58.2      60.2
WestJava               45.4      48.2      51.6       51.8      52.5      51.7      60.4      61.9
Central Java            54.9     57.1      62.2       60.2      62.5      61.4      71.2      72.2
DI Yogjakarta           58.9     61.1      64.9       60.6      61.3      63.0      67.7      69.6
East Java               53.0     56.4      60.9       59.4      60.9      60.8      69.8      69.8
Sumatra                 50.2      52.7      57.2       55.9      58.2      57.8      68.4      66.9
Lampung                 50.2     53.4      59.3       57.8      60.6      57.5      71.6      68.5
Bengkulu               55.1      58.8      66.4       60.8      65.3      63.4      74.9      74.1
South Sumatra           51.9     53.2      56.2       55.1      57.3      57.5      68.4      69.8
Riau                   47.1      48.5      50.3       52.6      54.5      55.1      63.7      61.5
Jambi                   51.2     52.2      56.2       52.5      56.9      55.0      66.8      65.9
West Sumatra           46.9      50.2      54.2       54.5      55.7      56.7      66.4      64.8
North Sumatra           52.5     52.5      56.9       57.2      58.3      58.5      68.4      69.0
Aceh                    46.9     52.8      58.3       56.9      57.0      58.5      66.7      61.7
Kalimantan               53.0     56.0      60.0       59.7      62.1      61.3      69.5      69.4
West KCalimantan        57.8     58.2      61.2       61.2      61.7      61.4      69.0      69.6
Central Kalimantan      57.8     57.3      63.4       60.5      65.1      64.1      69.4      70.2
South Kalimantan        51.8     56.7      60.0       61.0      64.5      65.5      72.9      73.0
East Kalimantan        44.7      51.8      55.3       55.9      57.0      54.4      66.8      64.9
Sulawesi                44.7      50.4      55.6       55.6      57.6      57.7      65.2      65.1
Central Sulawesi       45.3      48.4      54.9       55.0      55.8      55.5      60.1      61.0
North Sulawesi          49.5     53.4      58.0       59.8      61.8      62.3      70.4      70.4
South Sulawesi          39.4     42.9      49.2       50.0      54.1      52.5      61.5      60.2
Southeast Sulawesi     44.9      57.0      60.3       57.4      58.7      60.7      68.9      68.9
Other Islands
Bali                   53.6      61.1      68.4       69.0      70.1      70.8      76.8      76.4
WestNusaTenggara        50.1     51.6      61.1       61.8      63.5      65.5      70.8      72.1
East Nusa Tenggara     53.0      61.2      67.3       64.1      65.4      65.3      74.1      73.4
Maluku                 42.2      58.7      49.8       50.1      55.0      53.8      64.8      67.3
Irian Jaya             48.3      59.6      62.6       65.3      63.8      66.6      75.5      76.8
Indonesia               50.2      53.0      57.3       56.6      58.3      58.0      66.9      67.2
Source: Central Bureau of Statistics.
52



Table7. _mplo ment by Main Industr  11990-1999 /a
1990            1995             1996             1997              1998             1999
Main Industry                            million    %     million    %     Million    %     million    %              rnilioT    %  million    °/n
Agriculture, foresty, hunting & fishery   35.5    50. 1    35.2   44,0    37.7    44.0    35.8    41.2    39.4    45.0    38.4    43.2
Mining and quarrying                       0.7     1.0     0.6     0.8      0.8      0.9      0.9      1.0     0.1      0.8     0.7     0.8
Manufacturing                              8.2    11.6    10.1    12.6    10.8    12.6    11.2    12.9    9.9          11.3    11.5    t3.0
Electicity,gas& water                      0.1     0.1     0.2     0.3      0.2      0.2      0.2      0.3     0.1      0.2     0.2     0.2
Construction                               2.8     4.0      3.8    4.7      3.8      4.4      4.2      4.S     3.5      4.0     3.4      3.8
Wholesaleandretailtrade&restaurnts        10.6    15.0    13.9    t7.3       6.1    18.8    7112      19.8    16.8    19.2    17.5    19.7
Tranaportation,storage&conmmunications     2.7     3.8      3.5    4.3      3.9      4.6     4.1      4.8      4.2      4.7     4.2     4.7
Finance, itisurance, real estate & business srrv.  0.5  0.7  0.7    0.8     0.7      0.8      0.7      0.8     0.6      0.7     0.6     0.7
Public services                            9.7    13.7    12.1    15.1    11.7    13.7    12.6    14.5    12.4    14.1    12.2    13.8
Others                                     0.0     0.0     0.3     0.0      0.0      0.0      0.0      0.0     0.0     0.0      0.0     0.0
Total                                     708    1000    801   100.0 SS7    1000    870              100       7.7    100.0   88.8    100.0
/a 1990-1998 data refer to population 10years of age and above who worked during the week previous to the census, while 1999refer topopulation 15 years.
Soure: Central Bureau of Statistics,
Percentage of em,ployment distribution by main industry (%/o)
60
so
40
30
20
10
1990               1 995              1996               1997                1998               1999
ISAgriCuture     Emanufacturing      UTraOe & restaurants    f3fublic servces    tDOthers



Table 8. Gross Domestic Product by Industrial Ori in at Curent Market Prices. 1990-2000 /a
(Rp. billion)
1983 base                                                          1993 base
1990       1991       1992       1993         1993       1994       1995       1996        1997       1998      1999*    2000**
Jan-Jun
1. Asriculture. Livestock               42.149     44721       50,733     55.746       58963      66.072     77.896     88_792    101,009    173,912    218,045    108,291
Forestry and Fishery
a. Farm foodcrops                    25,908     26,149     29,443     31,404  j    32,093     34,941      42,200     47,622    52,189     91,001    113,185      59,561
b. Non-foodcrops                      6,667      7,604      8,717      9,422        9,015      10,587     12,667     14,435    16,447     34,818     42,093      16,126
c. Livestock products                 4,368      5,126      6,041      7,026  1     6,203      7,102       8,079      9,524    11,688     15,958     23,628      13,696
d. Forestry                           1,855      2,018      2,180      2,541  j     6,268      6,897       7,390      8,171     9,807     11,870      13,507      5,824
e. Fishery                            3,352      3,823      4,353       5,353       5,385       6,544      7,561      9,041    10,878     20,266      25,631     13,083
2  Minins & Ouarrving                    26,119     31A403     29.907     30.750       31,497     33.507     40,195     46,088     55.562    133353    112_638    120,860
a. Oil& natural gas                  21,789     26,126     23,384     23,169  ,    23,121     23,070      25,410     28,118    34,037     79,423      71,049     71,284
b. Oth. mining&quarrying              4,330      5,277      6,523      7,581  I      8,377     10,437     14,785     17,970    21,525     53,931      41,589     49,576
3. Manufacturine                         38,910     47.666     56,542     67,441  1    73.56      89,241    109,689    136_426    168.178    238,064    284,804    154.355
a Refinery oil                        3,575      3,807      4,322       5.211  1    5,541      5,855       6,599      8,340      8,116     14,259    15,634       8,793
b. LNG                                3,715      4,714      4,384      4,253  !     4,253      4,584       4,800      5,854      7,506     18,080    17,865      11,785
c. Non-oil & gas mfg.                31,621     39,145     47,836     57,977       63,763      78,802     98,290    122,232    152,556    205,725   251,305    133777
4. Electricity. zas & water              1258       1,750      2,148      2,714  !     3.290      4.577      5.655      6.893      7.833      11235     13,369      7,070
5. Construction                          10,749     12,go2     15,305     18,140  1    22,513     28.017     34,452     42.025     46,679     61.756      73,418     44,29
6. Trade, Hotels & Restaurants           33,000     36,954     42.732     49.789       55,298     63.859     72,843     87.137     99.582    167.244    183,627      97.405
a. Retail & wholesale trade          27,712     30,770     35,645     41,496       44,605     51,134      60,379     69,375    77,543    132,833    141,245      74,034
b. Hotels & Restaurants               5,288      6,184      7,086       8,293       10,693     12,725     12,464     17,762    22,039     34,412     42,381      23,371
7. Transport & Communications            11,000     13.908     17,099     20.728 ,     23.249     27,353     30,795    3,26        38.531     51,937      66.077     35.065
a. Transport                          9,694     12,327      15,133     18,1S3      20,101      23,191     25,477     29,246    31,498     41,837     51,831      26,094
b. Communications                      1,306     1,581       1,966      2,545  j     3,148      4,162      5,318      5,680     7,033     10,100      14,246      8,971
8. Banks & Finance                        8.287     10,158     125        15257  !    14005       17.818     2e.852     21,853     24.831     31.333      30.840     16,222
9. OwnershiD of Dwellings/b               4,891      5,925      6.59       7,611        9.695     11,239     11.899     13,649     17.715      23.140     24.258     12.729
10. Other Services                       19.236    22,065      26.323     33.842       37.709     40.539     47.441     54.779     67,402     97.144    112367       62,488
a. Public                             12,801    14,622      17,309    22,458       22,458     22,755     26,555      29,753    32,128     40,641     56,745      33,877
b Other Private & Services /c         6,434      7,443      9,014      11,384       15,251     17,784     20,886     25,026     35,274     56,503     55,622     28,611
Gross Domestic Products                 195,597    227.450    259,885    302,018  ,   329,776    382.220    451717    532,568    627,321    989,119   1,119,442    658,773
*: Preliminary figures. **: Very preliminary figures.
/a. In 1996, the Government released national accounts series using a 1993 base.
/b. Using the 1983 base, this line refers only to Ownership of'Dwellings Using the new base, it includes Real Estates.
/c. Includes Business Services.
Source: Central Bureau of Statistics.



