Governor Agus D.W. Martowardojo
At the High-Level International Seminar
"Global Economic Outlook in ASEAN Perspective"
Bank Indonesia
April 28, 2017
Learn from the Past, Seize Opportunities,
and Enhance Synergy
Keynote Speech
Distinguished Speakers, Mr. Maurice Obstfeld, Economic Counsellor and the
Director of Research of the International Monetary Fund;
Deputy Governor Diwa Guinigundo from Bangko Sentral ng Pilipinas, Deputy
Managing Director Ong Chong Tee from Monetary Authority of Singapore,
Deputy Governor Sukhdave Singh from Bank Negara Malaysia, Deputy
Governor Mathee Supapongse from Bank of Thailand, Deputy Governor Perry
Warjiyo from Bank Indonesia;
Other Members of Board of Governors of Bank Indonesia;
Mr. Chatib Basri, former Finance Minister of the Republic of Indonesia, who will
be chairing the seminar;
Department Heads and Senior Officials from Bank Indonesia;
Colleagues from Ministries, Government Institutions, Embassies, International
Organizations, Financial Institutions, and Academia;
Participants of Bank Indonesia International Workshop on Policy Mix;
Ladies and Gentlemen;
1. First, allow me to welcome you to Bank Indonesia and to the High Level
International Seminar on "Global Economic Outlook in ASEAN Perspective."
We are very privileged with the presence of Mr. Maurice Obstfeld to share
his opinion and thought on the development and prospect of the global
economy, especially concerning ASEAN region, and its challenging path
ahead. We are also delighted to have speakers from ASEAN central banks
who will share their views on a number of key issues surrounding the
economic development in ASEAN.
2. The half-day seminar we are having today serves as the regional kick-start
event for a series of seminars and other activities under the Voyage to
Indonesia theme designed to lead up to the 2018 IMF-World Bank Annual
Meetings in Nusa Dua, Bali, Indonesia.
3. This particular seminar is aimed to showcase ASEAN as a reformed,
resilent and progressive region to the world. Therefore, the discussion will
touch upon how ASEAN countries have progressed in various areas
especially in central banking policy making, and in furthering the ASEAN
economic integration process to form what we call the ASEAN Economic
Community.
[Global economy and challenges ahead]
Distinguished Guests, Ladies and Gentlemen,
4. The global economy has entered the interesting yet still challenging stage.
Among the key takeways from the recently concluded IMF-World Bank
Spring Meeting is that, in the near term, the global economic recovery is
better than expected for the first time after some years of downward
revision, with the resurgence of commodity prices, and less pressure on
deflationary trend. The IMF has revised its assessment in April pointing to
the 2017 growth of 3.5% vis-a-vis 3.4% in the previous projection, and by
3.6% in 2018. The economic recovery is happening both in Advanced
Economies and Emerging Market Economies, including ASEAN region.
Emerging Market Economies have remained the source of engine of
growth.
5. However, the positive outlook is still facing huge challenges stemming
from uncertainty in the political and economic policies, such as general
election in major European economies, as well as in the policy fronts,
including trends towards trade protectionism by some Advanced
Economies. The downside risks would produce some degree of financial
tightening, causing more volatility of capital flows while generating
negative spillovers, especially to Emerging Markets Economies. In the
longer term, global economy is also facing persistently low productivity in
both Advanced Economies and Emerging Market Economies.
6. Clearly, we should remain vigilant on the global economy, especially its
fundamental issues such as how to improve productivity and deal with
aging population. Given the complex nature of the current global economic
environment, it is important for policy makers to use all policy levers to
ensure that growth benefits each and every layer of society.
7. In fact, the issue of inequality has been occupying the attention of policy
makers, while some have been challenging the concept of multilateralism
that we all have known. Debates on the inward-looking policy have come
forward. The situation has definitely caused uneasiness to Emerging
Market Economies who have adopted the the open economy concept, and
have contributed to the improved global growth. The question is that, in
the current global setting, how ASEAN would cope with such challenges.
