Agus D W Martowardojo: Managing stability, promoting transformation
for sustained economic growth
Address by Mr Agus D W Martowardojo, Governor of Bank Indonesia, at the Annual Bankers'
Dinner, Jakarta, 14 November 2013.
* * *
Honorable ,
Leaders and Members of House of Representatives, Supreme Court, People's
Consultative Assembly, Regional Representative Council, and Supreme Audit Board,
Ministers of United Indonesia Cabinet II,
Chairman of Indonesia Financial Services Authority,
Leaders of Non-Government Institutions, International Institutions, and Prominent
Bankers,
Former Governors of Bank Indonesia,
Enterpreneurs, Economists and Scholars,
Distinguished Guests, Ladies and Gentlemen,
Assalamu'alaikum Wr. Wb.,
Good Evening and May God Bless Us All,
1. I would like to commence our respectable event by praising and thanking God Almighty
who has blessed us with the opportunity to gather here in the occasion of Governor's
Address and Annual Bankers' Dinner 2013.
2. I am delighted to have the opportunity to meet all of you on my initial appearance in our
strategic forum this evening. On this momentous occasion, I would like to emphasize that this
event is an important platform to harmonize our views on current economic condition,
emerging challenges, and efforts to strengthening the measures.
3. Your presence provides additional support for Bank Indonesia in undertaking its
mandates, and is essential for us to further enhance economic resilience in dealing with
greater challenges ahead. In this regard, allow me to express my humble gratitude for your
participation.
Distinguished Guests, Ladies and Gentlemen,
[Economic Development 2013]
4. Since I took my position in Bank Indonesia, I have personally experienced formidable
economic challenges [TABLE 1]. I initially joined Bank Indonesia on May 24th, 2013, just only
two days after Chairman of the Federal Reserve indicated its plan to start tapering its
monetary stimulus. A very brief signal from the Chairman, yet it has world-wide negative
impacts. From that moment until end of August 2013, massive foreign capital flew out from
our economy which eventually led to sharp depreciation of the rupiah.
5. However, we observe that global issues overshadowing our economy are much broader
than the issue of the Fed's tapering itself. We view that there are, at least, three main global
issues which have created uncertainties and put more pressures on our economy in 2013.
6. First, uncertainty of the speed of global recovery. The global economic recovery process
is not as expected, and even slower than previously estimated. The global environment
becomes more uncertain because of the shifting of global economic landscape. I still
remember, two years ago, we have had a discussion about the two-speed world recovery,
i.e. slow recovery in advanced economies, and much faster recovery in emerging
economies. Now, the situation has turned around. The United States' economy has
strengthened, the European economy has shown signs of escaping the crisis, while
emerging economies have slowed down. In other words, the phenomenon of a three-speed
world recovery has emerged [GRAPH 1].
Table 1
Revision of global growth forecast 2013
Graph 1
A three speed world recovery
7. Second, the wide-spread uncertainties as consequences of the US policy's
indecisiveness, not only related to the withdrawal of ultra-accommodative monetary stimulus
but also the debt ceiling crisis and the US government shutdown. These prolonged
unfavorable circumstances have triggered global investors to re-evaluate risks and caused
excessive reactions, which have led to turmoil in the global financial markets, including in
Indonesia [GRAPH 2].
Graph 2.
Capital flows & the IDR/USD exchange rate
8. Third, the uncertainty of global commodity prices. In line with the sluggish global
economic growth and heightened volatility in the global financial markets, commodity prices
have continued its downward trend, confirming the end of commodities super-cycle era
[GRAPH 3].
Graph 3
Global commodity prices
Distinguished Guests, Ladies and Gentlemen,
9. The three main global issues I mentioned previously have inevitably affected the
performance of Indonesia's economy. Amidst the robust domestic demand, intense global
pressures have put more burden on the current account.
10. The current account deficits have occurred since the fourth quarter of 2011 [GRAPH 4].
Furthermore, sliding commodity prices which have started since the beginning of 2012 have
affected exports that finally led to growing current account deficits.