Table 9. Gross Domestic Product by Industrial Oricin at Constant Market Prices. 1990-2000 la
(Rp. billion)
1983 base                                                               1993 base
1990      1991       1992      1993 .    1993        1994      1995      1996       1997      1998     1999'   2000"*
Jan-Jun
1. Aericulture. Livestock           22.357    22.715    24,226    24,569      58,963    59,291        6      63,828    64,46S    64,029    65,361    33.090
Forestrv and Fisherv
a. Farm food CTOpS               13,558    13,484    14,527    14,356      32,093    31,408    32,952    33,647    32,688    33,187    33,769    18,778
b. Non-foodcrops b                3,724     3,924      4,111     4,351      9,015     9,472      9,912     10,355    10,497    11,235    11,464      4,770
c. Livestock products             2,328     2,468      2,665     2,814      6,203     6,451      6,790     7,133      7,483     6,460     6,869      3,541
d. Forestry                       1,003     1,003       980       997       6,268      6,301     6,304     6,444      7,190     6,631     6,125      2,529
e. Fishery                        1,745     1,835      1,943     2,053      5,385      5,660     5,928     6,249      6,610     6,517     7,135      3,471
2. Minine & Ouarrvin       e        17,532    19,317    18,958    19370       31.497    33,262    35.502      37,739    38,538    37.473    36,831     18.472
a. Oil & natural gas             16,030    17,513    16,719    16,667      23,121    23,720    23,720    24,063    23,920    23,340    22,146    10,886
b. Oth. mining&quarrying          1,502      1,804     2,239     2,704      8,377      9,542    11,782     13,677    14,619    14,133    14,686      7,586
3  Manufacturino                    22.337    24.585    26,964    29,484       73,556    82,649    91,637    102,260   107,630    95,321    97,786    50.305
a. Refunery oil                   1,094     1,137      1,202     1,187      5,541      5,548     5,392     6,291      5,926     6,310     6,633      3,530
b. LNG                            4,093     4,433      4,663     4,753      4,253      4,721     4,390     4,572      4,725     4,732     5,033      3,530
c. Non-oil & gas mfg.            17,150    19,015    21,099    23,544      63,763    72,380    81,855    91,396    96,980    84,278    86,120    43,246
4. Electricity, gas & water            726       843        928     1.022       3.290     3J703     4,292      4.877     5.480      5,623     6085      3.174
5. Construction                      6,673      7,424     8224      9.223     22.513    25.858    29.198    32.924    35,346    22.460    22.094    12.050
6. Trade. Hotels & Restaurants      18,569     19,576    21.009    22.850      55,298    59,504    64,231    69,475  3,524 6    0.257        59,998    30,928
a. Retail & wholesale trade      15,425    16,214    17,406    18,969      44,605    47,620    51,397    55,514    58,842    47,972    47,507    24A 61
b. Hotels & Restaurants           3,143     3,363      3,603     3,881      10,693    11,885    12,834    13,962    14,682    12,285    12,491       1302
7. Transport & Communications        6,368      6,869     7.555     8,302      23.249    25.189    27.329    29,701    31,783    26.975    26.782    14,364
a. Transport                      5,596     6,003      6,601     7,192     20,101    21,400    22,932    24,445    25,609    20,504    19,801    10,556
b. Communications                   772       867       954      1,110      3,148      3,788     4,397     5,257      6,174     6,471     6,981      3,808
8. Banks & Finance                   4,894      5,535     6,256     7,070      14005    15945    18,109       18,887    19,956    13.173    11,614      8,902
9. Ownership of Dwellings            2,999      3,120     3,249     3.411       9.695    10,087    10.643     11.266    11.826      9,476     8.906     4.601
10. Other Services                  12,764    13,242    13,817    1           37,709    39.155    40,967    42,842    44,696    42,105    42,594    19,188
a. Public                         8,783     9,052      9,320     9,509     22,458    22,752    23,046    23.338    23,617    21,888    22,251       11,369
b. OtherPrivate&Services/d        3,981     4,189      4,497     4,897     15,251    16,403    17,921     19,503    21,079    20,218    20,343       7,819
Gross Domestic Products            115,217   123,225   131.185   139.707    329,776   354.641   383.792   413,798   433.246   376,893   378.051    195.074
: Preliminary figures. ":Very prelirninary figures.
la. In 1996, the Govemrnent released national accounts series using a 1993 base.
b. Includes the former smallholder and estate food crops under the National Accounts with a 1983 base.
/c. Using the 1983 base, this line refers only to Ownership of Dwellings. Using the new base, it includes Real Estates.
/d. Includes Business Services.
Source: Central Bureau of Statistics.
GDP per capita (in constant prices 1993) - Thousand Rupiah                          Sectoral GDP growth (year on year) - %
2,200                                                                   20 
20
2,000       ,                                                           1 -0         -  ec
15
1,600 
1,400                                                                   2
-.---Agriculture
25   -a---Manufactuting
1,200                                                                  -3         ...Service
1990        1992        1994        1996        1 998                950 1    9504    9603    9702    98101    9804   99Q3    0002
55



Table 10. Gross Domestic Product by Exienditure Category at Current Market Prices. 1990 - 2000 /a
(Rp. billion)
1983 base                I                                       1993 base
1990      1991       1992       1993        1993       1994      1995        1996       1997       1998      1999*    2000**
Jan-Jun
1. Pnvate consumption          106,312    125,036    135,880    158,342 '   192,959    228,119    279,876    332,094    387,171    644,539    811,681    420,256
2. Govemmentconsumption         17,573     20,785     24,731     29,757 1    29,757     31,014     35,584    40,299     42,952     54,416     72,631     44,515
3. Gross fixed investment       55,633     63,894     70,820     78,243 1    86,667    105,381    129,218    157,653    177,686    243,043    237,664    146,151
4. Changes in stock /b          15,072     16,848     22,405     28,286 |    10,546     13,327     15,900      5,800    21,615    -45,573    -91,440    -65,845
5. Exports of goods and
nonfactorservices            51,953     62,264     76,384     85,454      88,231    101,332    119,593    137,533    174,871    506,245    390,560    226,536
6. Less: Imports of goods and
nonfactor services           50,946     61,376     70,337     78,065      78,383     96,953    125,657    140,812    176,600    413,058    301,654    164,397
Gross Domestic Product         195.597    227.450    259,885    302.018     329.776    382,220    454,514    532.568    627.695    989,61Z   1,119.442    607.216
* Preliminary figures. ** Very preliminary figures.
/a. In 1996, the Govemment released national accounts series using a 1993 base, based on an up-date of the 1990 Input-Output Table and refined estimates of some sub-sectors.
lb. Residuals.
Source: Central Bureau of Statistics.



Table 1I. Gross Domestic Product by Expenditure Cateaory at Constant Market Prices, 1990 - 2000 la
(Rp. billion)
1983 base                                                     1993 base
1990      1991      1992       1993       1993      1994       1995       1996      1997       1998     1999*     2000"
Jan-Jun
1. Private consumption        62,053    66,584    68,485    72,476    192,958   208,062   215,798   257,016   277,116   259,619   269,181         137,373
2. Govemmentconsumption        11,317    12,113    12,819    12,830      29,757    30,443    31,476    31,681    31,701    26,828    27,014        14,504
3. Gross fixed investment      32,732    34,867    36,589    38,671      f6,667    98,589   114,022   128,699   139,726    93,605    74,887        42,857
4. Changes in stock /b          3,303     1,990     2,314      3,404 I   10,546    14,836    23,435       5,873     3,342    -5,465    -6,607    -12,055
5. Exports of goods and
nonfactor services         28,863    34,600    39,675    42,297       88,231    97,002   102,975   112,391    121,158   134,707    92,124       53,573
6. Less: Imports of goods and
nonfactor services          23,050    26,929    28,697    29,971      78,383    94,291    103,938   121,863    139,796   132,401    78,546      41,179
Gross Domestic Product        115.217   123.225   131.185   139.707     329.776   354.641   383,768   413,798   433,246   376.93   378.051    195,074
* : Preliminary figures. ** : Very preliminary figures.
Ia. In 1996, the Government released national accounts series using a 1993 base, based on an asp-date of the 1990 Input-Output Table and refined estimates of some sub-sectors.
/b. Residuals.
Source: Central Bureau of Statistics.
Quarterly GDP: Year on year and quarterly growth (%)              Domestic demand: GDP, consumption, and investment index,
Ql 1995=100
14                                                                  160
10 ro               2                Quarterly                                                                Private
6 0                                   growtth                       140 -
-2                                P- * ' * WA | . /u | *, t 100
{ 14      U        Ygrowth Y                                         60 -             Investment \
-18]                                                                 40-    ,   ,     .     .  -    .    .     .    ................   .
95Q1   95Q4   96Q3   9702   98Q1   98Q4   99Q3   00Q2                9501   9504   96Q3   97Q2   9801   98Q4  99Q3   00Q2
57



Table 12. Balance of Payments 1994 - 2000
(USS million)
Items                  1994       1995       1996       1997        1998       1999     2000 /d
I Non oil/gas (net)/a                 1,595       -96      -1,849      3,129     13,864      14,355     14,170
2 Oil (net)                           2,329      2,851      3,122      2,266       1,518      1,975      2,833
3 Gas (net)                           2,755      6,644      5,896      4,679      3,047       4,314      6,068
4 Current account                     -2,960     -6,760     -7,801    -5,001      4,097       5,783      5,912
a. Exports, fob                  40,223     47,454     50,188     56,297     50,371     51,243     58,440
b. Imports, fob                 -32,322    40,921    -44,240    -46,223    -31,942    -30,599    -35,369
c. Services, net                -10,861    -13,293    -13,749    -15,075    -14,332    -14,861    -17,159
5 Ofcial Capital                        307        336       -522      2,880      9,971       5,353      6,504
a. Inflows                        5,838      5,785      5,693      7,594      7,414      6,560      6,750
IGGI                           3,908      5,635      5,093      7,594      5,897      6,560      6,750
Special assistance               268        226        165         92          0          0          0
Program aid/b                      0          0          0      3,036       1,821      3,870      3,740
Food aid                           0          0          0          0        160        273         61
Project aid                    3,640      5,409      4,928      4,466      3,916      2,417       2,949
ODA                          2,493      3,591      3,274      2,601      1,718      1,686      1,934
Non-ODA                      1,147      1,818      1,654      1,865      2,198        731      1,015
Commercial loan                 141         150       600          0       1,517          0          0
b. Amortization                  -5,390     -5,449     -6,215     -4,714     -3,765     -4,070     -4,344
c. Exceptional financing             0          0          0       3,036      6,322      2,863      4,098
IMF and Japan swap               0          0          0      3,036       5,761      1,373      1,792
Refinancing & reschedulling      0          0          0          0        561       1,490      2,306
6 Private Capital                     3,701     10,252      11,511      -338    -13,846      -9,923    -10,409
a. Foreign direct invesment       2,108      4,345      6,194      4,677       -356      -2,745     -5,321
Inflow                      3,412      5,975      8,154      10,005     6,986       3,702      3,718
Outflow                     -1,304     -1,630     -1,960     -5,328     -7,342     -6,447     -9,039
b. Others                          1,593     5,907      5,317      -5,015    -13,490     -7,178     -5,088
7 Capital account (5+6)               4,008     10,588     10,989      2,542     -3,875      -4,570     -3,905
8 TOTAL(4+5+6)                        1,048      3,828      3,188      -2,459       222       1,213      2,007
9 Errors& omission -(4+7+10)           -242      -2,312      1,263     -1,986     2,122       2,079      1,033
10 Monetary movements/c                -806      -1,516     -4,451     4,445       4,910     -3,292     -3,040
/a Gross exports less imports of goods and services of the oil and LNG sector respectively.
ib Since Quarter I of 1998/99 Program Aid has included disbursements of BOP supports, excluding IMF loan.
/c Since 1998 Monetary Movement is based on Gross Foreign Assets (GFA) replacing Official Reserves.
Since 2000, based on change reserve assets replacing GFA. A negative amount refers to an accumulation of assets.
/d Projection
Source: Bank Indonesia.
Trade balance and current account in US$ billion            Private and official capital in US$ billion
25                                                    15-
_ Current account                                             ..
20 -        - Trade balance                           10 -
15-                                                    5-
--              -10-           FD I.
-5         r r r                                     -15    --Official Capital           i
- - a - - Private Captal
-10 -                                                -20
1994  1995  1996  1997  1998  1999 2000p              1994   1995   1996   1997   1998   1999  2000p
58