[ASEAN during the crisis]
8. Two decades ago, Asia experienced a heavy financial crisis. A very deep
economic contraction was shared by every country in the region, with
Indonesia, Thailand and Korea bearing the greatest brunt. Currency
depreciation, growth slump and shooting inflation were widespread.
9. The crisis also destabilized financial sector, leading to a mounting
government debt from blanket guarantee and bank restructuring. It even
set in motion social and political unrest as public confidence diminished.
The full blow of the crisis also brought Indonesia and Thailand to enter
into IMF programs.
10. With the crisis, ASEAN as a region suffered heavy losses not only in
economic performance, but also in global perception. The spillover effects
in the crisis was paramount and had played a massive role. Therefore at
that time, ASEAN was seen as a fragile group of economies.
[ASEAN recent developments]
Distinguished Guests, Ladies, and Gentlemen,
11. In the aftermath of the crisis, ASEAN countries conducted vast
restructuring towards recovery. ASEAN economy rebounded with
improved economic structure. The region quickly learned from the
unfortunate experience. ASEAN strived to regain domestic and
international confidence. And now, the region has revived with healthy
growth and stable financial sector.
12. On average, ASEAN grew at 5.5% per annum in the last 15 years, higher
than the growth of the global economy of 3.9%. This higher growth rate
led to ASEAN's rising share of world GDP. In 2016, the share of ASEAN
GDP is 6.1% relative to that of the global economy.
13. The ASEAN share of world trade also increased significantly. ASEAN trade
value as a share of the world trade value rose to 6.9% in 2015. The
growing trade value indicates an evolving structural change within the
region where the economy is becoming more open. The similar
improvement also happens in foreign direct investment.
14. On average, foreign direct investment in ASEAN amounted to USD121.9
billion annually within the period of 2011-2015, increased significantly
from around USD 29.8 billion per annum in 2001-2005. Good economic
performance with relatively high GDP growth has been a pull factor for
FDI in this region. ASEAN has become once again an attractive investment
destination. The confidence to the region is back.
[ASEAN integration]
Distinguished Guests, Ladies, and Gentlemen,
15. The ASEAN rapid and successful recovery is only the first main
achievement of the region. With economic stability firmly gained, countries
in the region have further progressed the regional economic integration to
be able to play bigger roles in the future global economy, which is the
second main achievement. After 20 years since the Asian financial crisis,
we now proudly see ASEAN as a region of promising world power with a
strong cohesion and togetherness, owing to the ASEAN economic
integration agenda. The regional integration project acknowledges and
takes care of different levels of preparedness by ASEAN member states. It
also upholds harmony and synergy by employing ASEAN own values.
16. The initiative of ASEAN economic integration has reached an important
milestone in 2015 with the establishment of ASEAN Economic Community
2015. After the 2015 graduate, the economic integration agenda in
financial sector is now being pushed to be more balanced and inclusive.
Indeed, ASEAN financial integration does not treat integration as a matter
of liberalisation, but provides focus on stability and inclusion as its equally
important pillars. The three pillars of financial integration, financial
inclusion and financial stability ensure that the strength, resilience and
inclusiveness of the benefits of regional integration in the financial sector
are pursued and subsequently achieved.
17. A number of financial integration initiatives in the form of endorsed
strategic action plans are put forward. These include the ASEAN Banking
Integration Framework, the safeguard measures of capital flows, and the
build-up of financial inclusion infrastructure. A more recent initiative on
Local Currency Settlement is another clear contribution from central banks
to advance inter-ASEAN trade and investment.
18. Under the ASEAN+3 financial cooperation, ASEAN has reached significant
progress in strengthening the regional self-help mechanism, especially
compared to the time of Asian financial crisis. The continuously improved
Chiang Mai Initiative Multilateralisation as a reginal financial safety net
arrangement with the support of AMRO has made the region more ready
to any risks, vulnerabilities and spillovers from the external sector.