Graph 4
The current account
11. These substantial current account deficits are not only caused by trade balance deficits
but also overburdened by prolonged services and income balance deficits [GRAPH 5]. On
the other hand, foreign portfolio investment flows have fluctuated associated with changes in
sentiment, known as risk-on and risk-off behavior in global financial markets. Together with
the issues of current account deficits, turbulence in domestic financial market creates
deterioration of the Indonesia balance of payment posture.
Graph 5
The net services and income account
12. Economic adjustments are eventually unavoidable. Yet, we argue that these economic
adjustments are needed as part of rebalancing process toward a more balanced economy
which is aligned with its economic fundamentals.
13. In line with the deterioration in the balance of payment, rupiah has demonstrated a
weakening trend. Moreover, the hike of inflation caused by the reduction in fuel subsidy is
also part of the delayed adjustment process. These conditions have finally led to a lower
economic growth.
Distinguished Guests, Ladies and Gentlemen,
[Policy Responses and Current Economic Condition]
14. The Government and Bank Indonesia have taken various policy responses to safeguard
economic adjustments. These policies are intended to maintain economic stability to ensure
the process of short term adjustments remain in place. In particular, the policy responses are
aiming to ensure a stable inflation, maintain exchange rate of rupiah in line with its
fundamentals, and reduce current account deficits toward a more robust level.
15. Within these policy directions, Bank Indonesia attempts to further strengthen the policy
mix ranging from: (i) Increasing Bank Indonesia Rate by 175 bps to the level of 7,50%, from
June to November 2013; (ii) Reinforcing monetary operation; (iii) Stabilizing rupiah exchange
rate; (iv) Strengthening macro-prudential policies; (v) Promoting monetary and financial
system stability policy cooperation with other central banks; and (vi) Enhancing policy
coordination with the Government.
16. On behalf of Bank Indonesia, I would like to extend our sincere appreciation to the
Government for its policy responses. The decision to raise the subsidized fuel prices in the
end of June 2013 has reduced pressures on fiscal sustainability, although this effort is
inadequate to further improve current account posture. In addition, we are of the view that
the Government has already taken initial positive steps by introducing the policy packages in
August and October 2013.
Respected Audience,
Table 2
INDONESIA balance of payments - quarterly
17. Without intending to be complacent, it is worthy to mention that the policy responses
have demonstrated positive contributions. Various indicators reflect that economic
adjustment process remain under control. The trade deficits have started to decline in the
third quarter of 2013. The foreign capital inflows has also intensified [TABLE 2].
18. Positive developments on the balance of payment have supported the stability of rupiah
since the end of September 2013. At the same time, the micro structure of foreign exchange
market shows improvement as indicated by the increase in the volume of interbank
transactions and a more healthy price discovery in the forex market. A lower off-shore
non-deliverable forward rate (NDF) compared to the spot rate indicates a more liquid market
[GRAPH 6].
Graph 6
Foreign exchange market
19. The high level of inflation following the hike of subsidized fuel prices has returned to its
historical pattern [GRAPH 7]. This development suggests that the second round impacts of
the hike of subsidized fuel prices were restrained. Although the administered and volatile
food prices have significantly increased, core inflation remains below 5,0%. The inflation has
surpassed its target of 4,5±1%, yet we forecast inflation in 2013 will slightly fall below 9,0%.
Graph 7
Inflation
20. We expect our economy will expand by 5,7% in 2013. Although lower than its growth in
2012 that was recorded at 6,2%, the figure is still above the estimated average growth rate of
its peer countries of 3,6% [GRAPH 8].
Graph 8
INDONESIA economic growth vis a vis peers
21. The adjustment process of the Indonesia's economy is also supported by the stability of
financial and payment system, as well as sound foreign debt level. Through a consistent
policy, excessive pressures stemming from economic adjustments could be avoided
[GRAPH 9].
Graph 9
Banking indicators
Distinguished Guests, Ladies and Gentlemen,
[Economic Challenges and Opportunities Ahead]
22. Ahead, the current challenges are not about to recede very soon. At the present juncture
when the economy is in the adjustment process to a soft landing, I see a number challenges,
both global and domestic, remain at the fore. The challenges are not only those that are
cyclical in nature but also those that are structural, and therefore demand our collective
attention.