Table 13. Selected Non - oil ExDorts. 1990 -2000
(USS million)
1990    1991    1992    1993    1994    1995    1996    1997          1998    1999    2000
Jan-Jun
1.  Rubber                   885      924    1,039     959    1,268    1,986    1,894    1,505     1,010     855      426
2.  Coffee                   372      355      236     333      750      622      598      583       607      474     143
3.  Palmoil&Cemel            253      335      465     535      878      973    1,017     1,662      816    1,170     559
4.  Rattan                   275      275      307     333      354      374      324      204        11       16       1
5.  Foodstuff                308      382      467     455      603      670      747      881       923     904      297
6.  Shrimps, Lobster, Tuna   705      811      802     902    1,056    1,093    1,058     1,097    1,768    1,607     708
7.  Tin                      176      146      148      92      121      240      310      277       260      242      107
8.  Copper                   400      146      687     646      879    1,551    1,397     1,548    1,749    1,077     749
9.  Nickel                   319      512      269     304      334      410      374      233       165      219     186
10. Aluminum                 216      304     214      165      204      354     320       280       200      135     117
11. Iron Steel               367      172     381      464      454      522     608       660      990      772      375
12. Plywood                2,690    2,772    3,219    4,128    3,650    3,452    3,544    3,477    2,327    2,254    1,046
13. Textiles               1,084    2,772    2,470    2,311    2,517    2,908    2,683   3,390    3,461    3,086    1,563
14. Handicraft               346    1,539     541      663      978      655     526      1,027    2,089     612      289
15. Electrical app.          237      379    1,017    1,301    1,774    2,724    3,593   3,261     2,813    3,401    2,910
16. Garment                 1,570    2,203    3,212    3,395    3,096    3,324    3,187    4,181   3,817    3,777    1,865
17. Pulp and Paper           250      312     401      483      782    1,504    1,369     1,953    2,469    2,646    1,534
Others                  4,305    3,716    7,748    8,612   10,172   12,854   13,499   16,914   16,383   16,261    9,176
TotalNon-oilExMorts    i.!758   1.054   23624   26.00   2980   36.24   37,04    43.133    41.859   39.510   22051
Source: Bank Indonesia.
Oil and non-oil export (US$ million)                     Non-oil export by main group (US$ million)
35,000
45,000 -              Non-oil and gas                          30,000
25,000 -
35,000 
20.000
25,000150
Oil and ga                10,000
15,000                                                          5.000
59000  -          1993 1994 1995 1996 1997 1998 1999
l                                                     *~~~~~~~~~~~~~~~~~~~~Agriculture   0 Mining   0 Manufacturing
59



Table 14. Value of Exgorts by Principal Country of Destination. 1990-2000
(USS million)
1990      1991      1992      1993      1994      1995       1996     1997     1998     1999
Asean                       2.516      3,197     4.361     4,746     5.704     6.070      7,212    8,648    8.762    7.802
Malaysia                  253       342       488       586        738       987      1,110     1,506    1,359    1,336
Thailand                  189       267       353       468       401        703       823       847      943      813
Philippines               161       168       181       285       365        590       689       793      708      695
Singapore               1,902     2,410      3,314     3,372     4,150     3,767     4,565     5,462    5,718    4,931
Brunei                     11        10        25        35        50         24        27        40       36       28
Vietnam                                                  172       196       264       337       390      351      332
Cambodia                                                 40       442         80        60        70       65       69
Hong Kong                     618       703       881       901      1.321     1.657      1.625    1.778    1.865    1.330
Japan                      10.3      10,767    10761      11,172    10.929    1          125    12.461    9.116   10397
Other Asia                  4,035     5,540      6,567     6,768     7,405     8.725     9,554    10.743    9,413   10,145
Africa                        199       394       419       463        638       621       639       771      908    1,063
USA                         3.365     3,509     4.419      5.230     5.829     6.322     6,795     7,113    7,031    6.896
Canada                        139       172       289       304       322        359       368       398      412      354
Other America                 102       184       328       469       562        759       758       950      927      830
Australia                     403       628       746       774       705        915      1,216     1,511    1 533    1485
Other Oceania                  84        39        53        78        67        156        71        69      121      142
EEC                         3.029     3,743     4.844      5.391       59      6 615     7446      7,848    7.544    6 869
o/w UnitedKingdom             517       654       844      1,005     1,038     1,129      1,193    1,231    1,143    1,176
Netherlands               723       838      1,100     1,086     1,324     1,452      1,667     1,835    1,512    1,544
Germany                   750       907       978      1,178     1,263     1,382      1,489     1,459    1,401    1,234
Belgium & Luxemburg       210       258       401       366       409        539       682       788      877      695
France                    286       386       495       500       426        520       564       497      547      503
Italy                     276       382       583       615       661        784       744       823      859      656
Spain                     152       169       255       333       454        535       813       886      869      742
Soviet Union                   81        40        70       125        91        134       134        65       43       34
Others in Europe              183       229       231       288       417        452       714       627      756      847
Total                      25,77     29,45    33.969    36,710    34.049    45,074    49,417    52984   48432   48194
Source: Central Bureau of Statistics.
Export value by country destnation in 1993, 1996, and 1999
1993                                     1996                                      1999
I                   ~~~~~~Asean
Asean Asean        others                 Asean                                        16%
oter                  13%C oter                                  15'
14%                 14%                                       ~~~~~~~~~~~~~~~14%
E-EC                                  C                     Japan                EEC
Japan                   15%                Japan                 15%                   22%                 14%
30%                                        26%
60



Table 15. Value of Imports by Principal Country of Origin. 1990-2000
(US$ million)
1990      1991      1992      1993      1994      1995     1996     1997     1998    1999
Asean                        2,430      2,465    2,593      2,603    2.928      3.953    4.885    5.276    4.129    4.764
Malaysia                    326       407       525       517       579       767       824      865      627      589
Thailand                    183       278       345       235       407       737     1,095      867      842      933
Philippines                 649        81        52        57        65        81        90      127       65       56
Singapore                 1,272     1,699     1,670     1,793     1,877     2,368     2,875    3,411    2,596    2,526
Brunei                        0         0         1         1         0         1         1        6        0       38
Hong Kong                      273       232       229       247       241       275       262      325      264      228
Japan                        5,300     6,327     6.014     6.248     7,734     9.217     8504    8,252    4.293    2,913
Other Asia                   4.633      5.156     5.496     5,972     6,870     8.376    8,662    8,171    5.463    5,972
Africa                         170       195       213       140       332       608       643      684       428     573
USA                          2,520     3,397      3.822     3 255    3,594     4.756     5.060    5,441    3.515    2.839
Canada                         407       354       459       410       497       811       786      682      496      421
Other America                  519       597       488       625       755      1,088     1.089     926      515      584
Australia                     1186      1,378     1.413     1399      1542     2,016     2.535    2,427    1.761    1.460
Other Oceania                  115       118       136       161       186       206       245      234      166      117
EEC                          4.060     4,705     5.400     5.651     5,827     7,253     7.880    7.191    5.176    3.801
United Kingdom              440       603       719       782       710       902     1,1 18    1,084     920      511
Netherlands                 550       505       507       626       564       842       493      566      338      347
Germany                   1,502     2,061     2,141     2,072     2,473     2,819     3,001    2,629    2,337    1,399
Belgium & Luxemburg         232       254       324       340       292       401       394      339      277      178
France                      643       544       816       853       786      1,064    1,006    1,016      568      372
Denmark                      61        49       124       158       106       105       191      159       50       38
Ireland                      74        13        23        21        22        41        39       35       25       31
Italy                       410       536       558       523       670       791     1,212      918      480      277
Greece                        6         5         8        12        26        61        76       52       19       25
Portugal                      6         4         2         2         4         8         5       23        2        2
Spain                       136       131       178       262       174       219       345      370      160      206
Othersin Euroae                764       899       969      1,517     1.264    2,070     2.000    2.071    1,024      332
Total                       22.430                        28325    31.990    41.06    42,929   41.967   277   24.03
Source: Central Bureau of Statistics.
Import value by country destination in 1993, 1996, and 1999
1993                                     1996                 I                  1999
Asean                otesAsean                              others                    Asean
others              9%      USA          others                11%     USA      40%                        20%
12%
EC                           ,                            _    E z             5        j         _      t2°bC EE
Japan                                    Japan               ia2%                               EE%
22%                                      20%
61



Table 16. External Public Debt Outstandina as of December 31.1998
(USS thousand)
Type of creditor/                          Debt outstanding                 Present
creditor country                   Disbursed  Undisbursed       Total        Value
Suppliers' Credits
Japan                          1,238,923       1,767     1,240,690         1,265,516
Total suppliers' credits     1,238,923       1,767    1,240,690          1,265,516
Financial Institutions
Australia                          3,852       2,242        6,094             6,073
Austria                          112,676      53,123      165,799            196,548
Belgium                            3,630        577         4,207             4,332
France                           169,921      66,485      236,406            288,464
Germany, Fed.Rep.Of               4,324          99         4,423              3,610
Hong Kong                        471,351     150,000      621,351            621,248
Japan                            438,090     196,600      634,690            482,577
Multiple Lenders               8,127,433         -       8,127,433         8,150,532
Netherlands                       61,287      28,445       89,732            86,013
Norway                           27,233       13,890       41,123             29,866
Singapore                      1,000,000         -       1,000,000           837,435
Spain                             7,139          -          7,139             6,649
Switzerland                       3,109          -          3,109             2,650
United Kingdom                  455,360      263,516      718,876           697,356
Total financial institutions  10,885,405  774,977    11,660,382         11,413,353
Bonds
Multiple Lender                  765,000           -      765,000            951,240
United States                    426,000           -      426,000           462,164
Total bonds                  1,191,000          -     1,191,000          1,413,404
Nationalization
Netherlands                       39,814           -       39,814             35,555
Total nationalization          39,814           -        39,814            35,555
Multilateral Loans
ASDB Soft Window                 653,462     184,035      837,497           423,617
Asian Dev. Bank                5,476,837    4,193,295    9,670,132         9,529,359
EEC                                3,865         -          3,865              2,137
European Dev. Fund                  770        1,563        2,334              1,890
IBRD                          10,691,735    4,284,130    14,975,865       16,211,335
IDA                              694,088         -        694,088           413,383
Intl. Fund Agr. Dev. (IFAD)       95,581      44,337      139,919            103,333
Islamic Dev. Bank                 62,353      67,828      130,181            133,856
Nordic Invest Bank               200,281      21,418      221,699            198,141
Nordic Invest. Fund               13,158         -         13,158
Total multilateral loans    17,892,130    8,796,607    26,688,737       27,017,051
Source: IBRD Debtor Reporting Systemn, based on data provided by Bank Indonesia.
62