19. Moving forward, ASEAN will consistently maintain and improve its
framework as a unique economy group with strong visions. ASEAN is ready
to move to the next level, that is to become a highly integrated and
cohesive economy; a competitive, innovative and dynamic region; with
enhanced connectivity and sectoral cooperation; as well as a resilient,
inclusive, people-oriented and people-centered orientation; and at the
same time being truly a global player.
[Key takeaways]
Distinguished Guests, Ladies, and Gentlemen,
20. Global economy has been far more integrated than 20 years ago, and yet
the challenges are also increasingly multifaceted. Although in the near
term the outlook is promising, some downside risks remain, requiring us
to live with prudence. Protectionism and anti-multilateralism are taking
shape, but I believe that ASEAN have enough experiences since the 1997-
98 crisis to stay strong and vigilant.
21. First, ASEAN is an agile and adaptive region and it has entered once again
into a group of emerging market economies with strong macroeconomic
performance, good policy formulation as well as high external confidence.
In this regard, central banks are playing a crucial role in managing the
stability of the economy by facilitating the recovery from the crisis,
ensuring price and financial stability along the way, and preparing for the
rainy days with multiple layers of defence and solid track-record of policy
making.
22. Second, with ASEAN Economic Community 2025 agenda underway, the
region will be increasingly integrated, stable and inclusive. Our regional
integration is well-organized, and this will bring ASEAN to play greater
roles in the global economy. ASEAN financial integration is now fully
equipped with visions, action plans, and performance indicators, ready to
be a region with responsibility and become a winning global player. ASEAN
is a region that always learns from the past, seizes opportunities ahead,
and enhances synergy towards shared visions.
23. Indonesia would certainly play a part in this process, with the consistent
adoption of the three-pronge approach combining monetary policy, fiscal
policy and structural reform with the right mix. Despite the global
economic slowdown, Indonesia's economy is able to advance by 5.02%
yoy in 2016 supported by strong domestic consumption, reviving export
and investment. Although this is still below our historical growth rate of
5.8% during 2005-2015, this rate of growth is still favorable compared to
peer countries. Our robust economic growth is also supported by stable
macroeconomic environment. In 2016, inflation was registered at 3.02%,
a continued record of contained inflation period after charted an inflation
hike in 2013 of 8.4% yoy and 2014 of 8.4% yoy. Our latest figure of
inflation for March 2017 is 3.61% yoy, which is still within our target range
of 4±1%.
24. On the external front, we consistently recorded smaller current account
deficit over the years, moving from minus 3.19% in 2013 to minus 1.8%
in 2016. We also retain an adequate level of reserve position whereby at
end-March 2017 reached USD121.8 billion which can adequately cover 8.6
months of imports and servicing of government external debt repayments.
Meanwhile financial system stability was maintained along with banking
system resilience. In January 2017, the Capital Adequacy Ratio (CAR) was
recorded at 23.0% and non-performing loans (NPL) stood at 3.1% (gross)
or 1.4% (net). Moreover, our banking system is among the most
capitalized and profitable in EMs, which provides strong buffers to support
financial stability.
Distinguished Guests, Ladies, and gentlemen
25. To conclude, as I have mentioned in the beginning, this seminar is part of
a series of activities organized as the groundwork for the IMF-World Bank
Annual Meetings 2018 in Bali. These activities are interwoven under the
theme "Voyage to Indonesia", a journey that will bring the world to the
renewed Indonesia and ASEAN region. It is my hope that all of us will
continue to be engaged in various programs of the "Voyage to Indonesia."
We also hope that you will attend and experience the IMF-World Bank
Annual Meetings in Bali along with its enriching back-to-back programs in
October 2018. Finally, I wish you all a pleasant and fruitful seminar and
let me stop here. Thank you.