23. Along this line, we need to remain vigilant of the global economic growth dynamic. While
the global economy in 2014 is projected to expand at around 3.5%, the shift in the world
economic landscape is anticipated to continue [TABLE 3]. The average growth of the US and
Europe, which only arrived at 2.2% and 1.4% respectively within the last two decades, is
expected to rise to 3.1% and 1.6% in the next five years. On the contrary, China's economy
in the subsequent five years will have to accept a new normal growth of around 7%, after
expanding at an average 10.25% in the last two decades. Similar pattern is expected to
occur in other emerging markets' economic path.
Table 3
The shift in global economic landscape
24. What becomes a concern for us is the risk that the shift in the global landscape will
reverse the direction of portfolio flows to advanced countries, particularly the US
[GRAPH 10]. Undeniably, the delay in the reduction of US monetary policy stimulus has
provided "temporary breathing space" for us at this moment. Nonetheless, the tapering off of
the US monetary stimulus is indeed an unquestionable event that will occur in the near
future. As a matter of fact, several recent indicators have started to reflect a strengthening of
the US economy.
25. Against the background of the above global challenges, equally daunting challenges
arise in the domestic front [FIGURE 1]. The first challenge relates to our financial market that
needs to be restructured. One of the issues pertains to the fragmentation of rupiah excess
liquidity in the banking sector. This calls for attention as it would increase the complexities of
monetary operation and disturb the stability of the financial system.
Global capital flows
Figure 1
Structural challenges to monetary policy implementation
26. Another challenge concerning the financial market is its lack of depth and liquidity. In the
rupiah market, this is reflected in the low turnover and the anomaly of price formation in the
repo market [GRAPH 11]. The collateralized market does not appeal to many market
participants and is more expensive compared to the uncollateralized interbank money
market. In the meantime, the foreign exchange market is characterized by low volume and
inactive hedging transactions. With such micro structure, the exchange rate is easily under
pressure even when the demand for foreign exchange experiences a small upsurge.
Domestic money market condition
27. The second challenge deals with structural weaknesses that will inhibit our attempt to
boost the economy to a higher level. Today, Indonesia has firmed up its position as a middle
income country and is in transformation from lower middle income to upper middle income
[GRAPH 12]. This implies that the middle class expansion in the last decade will continue
and correspondingly our domestic market will enlarge. The structure of demand for goods
and services will also be getting more diverse with increasingly complex characteristics
[GRAPH 13].
Graph 12
Income per capita
Expanding middle class
28. Notwithstanding, amid the changing structure of aggregate demand, I view that the
economy has expanded too rapidly and is susceptible to correction [FIGURE 2]. The
Economic expansion is also followed by a weakening posture of the current account.
Consequently, the pace of economic growth to a higher path is hindered.
Figure 2
Structural challenges
29. I view the above impediment to economic growth as a reflection of the existing imbalance
between the structure of aggregate demand and the capability of the supply side. In the
supply side, the production structure that took shape within the last decade has been
gradually felt to be obsolete.
30. This is actually a sensible development [GRAPH 14]. The existing production structure
reflects the comparative advantage that we used to utilize to take Indonesia transforming
from low to middle income country. The abundant natural resources heritage outside Java
and the human resources surplus in Java have become the primary assets that lifted a large
part of our society out of the poverty trap. These primary resources have enabled us to build
an industrial order dominated by export industries that are intensive in human and natural
resources such as coal mining and crude palm oil industry.
Graph 14
Net exports of natural resources and low tech industry
31. Nevertheless, when Indonesia finally stepped up to become a middle income country
with a growing middle class, such industrial order is no longer sufficient. The typical
characteristic of a middle class society is having the desire and simultaneously the capability
to purchase goods with higher quality and value added. In line with the increased
complexities of the demanded goods, greater basis for comparative advantage and industrial
capability are undoubtedly needed.
32. This gap between demand and supply is increasingly fulfilled by imports, primarily goods
produced by middle and high technology industry [GRAPH 15]. The net imports of goods in
this category have grown larger since Indonesia stepped into a middle income country
category in 2014. This technology deficit in the supply side is felt across the nation.