Table 17. Service Payments. Commitments. Dlsbursements and Outstanding Amounts of Total External Debt. 1980 - 2013
(USS thousand)
Debt outstanding at                             Transactions during period                                                Other Changes
end of period
Disbursed       Including       Commit-          Disburse-                      Service Payments                     Cancel-           Adjust-
only      Undisbursed         ments             ments          Principal         Interest             Total        lations           ment   /a
Actual
1980            20,937,697    30,420,359        4,277,373         3,245,505        1,632,494        1,451,811         3,084,305        118,261
1981            22,761,139    33,805,826        5,008,002         3,845,429        1,784,995        1,707,127         3,492,122        163,286           325,746
1982            25,133,280    38,847,056        7,067,267         4,410,336        1,942,084        1,914,070         3,856,154          5,472           -78,480
1983            30,229,384    44,069,191        5,686,879         6,392,696        1,798,027        1,943,231         3,741,258        197,669         1,530,951
1984            32,025,604    46,152,969        4,816,038         4,840,324        2,270,173        2,575,904         4,846,077         26,707          -435,379
1985            36,715,241    52,664,318        4,583,947         4,170,204        3,421,579        2,401,135         5,822,714        514,815         5,863,797
1986            42,916.411    60,291,399        4,104,406         4,829,475        3,285,238        2,698,512         5,983,750        184,999         6,992,912
1987            52,494,917    71,957,065        5,994,820         7,489,770        4,057,399        2,940,534         6,997,933        635,419        10,363,663
1988            54,078,473    72,944,387        6,087,327         8,179,570        5,296,940        3,345,242         8,642,182        511,210           708,145
1989            59,401,728    78,040,191        7,643,407         9,008,916        5,993,871        3,839,209         9,833,080        307,264         3,753,532
1990            69,871,544    90,281,287        6,691,047        10,024,228        5,968,647        3,977,615         9,946,262        792,119        12,310,815
1991            79,547,725    100,178,464        8,811,427       11,758,429        6,857,771        4,617,488        11,475,259      2,102,942        10,046,463
1992            88,002,159    107,367,151        7,878,074       13,532,913        7,943,980        4,512,662        12,456,642      1,212,380         8,467,005
1993            89,171,878    109,869,339       8,136,637         8,084,176        9,137,539        4,951,220        14,088,759        428,180         3,931,270
1994           107,823,935    129,207,339       7,711,610        12,546,541        8,951,065        5,316,014        14,267,079        402,304        20,979,726
1995           124,398,325    149,421,280       10,954,145       13,628,469       10,196,992        6,219,010        16,416,002        568,988        20,021,412
1996           128,940,609    152,642,307       7,795,728        20,973,217       14,891,771        6,647,014        21,538,785        558,371
1997           136,173,090    155,527,125       3,431,603        22,462,352       13,009,502        6,726,343        19,735,844        451,022
1998           150,874,571    166,383,363       6,608,400        16,657,321       11,841,879        7,125,241        18,967,120      3,393,253
1999  /b       148,097,000    167,247,496       7,222,766                         18,848,000        7,167,000        26,015,000
Projected
2000           125,983,798    131,103,289               0         4,421,682       19,728,065        6,666,699        26,394,764             0
2001           109,300,467    111,642,851               0         2,777,132       19,460,464        5,898,661        25,359,125             0
2002            94,858,467     95,951,193               0         1,249,675       15,691,673        4,713,578        20,405,251             0
2003            84,674,111     85,143,472               0           623,406       10,807,761        3,891,641        14,699,402             0
2004            76,600,178     76,771,838               0           297,738        8,371,671        3,372,000        11,743,672             0
2005            67,947,370     67,960,190               0           158,938        8,811,746        2,849,925        11,661,672             0
2006            60,127,530     60,133,158               0             7,193        7,827,032        2,282,129        10,109,161             0
2007            51,682,151     51,683,457               0             4,321        8,449,700        4,114,805        12,564,505             0
2008            47,281,547     47,281,807               0             1,046        4,401,650         1,281,708        5,683,358             0
2009            43,731,070     43,731,329               0                0         3,550,477         1,074,929        4,625,406             0
2010            40,515,438     40,515,696               0                0         3,215,632          906,548         4,122,180             0
2011            37,844,994     37,845,251               0                0         2,670,444          755,735         3,426,179             0
2012            35,000,838     35,001,095               0                0         2,844,156          635,848         3,480,004             0
2013            32,668,160     32,668,417               0                0         2,332,677          492,979         2,825,656             0
/a This column shows the amount of arithmetic imbalances in the amount outstanding, including undisbursed, from one year to the next. The most
common causes of imbalance are changes in exchange rates and transfers of debts from one category to another in the table.
/b 1999 actual data are from Bank Indonesia.
Source: IBRD Debtor Reporting System, based on data provided by Bank Indonesia.



Table 1. External Debt Outstanding December 1997 - March 2000
(USS million)
1997                         1998                                                1999                                 2000
December         March         June   September   December           March         June   September   December            March
External Debt                                      125,817        131,587     135,005      136,299     145,599        146,448     141,296      142,764      144,798       140,725
Government                                         53,865        54,159      55,166       58,666      67,315         68,404      70,418       74,809       75,720        75,036 11
ODA                                             38,162        37,853       38,672      40,803       48,421        49,788       52,091       55,445      56,453         56,316
Non ODA                                         14,812         14,632      14,164       15,485      16,045         16,247      15,952       16,982       16,880        16,336
Commercial                                         890          1,674       2,330        2,378       2,849         2,369        2,375        2,382       2,387          2,384
State Enterprises                                  3,995          3,842       4,008        3,850       4,153          4,123       4,121        4,020        5,004         4,937
Pertamnina & Garmda                              3,757         3,720        3,829       3,688        3,992         3,980        3,948        3,820       3,667          3,639
Other state enterprises                            239           122          179         162          161           143          173         200         1,337         1,298
Banks                                              14,364        12,826      12,622       10,817      10,769         11,748       10,631      10,384       10,836         10,379 /2
State banks                                      5,910         5,024        4.967       4,360        4,744         4,872        4,926        4,732       4,705          4,667
Private banks                                    8,454         7,802        7,655       6,457        6,025         6,876        5,705        5,652       6,131          5,712
Private non Banks                                 53,593         60,760      63,209       62,966      63,362        62,173       56,126       53,551       53,238        50,373 /2
C>,                     Loan                                            49,179         52,628      55,584       55,376      55,954         54,718      49,161       46,902      46,909         44,134
4b.                    Bonds                                             4,414         8,132        7,625       7,590       7,408          7,455        6,965       6,649        6,329          6,239
Domestic Securities Owned by non-residents           10,271        6,432        5,607        5,667       5,287         3,491        3,653        3,178       3,299          3,557
Denominated in Rupiah                              2,858          1,187         740         724          656           422          795         399          589            710
Bonds                                              322           170          102          98          99             56           96          72           90            104
SBls                                               245           229         248          182           13            30          275          38          142            256
MTNs                                               369           165           87          93          109            86           86          71          110            100
CPs                                                 11            10           6            6           9              4            9           8           10              2
CDs                                              1,088           240          51           30          24              0           18           0            0
PNs                                                823           373         246          315         402            246          311         210          237            248
FRNs                                                               0            0           0           0              0            0           0            0
Denominated in USD                                 7,413          5,245       4,867        4,943       4,631          3,069       2,858        2,779       2,710          2,847
PNs                                              5,297         3,708        3,731       3,525        3,295          1,839       1,693        1,610       1,661          1,817 /3
MTNs                                              1,974         1,365       1,069        1,343       1,263          1,184       1,106        1,115        1,004           992 /3
CPs                                                 29            43          44           49          50             35           42          39           35             30
Bonds                                               98           127          22           24          21              7           13          13            8              8
FRNs                                                 2             2            1           2           2              4            4           2            2
CDs                                                 13
Total External Obligations                         136,088        138,019     140,612     141,966      150,886       149,939      144,949      145,942     148,097        144,282
/1 Includes debt owed to IMF.
/2 Includes loans obtained by branches of Indonesian banks and affiliates of Indonesian companies abroad and channeled into Indonesia.
/3 Including securities JPY denomninated.
Source: Bank Indonesia.



Table 19. Central Government Budget Summary. 1994/95 - 2000 Ia
(Rp. billion)
Provisional
---------------------------------   Actual ----------------------------------  Actual  Budget
1994/95    1995/96     1996/97     1997/98     1998/99   1999/2000       2000
9 months
1. Domestic revenues                 64,412      70,852      87,630     107,965     146,872     181,041     152,897
2. Current expenditures               32,137     35,201      44,972      75,232     115,272     173,695     155,425
3. Government savinz (1-2)           32276       35.651      42.658      32.733      31.60        7.346      -2.528
4. Development expenditures           28,430     27,201      32,928      36,311      52,824      51,560      41,606
5. Balance (3-4)                      3.846       8,450       9.730       3            2444                  4
Financed by:
6. Program aid                            0           0           0          0       24,926      25,362      11,300
7. Projectaid                         9,838       9,009      11,900      14,386      26,181      18,271      16,030
8. Change in balances
(- = increase)                 -13,683     -17,459     -21,631    -10,808      -29,883        582       16,804
/a Government new format since 1999/2000 and applied to 1994/95 - 1998/99
Source: Ministry of Finance.



Table 20. Central Government Revenues. 1994495 - 2000 Ia
(Rp. billion)
Provisional
---------------------------------   Actual ----------------------------------  Actual  Budget
1994/95     1995/96     1996/97     1997/98     1998/99   1999/2000       2000
9 months
State Revenues and Grants                 64,412      70,852      87,630     107,965      146,872     181,041     152,897
S. Domestic Revenues                      64,412      70,852      87,630      107,965     146,872     181,041     152,897
1. Tax Revenues                      49,175      54,258      64,422      81,752      118,795     117,381     101,437
a. Domestic Taxes                   45,144      51,042      61,762      78,625     111,860      112,798     95,538
i. Income Taxes               23,497      26,583      34,144      45,206      72,345      65,199      54,225
-Non-Oil & Gas                18,764      21,012      27,062      34,388      55,944      54,941      44,189
-Oil & Gas                     4733         5571        7082       10818       16401       10,258      10,036
ii. Sales tax (VAT)           16,545      18,519      20,351      25,199      27,803       32,982      27,002
iii. Property taxes            1,647       1,894       2,413       2,641       3,565        3,650      2,901
iv. Excises                    3,153       3,593       4,263       5,101       7,733       10,399      10,272
v. Othertaxes                   302         453          591         478         413         569        1,139
b. Intemational Trade Taxes         4,031       3,216       2,660        3,127       6,936       4,583       5,899
i. Import duties               3,900       3,029       2,579       2,999       2,306       3,748       4,976
ii.Exporttaxes                   131         186         81          129       4,630         835         923
2. Non Tax Receipts                  15,237       16,595     23,209      26,213       28,076      63,660      51,460
a. Natural Resources Revenues       8,804       10,483      13,055      15,431      15,431      46,045      40,082
i. Oil                         7,603       9,093      11,235      10,701      10,701      34,552      25,311
ii. Gas                        1,201       1,391       1,821       4,730       4,730       11,493       7,918
iii. Public Mining                0           0            0           0           0           0         619
iv. Forestry                      0            0           0           0           0           0        6,209
v. Fishery                         0           0           0           0           0           0          25
b. Profits of Public Enterprises     1,322       1,604       2,650       2,341       3,428       5,759       5,281
c. Other Non-tax revenues (PNBP)    5,111       4,508        7,503       8,442       9,217      11,857       6,096
II. Grants                                     0           0           0           0           0           0           0
/a Govemment new format since 1999/2000 and applied to 1994/95 - 1998/99
Source: Ministry of Finance.
Central Government revenues as percentage of GDP
100% -
80% -
El Oil + gas (tax + non tax)
60%                                                        U9 Income taxes (excudes
Oil gas)
40% *1   c >           : c    'Trade
20%                                        ~~~~~~~~OVAT
2E Others
94/95  95/96  96/97  97/98  98/99  99/00  2000
Budget
66



Table 21. Central Government Expenditures. 1994J95 - 2000 la
(Rp. billion)
Provisional
--------   Actual ---------------------------  Actual  Budget
1994/95    1995/96    1996197    1997/98      1998/99  1999/2000      2000
9 months
Total Expenditures                              60,567     62,402      77,900    111,543     168,096    225,255    197,030
1. Current Expenditures                         32.137     35,201     44.972      75.232     115.272    173.695    155.425
Personnel expenditures                       12,596     13,001     14,455      17,269      23,216     33,622      30,682
Wages and salaries                        10,181     11,048      13,005     13,698      18,657     26,881     25,761
Rice allowance                               973        733        768        788        1,245      2,004       1,527
Food allowance                               756        560        101       1,174       1,547      2,289       1,585
Other                                        368        370        480        671        1,073       1,438      1,014
Extemal                                     317         290        103        938          695       1,011       795
Material expenditures                         4,319       5,175      8,109      8,999        9,862     10,862      9,441
Transferstoregions                             7,272      8,227      9,358     11,061       13,074     19,170     18,114
Debt Service                                   6,470      6,875      9,902     16,735       32,574     43,556     54,623
Domestic                                    0           0          0          0        8,385     23,498     37,998
Extemal                                  6,470      6,875      9,902      16,735      24,189     20,058     16,625
Subsidies                                       687          0       1,416     20,413       33,872     62,426     30,828
Petroleum subsidies                       687           0      1,416      9,814       28,607     40,923     22,462
Other Subsidies non Petroleum               0           0          0      10,599       5,265     21,502       8,366
a. Food                                  0          0          0      10,599        1,535     12,939      2,232
b. Electricity                           0          0          0           0        1,930      4,552      3,928
c. Interest Subsidies                    0          0          0           0        1,192      3,253      1,930
Other Current Expenditures                      793       1,923      1,733        756        2,674      4,059      11,737
IL Development Expenditures                     28430      27201       32928      36311       5 4         51.560     41_606
1. Rupiah Financing                     18,592     18,192      21,028     21,926      26,643      33,289     25,576
a. Capital transfer to region      5,670      5,488      6,472      7,512       13,575     15,557     15,409
b. Central Govemment Budget       12,922     12,704     14,556     14,414       13,068     17,732      10,167
2. Project Financingwith foreign loan    9,838      9,009      11,900     14,386      26,181      18,271     16,030
/a Govemment new format since 1999/2000 and applied to 1994/95 - 1998/99
Source: Ministry of Finance.
Central Govermment Expenditures as percentage of GDP
100%    _
90% 
80%                                                            D ODevelopment
80%                           l          {   1=2       {        Expenditures
70% -                                                          N -  _  IdOthers Current
60% -                                                           expenditure
50%                                                            U  Subsidies
40%                                                           IC Debt Service
30% 
20% -                                                         * Transfers to Regions
10%   -        -        -      -               -       -          Material
0% 
__}4/95i  ! 95il9 i9!16/97-  97/98 _ 9 _ _~   2uet   El Personnel
67



Table 22. Money SuDDly (Ml). 1991 - 2000
(Rp. billion)
End of Period   Total          Currency      Demand deposits     Change over period
Amount  (%)          Amount (%/6)        Amount   (%)
1991     1    23,570         9,026      38        14,544    62         1,415    6.4
II    24,609        8,824      36        15,785    64         1,404    6.1
III   25,805         9,025     35        16,780    65         2,823   12.3
IV    26,342         9,346     35        16,996    65         2,523   10.6
1992     1    27,318         11,025     40        16,293    60         3,748   15.9
II    26,844        9,944      37        16,900    63         2,235    9.1
III   27,626        10,440     38        17,186    62         1,821    7.1
IV    28,779        11,478     40        17,301    60         2,437    9.3
1993     I    30,592         12,324     40        18,268    60         3,274   12.0
II    31,563        12,386     39        19,177    61         4,719   17.6
III   35,041        13,106     37        21,935    63         7,415   26.8
IV    36,805        14,431     39        22,374    61         8,026   27.9
1994     1     37,908        15,340     40        22,568    60         7,316   23.9
II    39,886       15,825      40        24,061    60         8,323   26.4
111   42,195        17,555     42        24,640    58         7,154   20.4
IV    45,374        18,634     41        26,740    59        10,333   29.5
1995     1    44,908         18,902     42        26,006    58         7,000   18.5
II    47,045        19,186     41        27,859    59         7,159   17.9
III   48,981        19,564     40        29,417    60         6,786   16.1
IV    52,677        20,807     39        31,870    61         7,303   16.1
1996     1    53,162        21,121      40        32,041    60         8,254   18.4
11    56,448       21,271      38        35,177    62         9,403   20.0
III   59,684        21,055     35        38,629    65        10,703   21.9
IV    64,089        22,487     35        41,602    65        11,412   21.7
1997     1    63,565        23,312      37        40,253    63        10,403   19.6
if    69,950       23,754      34        46,196    66        13,502   23.9
III   66,258        23,916     36        42,342    64         6,574   11.0
IV    78,343        28,424     36        49,919    64        14,254   22.2
1998     1    98,270        38,196      39        60,074    61        34,705   54.6
II   109,480       44,924      41        64,556    59        39,530   56.5
III   102,563       42,725     42        59,838    58        36,305   54.8
IV   101,197        41,394     41        59,803    59        22,854   29.2
1999     1    105,705       44,682      42        61,023    58         7,435    7.6
11   105,964       43,530      41        62,434    59        (3,516)  (3.2)
III   118,124       46,424     39        71,700    61        15,561   15.2
IV   124,633        58,353     47        66,280    53        23,436   23.2
2000     1    124,663        51,197     41        73,466    59        18,958   17.9
11   133,832       55,831      42        78,001    58        27,868   26.3
Source: Bank Indonesia.
Percentage change of MI (percent, YoY)
60
0  , ,,       ,,,     ,           ii,,                   g 
-10   111  1 111 11111  iI11  1 1111  11111  11I  1 11  1 111 1
19.91   1992  1993   1994   1995  1996   1997   1998   1999   2000 j
68



Table 23. Chanaes in Factors Affecting Money SuDpl,V 1990-2000
(Rp. billion)
Public sector
Claims
Net claims    on official                            Total change in broad
Net         on          entities    Claims on       Net        money supply (M2)
End of     foreign     Central      & public     business &     other       Amount Percentage
period      assets    Government   enterprises    individuals   items                  (%/6)
1990        -2,171       -3,877          -921       35,809       -2,914      25,926      44.2
1991         7,499       -1,355           104       20,263      -12,083      14,428      17.0
1992         7,013       -1,292          492        15,257       -1,475      19,995      20.2
1993         -934          731          1,505       30,230       -5,383      26,149      22.0
1994        -4,428       -4,686          -485       37,845        1,064      29,310      20.1
1995         7,354       -7,472         1,305       47,504        -565       48,126      27.6
1996        18,015       -2,757         4,626       51,768       -5,658      65,994      29.6
1997        17,344      -16,486         5,031      132,031     -70,909       67,011      23.2
1998        73,692       17,513         6,389       93,032       31,112     221,738      62.3
1999       -12,581     425,287 /b      -8,139     -291,550 /b   -44,193      68,824      11.9
2000/a      69,827      307,306        -2,964      -15,074    -290,171 /b   68,924       11.2
/a As of June 2000
/b Includes effects of bank recapitalization
Source: Bank Indonesia.
Percentage change of Ml and M2 (percent, YoY)
70
60 a    =M2a
Ml
,40 -.
20                              _ 
O-        , 0                           
1990   1991   1992   1993   1994   1995   1996   1997   1998   1999
69



Table 24. Consolidated Balance Sheet of the Monetary System. 1990-2000
(Rp. billion)
End of period                       1990    1991    1992    1993       1994    1995    1996      1997      1998     1999     2000
as of June
Net foreign assets                 16.122   23,621   30.634   2970      72   32.626   50641   67.985   141.67   129096   181.90
Domestic credit                    93.142  112.154  126611  159.07  19225  23308   284.507  404,396   521759  649.83    766809
Claims on public sector
Central government              -12,202  -13,581  -14,873  -14,142  -18,828  -26,300  -29,057  -45,543   -28,037  397,257   497,669
Claims on public enterprises      7,904    8,008    8,500   10,005    9,994   10,955   13,363   17,707    24,532   18,862   269,140
Govemment-blocked account          -24        0       0        0        0       0        0        0         0        0         0
Claims on private enterwrises
and individuals                   97464  117.727  132,984  163.4   01.059  248.43   300,201  43223    525.2    233.714   249.92
Assets = liabilities              109,264  135,775  157,245  188,777  217,497  265,714  335,148  472,381   663,436  778,929   948,713
Import deposits                     1,048     966     890    1,699    1,541    1,779    2,099    1,419    2,417    1,658     2,840
Netotheritems                     23,586   35,751   37,302   41,876   41,444   41,297   46,635  118,224    86,114  131,066   261,538
Money and quasi monev             84,630   99,058  119,053  145,202  174,512  222,638  288,632  355,643   577,381  646,205   684,335
Money                           23,819   26,341   28,779   36,805   45,374   52,677   64,089   78,343   101,197  124,633   133,832
Currency                       9,094    9,346   11,478   14,431   18,634   20,807   22,487   28,424    41,394   58,353    55,831
Demand deposits               14,725   16,995   17,301   22,374   26,740   31,870   41,602   49,919    59,803   66,280    78,001
Quasi money                     60,811   72,717   90,274  108,397  129,138  169,961  224,543  277,300   476,184  521,572   550,503
Source: Bank Indonesia.



Table 25. Bankina System Credits by Economic Sector. 1990-2000 la
(Rp. billion)
1990     1991 /f    1992    1993 /g     1994       1995      1996       1997       1998      1999    2000/h
Aericulture                      7.176     8A65    10281           7     13,860    15525      17630      26.002     3        23.777    23332
Inrupiah                         6,884     7,979     9,173    10,368    12,026    13,661     15,158      20,340    29,430    21,139    20,066
In foreign exchange               292        486     1,108      1,689     1,834     1,864     2,472       5,662     9,878     2,638     3,266
Mininu/b                           615       743       762       777        799       913      1.693      5.316      5,909    3,697     5.516
In rupiah                         570       614        605       416       359       434        716       2,769     2,729      879      1,050
In foreign exchange                45        129       157       361       440       479        977       2,547     3,180     2,818     4,466
Manufacturing industry/c        30502    33_131    37A58    51.432    6.1          72.088    78.850     111,679    171.668    84.259    90_026
In rupiah                       25,002    24,828    26,197    36,334    42,236    48,476    51,984       56,123    85,594    35,561    29,715
In foreign exchange              5,500     8,303    11,261    15,098    17,975    23,612    26,866       55,556    86,074    48,698    60,311
Trade /d                        29737    33.049    32 944    3779        44,372    54224    70.586       82.264    96.364    43288    46.708
In rupiah                       27,267    28,842    28,100    31,470    36,840    43,608    55,763       57,471    59,830    29,687    29,160
In foreign exchange              2,470     4,207     4,844     6,324      7,532    10,616    14,823      24,793    36,534    13,601    17,548
Service rendering industry/e    17.897    20.066    25,899    35.824    50.806    66.584    91.655      113.569    139,124    43.161    43776
In rupiah                       14,943    16,683    21,979    30,167    42,453    57,432    78,392       85,598    101,129    26,332    24,000
In foreign exchange              2,954     3,383     3,920     5,657      8,353     9,152    13,263      27,971    37,995    16,829    19,776
Others                          11,769     17.371    15.574    12387    18.832    25.277    32.507       39.304     35.053    26951    30.777
In rupiah                       11,197    16,326    14,653    12,374    18,824    25,265    32,478      39,233     34,406    26,929    30,663
In foreign exchange               572      1,045       921        13         8        12         29         71        647       22        114
Total                           2Z926   112,825   122918   150.271   188.880   2 ,1    292.921    378.134   487,426   225.133   240.135
Inrupiah                        85,863    95,272   100,707   121,129   152,738   188,876   234,491     261,534    313,118   140,527   134,654
In foreign exchange             11,833    17,553    22,211    29,142    36,142    45,735    58,430      116,600    174,308    84,606   105,481
/a Credits outstanding at end of period Includes investment credits, KIK and KMKP. Excludes interbank credits, credits to central government and to nonresidents,
bridging finance credit, foreign exchange component of project aid, local cost of investment fund accounts, and credit extended to bank branches abroad.
/b Includes credits to PERTAMINA for repayment of foreign borrowing.
/c Processing of agricultural products is classified under manufacturing industry according to ISIC 1968
/e Credits for electricity, gas and water supply are included in service-rendering industry sector.
/f Since 1991 excludes Bank Indonesia
/g As of 1993 includes Conimercial Banks ex Non-Bank Financial Institutions.
/h As of June 2000
Source: Bank Indonesia.
Credit outstanding share by economic sector 1996 and June 2000 (percent)
1996                                                          2000
Manufacturnng                  T d                           Manufacturnn
27%    _t::::::::::::?si                                     38%
_ ~~~...........Trd
Trade
Mining                                                               Mining _            .::*:*:.::  19%
Agriculture
AgricuIue
31%                                       13% 5 ; *   |  Others  1e8i
71



Table 26. Bankina Credits Outstandina in Rupiah and Foreign Exchanae by GrOUD of Banks. 1990 - 20001a
(Rp. billion)
1990     1991     1992    1993      1994     1995     1996      1997     1998      1999    2000/d
BankIndonesiadirectcredits/b      718      783      771      158      130       71       26       50        40        38        38
Inrupiah                         718      783      771      158      130       71       26       50        40        38        38
In foreign exchange                0        0        0        0        0        0        0        0         0         0         0
State banks                    55,826   59.861   68.236   71,760   80,010   93480  108925  153.26    220,747   112288   100,941
Inrupiah                      50,648   52,628   58,133   59,738   68,085   79,394   93,051  113,436   160,113    84,038    70,202
In foreign exchange            5,178    7,233   10,103   11,805   11,925   14,086   15,874   39,830    60,634    28,250    30,739
Private national banks/c       34.975   44.452   45.352   63,995   9054  116,886  156.412  176.262   199,931    62.805    75.423
In rupiah                     31,458   39,467   39,685   55,076   76,506   99,466  130,194  135,475   139,155    46,047    52,696
In foreign exchange            3,517    4,985    5,667    8,919   13,998   17,420   26,218   40,787    60,776    16,758    22,727
Foreien banks                   6,177    8,512    9.330   34,733   18.366   24.245   27,       48,60     66,748    50.0    50490
In rupiah                      3,039    3,177    2,889    6,315    8,147   10,016   11,245   12,623    13,850    10,442    11,756
In foreign exchange            3,138    5,335    6,441    8,418   10,219   14,229   16,339   35,983    52,898    39,304    44,147
Total                         29769  113,608  123.68   150,429  189,010  234.682  292.947  3781844 48766   224,877   232.305
In rupiah                     85,863   96,055  101,478  121,287  152,868  188,947  234,516  261,584   313,158   140,565   134,692
In foreign exchange           11,833   17,553   22,211   29,142   36,142   45,735   58,431  116,600   174,308    84,312    97,613
/a Credits outstanding at end of period. Includes investment credits. Excludes interbank credits, credits to Central Govemment and to non-residents,
bridging finance credit, foreign exchange components of project aid, local cost of investment fund accounts and credits extended to bank branches abroad.
/b Excludes liquidity credits, includes credits to Pertamina for repayment for foreign borrowing.
/c Includes regional gevemment banks.
Id As of June 2000.
Source: Bank Indonesia.
Banking credit outstanding share by group of banks 1996 and June 2000 (percent)
1996                                                       2000
Private
National                                                      Private
Banks                                                       Natonal
*       54%                                   State banka s         N
45%                Banks
..*.  33%
State banks  *                                                                              
Foreign                                                   Foreign
Banks                                                     Banks
9%                                                       22%
72



Table 27. Commercial Banks' Outstandina Investment Credits in Rupiah and Foreign Exchange bv Economic Sector, 1990-2000
(Rp. billion)
End of period                   1990        1991       1992     1993.0        1994       1995        1996       1997        1998       1999      2000/b
Credits outstanding/a         20734      25748       35.223     42.713      47.136     59.274     70.44      10073      145 1,46     57691      59.242
Agriculture                   4,520       5,450      7,050      8,730       9,865     10,564     11,737       14,629     17,250      11,615     12,318
Mining                          373        459        459         310        196        256         405        1,321      2,029       1,329      2,415
Manufacturing industry        8,920      10,484     15,416     17,371      19,516     23,159     24,248      35,094      49,801     22,981      21,113
Trade                         2,157       3,372      4,099      7,192       6,154      8,468     11,891       17,928     24,299       7,107      7,765
Servicerenderingindustry      4,307       5,032      7,150      9,110      11,405     16,827     22,162      31,763      48,085      14,659     15,631
Others                          457        951       1,049          0          0           0          0           0           0          0           0
/a Excludes Small Scale Investment Credits, investment credits to the Central Government and to non resident, bridging finance credit,
foreign exchange components of project aid, and local cost of investment fund accounts and credit extended bank branches abroad.
/b As of June 2000.
Source: Bank Indonesia.
Investement Credit Outstanding share by economic sector, 1993, 1996 and 1999 (percent)
1993                                               1996                                                1999
service  Agriculture  Agriculture   Service
Service          Agrnculture                                          17%                                25%
21%      _    /  20%                             Service   l   lll                                               1        Agriculture
i iN |   _                        31% j  l       _                                         ilill | l  113_~31  20%
Mining                                                  Mining
1%                                       ~~~~~~~~~~~~~~~~~~~~1 %Trd
Trae                                                                                                 1%  *..Mining
17%~                                                          
nnufacturi                         Trade            Manufactuni                                         Manufacturi
ng                                17%                34%                                                  ng
41%                                                                                                       41%



Table 28. Commercial Banks' Outstanding Funds In Rupiah and Foreign Exchange bv GroUD of Banks. 1990-2000 ia
(Rp. billion)
1990    1991      1992    1993      1994      1995     1996     1997      1999      1999      200D
Jan-Jun
Deposits
State Banks                       40,638   41,812   52,600   61,684   64,283    75,920   90,434  133,042   271,554   312,179   298,093
Private Banks                     33,951   43,143   51,079   67,541   88,925   117,451  164,979  177,193   235,605   252,880   264,351
Regional Development Banks         2.550    3,228    3,697    4,773    6,183     7,812    8,522    8,796    10,932    14,017     15,72S
ForeignBanks                       6,016    6,935    7,474    8,681   11,015    13,581   17,783   38,582    55,433    72,294    79,679
Total                             83.155   95,118  114,850  142,679  170A06   214.764  281718  357,613   573,524   651370-  657,851
Share in Total Deposits
State Banks                         48.9     44.0     45.8     43.2     37.7      35.4    32.1      37.2      47.3      47.9       45.3
PrivateBanks                        40.8     45.4     44.5     47.3     52.2      54.7    58.6       49.5     41.1      38.8       40.2
Regional Development Banks           3.1      3.4      3.2      3.3      3.6       3.6      3.0       2.5       1.9      2.2        2.4
Foreign Banks                        7.2      7.3      6.5      6.1      6.5       6.3      6.3      10.8      9.7      11.1       12.1
Total                              100.0    100.0    1o0      100.0    100.0      100.0   100.0    100 0      100.0    100.0      100.0
Annual (rowth Rate in Deposits
State Banks                         36.7      2.9     25.8     17.3      4.2      18.1    19.1      47.1     104.1      15.0
Private Banks                       72.7    27.1      18.4    32.2      31.7      32.1     40.5       7.4     33.0       7.3
Regional Development Banks          52.3     26.6     14.5     29.1     29.5      26.3      9.1      3.2      24.3      28.2
ForeignBanks                        81.5     15.3      7.8     16.1     26.9      23.3     30.9    117.0      43.7      30.4
Total                               52 9     14.4    20.7      24.2     19 4      26.0    31.2      26.9      60.4      13.6
/a Demand, time and savings deposits including non resident and central government accounts
Source: Bank Indonesia.
Annual growth rate of total deposit (percent)
140
120
100 -          -State Banks
80        -U-- Private Banks
40 ~-    -  - *Foreign Banks,                        ,       \
60 
10     1
1990   1991   1992  1993   1994   1995   1996   1997   1998   1999



Table 29. Interest Rates 1990-2000
(Percent per year)
Time Deposits /a
Year      Interbank                               State bank                               Private national bank /a
call money     SBI           1         3        6       12       24         1        3         6       12       24
/a         /b           mo      mos      mos      mos      mos         mo      mos      mos      mos      mos
1990           14.27       16.2     21.2     20.6     19.4     18.1     18.5      22.6      21.4     20.5     19.8    21.0
1991           14.66       19.3     20.0     21.3     22.3     22.5     21.0      21.8      22.6     23.3     23.4     18.6
1992           11.87       15.8     17.4     18.6     19.8    20.9      21.0       19.2     20.4     21.2     21.7     18.7
1993            8.40       10.4     11.2     10.8     14.3     15.7     18.5       14.8     15.8     16.6     17.1     17.4
1994            9.97       10.4      9.7      9.9     11.6    12.1      14.1       13.6     13.8     13.8     14.0    17.8
1995           13.81       14.2     14.4     13.9     14.8     13.9    14.0        17.4     17.4     17.2     16.0    16.2
1996           14.04       13.8     15.2     14.9    16.3      16.0     15.4       17.5     17.8     17.7     17.3     16.6
1997           29.18       14.7     17.7     17.9     15.3     15.5     15.4      22.0      21.0     17.4    17.2      16.9
1998           63.30       52.0     47.4     38.5     25.6     22.3     15.9      49.7      40.3     26.9     21.4     19.0
1999           22.28       21.9     23.3     25.8     25.2     27.8     17.2      23.7      25.9     24.6     25.4    21.8
2000 /c         9.81       11.2     11.3     12.6    12.9    18.5       13.4       10.7     11.8     12.3     13.9     15.0
/a Weighted average rate. Overnight interest rate on Interbank Call Money tansactions recorded at the Jakarta Clearing House.
/b Thirty days Bank Indomesia Certificate transactions.
/c Weighted average rate January - June 2000.
Source: Bank Indonesia.
Private National Bank Time Deposite Yield Curve (percent per year)
70
60 1
50-
40 -
30 -
120                       1995   
20 
1-day       1-mo        3-mos        6-mos       12-mos      24-mos
75



Table 30. Principal Aaricultural Products by Subsectors. 1990-1999
(thousand tons)
1990    1991    1992    1993    1994    1995         1996    1997    1998    1999
Food crops
Paddy/a               45,179   44,689   48,240   48,181   46,641   49,744   51,101   49,377   49,200   50,855
Corn                   6,734    6,256    7,995    6,460    6,869    8,246    9,307    8,771   10,169    9,204
Cassava               15,830   15,954   16,516   17,285   15,729   15,441   17,002   15,134   14,696   16,459
Sweet potato           1,971    2,039    2,171    2,088    1,845    2,171    2,018    1,847    1,935    1,666
Soya beans (shelled)   1,487    1,555    1,870    1,709    1,565    1,680    1,517    1,357    1,306    1,383
Peanuts (shelled)        651     652      739      639      632      760      738      688      692     660
Fisherv
Saltwater fish         2,370    2,505    2,692    2,886    3,080    3,293    3,384    3,613    3,490    3,950
Freshwater fish          793     807      851      909      900      971    1,069      967      976    1,020
Cash crops
Rubber                 1,275    1,284    1,399    1,476    1,499    1,573    1,574    1,553    1,661    1,715
Coconut/copra          2,332    2,337    2,455    2,588    2,649    2,704    2,761    2,704    2,778    2,789
Coffee                  413      419      437      439      450      458      459      428      514     511
Cloves                    66      84       73       67       78       90       89       59       67      68
Tea                      155      159     154      165      139      154      169      154      167      162
Sugar                  2,119    2,253    2,307    2,329    2,454    2,077    2,094    2,192    1,488    1,489
Tobacco                  156      161     112      121      130      140      151      210      105      105
Pepper                    70      69       65       66       54       59       52       47       65      65
Cotton                    33      14       13       14       14        8        8        7        6        7
Palm oil               2,413    2,658    3,266    4,003    4,008    4,480    4,899    5,380    5,640    5,989
Forestry
Log                   24,409   25,312   23,892   28,267   26,848   24,027   24,850   26,069   29,520   19,027
Sawn Timber            3,919    3,117    3,006    3,534    2,244    1,730    2,014    3,565    2,613    2,707
Plywood                8,843    9,415    9,124    9,874    9,924    8,066    9,122   10,270    6,710    7,155
/a Dry husk paddy grain ready for milling.
/b In millions of liters.
/c In thousand cubic meters, and in GOI FY, April 1998 - March 1999.
Source: Central Bureau of Statistcs, Ministry of Agriculture, and Ministry of Forestry.
76



Table 31. Production of Malor Crops by Type of Estate. 1990-2000
(thousand tons)
1990     1991     1992      1993     1994     1995      1996     1997       1998      1999    2000/a
Smaliholders
Rubber                  913      919    1,030    1,102    1,139    1,191    1,193    1,174        1,243      1,295     1,324
Coconut/copra         2,313    2,317    2,426    2,558    2,601    2,662    2,687    2,620        2,690      2,700     2,688
Coffee                  384      390      409       410      422      430       436      396        470       466        466
Cloves                   64       82        70       66       76       88        87       57         65        66         66
Tea                      31       32        32       37       30       33        34       33         34        34         29
Sugar                 1,609    1,610    1,653    1,685    1,673    1,368    1,512    1,196          759       760        908
Tobacco                 152      157       110      119      128      137       148      206        102       102        102
Pepper                   70       69        65       66       54       59        52       47         64        65         65
Cotton                   33       13        13       14       14        8         8        7          5         7          5
Palm oil                  0        0         0      582      839    1,001    1,134    1,293       1,348      1,441     1,503
Private estates
Rubber                  145      146       163      166      172      182       179      190        226       224       228
Coconut/copra            19       20        29       30       27       28        55       63         66        66         67
Coffee                   13       13        11       12       11       11        10       11         19         19        19
Cloves                    2        2         2        2        2        2         2        1          2         2          2
Tea                      29       30        28       33       31       34        39       33         42        40         39
Sugar                   204      257       178      251      272      287       265      630        424       512        612
Tobacco                   0        0         0        0        0        0         0        0          0         0          0
Pepper                    0        0         0        0        0        0         0        0          0         0          0
Cotton                    0        0         0        0        0        0         0        0          0         0          0
Palm oil                789      884    1,077    1,370    1,597    1,864    2,058    2,287        2,435      2,553     2,658
Govemment estates
Rubber                  217      219       205      208      188      200       202      188        193       196        200
Coconut/copra             0        0         0       18       21        15       19       21         22        22         23
Coffee                   16       16        17       17       18       17        13       21         26        26         26
Cloves                    0        0         0        0        0        0         0        0          0         0          0
Tea                      95       97        94       95       78       87        97       88         91        88         83
Sugar                   306      386      476       394      509      422       317      365        305       217       321
Tobacco                   4        4         2        2        2        3         3        3          2         2          2
Pepper                    0        0         0        0        0        0         0        0          0         0          0
Cotton                    0        0         0        0        0        0         0        0          0         0          0
Palm oil              1,624    1,774    2,189    2,051    1,572    1,614    1,707    1,800        1,857      1,995     2,097
/a Projections.
Source: Central Bureau of Statistics and Ministry of Agriculture.
77



Table 32. Rice - Area Harvested, Production and Yield. 1990 - 2000
Area       Average       Paddy         Rice
Year       harvested      yield       output       output /a    Growth
(thd. ha)    (tons/ha)    (thd. tons)   (thd. tons)   (%)
1990           10,502        4.30        45,179       29,366          1.0
1991           10,282        4.35        44,689       29,048         -1.1
1992           11,103        4.34        48,240       31,356          7.9
1993           11,013        4.38        48,181       31,318         -0.1
1994           10,734        4.35        46,641       30,317         -3.2
1995           11,439        4.35        49,744       32,334          6.7
1996           11,570        4.42        51,102       33,216          2.7
1997          11,141        4.43         49,377       32,095         -3.4
1998          11,716         4.20        49,200       31,980         -0.4
1999           11,963        4.25        50,855       33,056          3.4
2000 /b        11,523        4.35        50,069       32,545         -1.5
a/ Estimated on the basis of a conversion factor of 0.68 from paddy into rice for the
years prior to 1989, and 0.65 for the years 1989 and after.
b/ Projections.
Source: Central Bureau of Statistics.
Paddy production and average yield
TonsdHa                                                  Millon tons
4.5                                                                  52
4.4                                               ~~~~~~~~~~~~~~~50
44442
4.3                                                                  48
4.3  ~~~~~~~~*46
42
4.1 -~~~~~~~~~~~~~~4
1990  1991  1992  1993 1994 1995 1996 1997  1998 1999 2000
Paddy       +- Y1eld                                   /b
78



Table 33. Production of Minerals. 1990 -2000
Petroleum b    Tin      Copper ore    Nickel                        Iron sand                      Natural
Year      (mln bbls) concentrate  concentrate    ore     Bauxite    Coal   concentrate  Gold      Silver      gas
<          --------------------------------  Metric tons - ------      -      ------- ---  (kg)    (kg)    (mmscf)
1990           534          30           399     2,217     1,206     10,462       145     9,355   62,158       2,828
1991           581          30           657     2,300     1,406     14,143       173    13,889   77,897       2,462
1992           551          28           907     2,512       804     23,120       288    37,987   99,954       2,583
1993           547          30           928     1,976     1,320    27,605        341    42,097   90,301       2,662
1994           551          31          1,065    2,312     1,342     31,238       335    42,605   107,026      2,942
1995           547          38         1,517     2,513       899    41,517        348    62,818  265,222       2,999
1996           554          51          1,759    3,427       842     47,339       425    83,660  254,893       3,167
1997           549          55          1,841    2,830       809     52,074       487    89,979  270,392       3,189
1998           538          54         2,640     2,737     1,056    60,321        561   124,019  348,974       2,979
1999           495          51         2,904     3,037     1,125     65,277       559   138,110  348,730       3,068
Source: Central Bureau of Statistics.



Table 34. Fuel Production by Company. 1990-1999
('thousand bbis)
Crude Oil                              Condensate                    Natural gas (000 MSCF)
Pertamina Production sharing Contract    Pertamina  Production sharing Contract    Pertamina  Production sharing
Contract     of Work                    Contract     of Work                    Contract
1990       24,137         427,447    12,726          187            65,807      157       260,878         1,868,647
1991       24,816         479,698    10,166          192            65,832      135       256,290        2,118,336
1992       24,613         451,912     9,405          109            64,677      132       270,882        2,308,299
1993       27,196         450,736     7,213           54            62,134       97       283,329        2,380,557
1994       23,761         462,694         0           67           64,624         0       300,233        2,644,745
1995       20,656         465,812         0          273           60,155         0       329,675        2,675,683
00                             1996       27,251         463,570         0           60            63,042        0       345,193         2,821,427
1997       31,423         454,159         0           95           59,034         0       340,451        2,747,548
1998       43,090         438,565         0          518           55,327         0       338,012        2,641,448
1999       41,161         399,183         0          209            53,972        0       327,584        2,740,238
Source: Directorate General of Oil and Gas.
Crude oil (thousand bbls)                     Condensate (thousand bbls)                           Natural gas (thousand MSCF)
600000                                              70000                                               3500000
101X60000                                                                                               3000000
400000                                              50DD0                                               2500000
40000                                               2000000
300000
200000                                ~~~~~~~~~~~~~~~~~~300                                 1500000-
100000                                              2001000
10000                                                500000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000                                                  0
*Pertamina 0 Production sharing * Contract      1990 199 1992 1993 1994 1995 1996 1997 1990 1999 20O0  1990 1991 1992 I993 1994 1911996 1997 1998 1999 2000
EPertaTmina DProduction sharing EContract                  E Pertamina    EflPrGduction sharing



Table 35. Domestic Sales of Petroleum Products, 1990-1999
(thousand bbis.)
1990     1991    1992    1993    1994    1995    1996    1997        1998     1999
Aviation gas            59      58       54      51       50      51       51      46        35       35
Aviation turbo       4,607   4,889    5,315   6,039   10,188   10,969    7,206    7,325    4,980    4,081
Regular gasoline    39,005  43,023  45,308  46,733   52,463  57,798   63,747   67,700   68,576   71,978
Kerosene            49,472   50,573  53,850   54,242   56,110  58,188   61,656   62,302   63,407   74,550
Motor diesel        72,950   80,837  92,061  104,460  100,730  106,755  119,138  i36,509  122,967  125,942
Industrial diesel   10,720   10,806  11,318   11,445   11,174  10,069    8,679    8,821    7,950    9,491
Fuel oil            24,847   28,899  29,313  30,154   25,456  25,543   24,524   31,607   32,681    33,935
Total              202,707  219.085 237.219 253.124 256.171  269,373  285.000 314.311  300,594  320,013
Source: Ministry of Mines and Energy, Directorate General Oil and Gas.
Gasoline and motor diesel sales (thousand bbls)  Kerosene and Industrial diesel sales (thousand bbis)
150000                                            80000
125000 -                                          60000 -
100000~~~~~~~~~~~~~~400 
40000 -
750000                         ,
25000                                                1990     1992     1994     1996     1998
-  - - Regular gasoline   v-Motor diesel         -X-Kerosene     -Industrial diesel



Table 36. Domestic Prices of Petroleum Products.1986 - 2000
(Rp./liter)
Apr-i, 1985-   Jul-10, 1986-  May-25, 1990-  Jul-l1, 1991-   Jan-8, 1993-   May-5, 1998-  May-16, 1998-   Oct-2000-
Jul-9, 1986    May-24, 1990   Jul-10, 1991    Jan-7, 1993    May-4, 1998   May-16, 1998  Sep-2000        Present
Aviation gas             330            300           330            400            420            600             /b            /b
Aviation turbo           330            300           330            400            250            600             /b            lb
Premium gasoline         440            440             /a            /a             /a            /a             /a             /a
Regular gasoline         385            385           450            550            700            1,200         1,000          1,150
Kerosene                 165            165            190           220            280            350            280            350
oo
tN)
Motor diesel             242            200           245            300            380            600            550            600
Industrial diesel        220            200           235            285            360            350            350            400
Fuel oil                 220            220           220            220            240            350            350            350
/a Discontinued since May 20, 1990
/b No longer regulated by the government since May 16, 2000
Source: Ministry of Mines and Energy, Directorate General Oil and Gas.



Table 37. Indonesia Wholesale Price Index. 1990-2000 la
(1983 = 100) /b
Sectors lb                                     1990     1991    1992    1993    1994    1995    1996    1997    1998 i   1998             1999   2000/c
Agriculture (44)                                191      206      225      251      298      355      400      445      750      298       410      447
Mining& quarrying (6)                           169      188      201      218      237      266      296      318      396       173      214      229
Manufacturing (140)                             176      194      206      218      231      256      265      275      455      217       268      273
Imports(53)                                     191      201      208      211      215      230      243      261      598      286       289      303
Exoorts (38)                                    159      153      159      157      157      178      203      238      592      417       366      422
Excluding petroleum   gas (34)                 195      203      212      223      255      298      306      353      994      444       370      390
Petroleum (4)                                  148      139      143      137      128      142      173      204      474      348       355      547
General index (281)                             178      187      197      204      215      240      259      282      568      288       320      347
General index excluding exports (243)          185      199      210      221      235      261      280      298      560      250       298      312
General index excluding exports ofpetroleum (224)    182  198    211      227      250      285      303      326      588       284      311      322
00
/a Figures show the average for the year.
/b 1998 - present based on 1993=100.
/c Average index of the first semester 2000.
Source: Central Bureau of statistics.
Wholesale price index of agriculture, mining and manufacturing sectors  Wholesale price index of non-oil export and import commodities
1993=100                                                               1993=100
500                                                              480
450 -. 
400-/                                                            3803- 80
350 -                                           /. '
300 -                                        ^/.
280 
250 -~2                                                                    wl                        
200-
150 -                                                            180
100
1990      1992       1994      1996       1998      2000
e-Agriculture          - -  Mining ad Quarrying               1990       1992       1994        1996       1998       2000
Manufacturing                                                                    +Import             -* -Non-oil export



Table 38. Consumer Price Index. 1990 - 2000 la /b
End of   Foodstuff  Housing   Clothing   Education    Prepared food    Health     Transport and    Others     Total      Change
period                                                and beverages              Communication                         (percent) /c
1990           109.3    107.8       111.2       -             -             -             -            112.37     112.42        5.6
1991           118.3    128.2       117.1       -             -             -             -            126.68     123.02        9.4
1992           127.4    136.8       124.1       -             -             -                          137.65     131.85        7.2
1993           136.3    154.9       135.7       -             -             -             -            150.71     145.07       10.0
1994           151.1     170.1      144.5       -             -             -            -             158.31     157.42        8.5
1995           171.2    185.1       153.8      -              -             -             -            168.40     172.27        9.4
1996           187.4    194.8       164.2       -             -             -            -             184.60     185.92        7.9
1997 /b        108.66    105.22     105.47      104.23          108.52      109.12          103.70     -          106.15        6.1
1998          209.22    173.93      141.72      191.66          179.50      147.02          145.09     -          168.23       58.5
1999           261.53    215.93     164.76      230.74          218.10      165.33          169.37     -          202.79       20.5
2000/c         250.44    171.58     241.93      173.41          223.88      224.53          177.87      -         206.65        2.1
/a Consumer price index average of the year
/b Before 1997 using base period (April 1988-March 1989 = 100). Starting 1997 using new base period (1996=100), and classified into 7 components
/c Average index of the first semester 2000.
Source: Central Bureau of Statistics.
Domestic inflation - 12 month percent change in consumer                                   Real food prices index
and food price index
115                            2,4j    Cookingoil                                                          Flour
90-                      ,        ,                           200
65                             A                                   025Prke
40                 ,tic
15-
-10 8-                                    ,    .                                                ._
Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00         Jan-97   Jul-97   Jan-98   Jul-98   Jan-99   Jul-99   Jan-00
84



Table 39. Approved Foreiqn Investment by Sector. 1990-2000 /a
(US$ million)
Sector                             1990      1991      1992      1993      1994      1995      1996      1997       1998      1999   2000 /b
Agriculture                        117         4                  138      690      1153      1306        437       965       413        17
Forestry                            20         1       138        22         0         0        136         0         0         9         5
Fisher                              20         11       28         0        40       231         80        27        33        70        10
Mining & guarryin2                 116         0      2.312        0         0         0      1697         2         0        14         0
Manufacturin                     5s822      3.970     5.669     3.423    18[739    30.441    1984    23017        8.388      6.929      824
Food                               99       382       213        141     1,235     1,332      691        573       342       681       127
Textiles&leather                 1,094      532       591       419       396       471       515        373       217       240       235
00          Wood & wood products              218        62        34         50        68       263       101        70        71       113        39
Paper&paperproducts               730       822       686       202      5,120     2,540     2,907     5,353        41      1,412       18
Chemicals & Pharmaceutical       1,991      923      2,342     1,171     7,743    19,368     7,362    12,376     6,179     3,268       200
Nonmetallicminerals               125        133      841        98       632       289        793     1,457       237       11o         8
Basic metals                      825       197        47        186     2,082      292       651        357       394       501        32
Metal products                    460       856       863      1,114     1,423     2,258     2,939     2,332       891       593       165
Others                            281        62        52        42        40      3,628     3,925       127        17        10         2
Construction                        77        26        41        97        77       206       297        307       198       153        27
Hotels                             874      4.019      919       394       344       999      1.717       463       451       229        12
Transport & commnunications        803       167        14        85        145     5,539      695      5.900        79       103       103
Real estateand business services   902       570      1.136     3,292     3.604     1.314     4.076     1.398      1,271      179        54
Total                             9.493     8.934   1j          8,144        23.724    .231  29.929    3 3                  8.133      1.233
/a Intended Capital Investment. Amount represents original approvals plus expansions minus cancellations.
/b Preliminary data January to June 2000.
Source: Investment Coordinating Board.



Table 40. Approved Domestic Investment by Sector. 1990-2000 /a
(Rp billion)
Sector                     1990    1991    1992    1993    1994    1995        1996      1997    1998    1999  2000 /b
Agriculture, fishery
and livestock             6A442   3.468    1.952    2,835    7,140    82     16026   14.642   4.772    1.659       245
Forestry                   593      310     534      258     262    1.476       46       166      543     749        0
Mining                     155      182     236       69      112     205      460       126      116      174     245
Manufacturine            39.850   27,624   19.079  24.037  31933  43.2    62.703    79.334   44.90    46.745    6,999
Textiles                12,561    3,646    2,546    3,539    5,518   7,177    3,366    6,831    1,138    2,562    1,533
Chemicals                7,894    8,425    3,299    7,689   5,150    8,740   13,335   22,497   15,583    2,480    701
Electrical goods            0        0       0        5       12     620    3,486    11,639   3,469       70    1,143
00                   Other manufacturing     19,395   15,553   13,235   12,804  21,253   27,425   42,517   38,367   24,718   41,633    2,448
Construction                87      275     215      187     731      848     1.550      877    1.992     395      344
Hotels                   4.703    3 895    3.115    3,051    4.342    3.792    5.019    2.588    1.150    1.380      4
Real estate               1.783    2.633    536    3.049   3336    4.659   8688    4.301    .54S         996      226
Others                    2,898    1.785    3,675    5.965   5.434    6.290    6.224   15.251    4570      72      941
Total                    561    41,078   29.342   39.450    2S   69.53  100.715   119.87    6           53.549    9.003
/a Figures refer to intended capital investments, and represent original approvals plus approved expansion minus cancellations.
/b Preliminary data January to June 2000.
Source: lnvestment Coordinating Board.