Nonetheless, the stronger industrial capacity in Java has not sufficed in accommodating the
substantial changes in the structure of national demand.
Graph 15
Spatial profile of trade balance in Nusantara
33. I believe this condition does not stay apart from the impact of several aspects that are
inadequate and need to be improved. First, the availability of infrastructure for connectivity
both digitally and physically. Second, the management of domestic energy. The energy
management aspect has acquired growing attention as the augmenting demand for energy
has to be fulfilled by imports, which eventually aggravates the ongoing problem of current
account deficit. Third, several aspects related to business climate that are under the close
watch of businesses, including ease of starting up a business, legal certainty, registration of
personal proprietary right, insolvency settlement, and enforcing contract.
34. Overall, the above domestic structural challenges demand our increased attention as our
integration with the ASEAN Economic Community (AEC) is looming near in 2015. The
question for us is "Are we able to gain the benefit of AEC and develop to be part of the global
value chain, or merely become a target market?"
Distinguished Guests, Ladies and Gentlemen,
[General Policy Direction]
Figure 3
Policy direction
35. In the spirit of determination and thrust to respond to the challenges and strengthen the
stepping stone toward sustainable growth, allow me to convey Bank Indonesia's policy
direction ahead and a number thoughts concerning the structural reformation that we need to
pursue together with the Government [FIGURE 3].
36. Let me underline that in our policy direction ahead, including in the period of political
transition in 2014, Bank Indonesia will consistently preserve the stability of the economy and
the financial system. Stability needs to be prioritized in order to create a more balanced and
sound economic structure, therefore becoming a strong foundation for economic
transformation in the future.
37. The economic balance that I am referring here is economic growth that is supported by a
sustainable posture of the current account. On the one hand, sustainable can be interpreted
as a condition where exports have high value added and industries are capable of producing
intermediate goods and services that so far still rely on imports. On the other hand, the
financing of current account should derive from more permanent sources, i.e. Foreign Direct
Investments that will propel the growth and development of advanced and globally
competitive industry sector.
38. With the complexities of the confronted challenges, BI's policy direction is measured in
terms both goal and time dimensions. As regard the goal dimension, BI is not simply
committed to manage inflation to be between its target range, but more broadly, is also
directed to manage current account toward a sustainable path, while preserving the stability
of the financial system.
39. The effort to attain low inflation is not negotiable as it becomes a pre-condition for the
sustainability of the economy. Notwithstanding, the Asian and global crisis demonstrate that
low inflation is not sufficient to warrant sustainable economic growth.
40. The journey of our economy post 97/98 Asian shows that we need to remain vigilant
even when inflation rate remains low, because it may well be a delayed inflation which will be
accompanied by increasing current account deficit. The inflation phenomenon was indeed
delayed since the risk of rising inflation was temporarily absorbed by government subsidies
such as fuel and energy subsidies. Inflation rate was also subdued owing to decreased
pressure from imports as the prices of global commodities declined.
41. From the time dimension, Bank Indonesia's policy stance will consistently be adopted in
a time-consistent manner until the economic condition becomes more balanced. This
dimension is in line with the structural challenges which will take quite a long time to be
resolved.
42. In sum, Bank Indonesia's policy direction is implemented through a policy mix in the
monetary, macropudential and payment system area.
Distinguished Guests, Ladies and Gentlemen,
[Monetary Policy Direction]
43. In the area of monetary policy, the BI Rate will be consistently directed towards
controlling inflation to be within its target. Furthermore, the monetary policy stance is taken to
support efforts in reducing the current account deficit to achieve a sustainable level and to
maintain a robust financial system stability.
44. The exchange rate policy is aimed at guiding the exchange rate to move within its
fundamental value acting as shock absorber instrument of the economy and not as shock
amplifier. In this context, a deep and liquid foreign exchange market is needed to support a
more efficient creation of the exchange rate.
45. The monetary policy is strengthened with a number of monetary operation strategies. In
the area of rupiah liquidity management, the monetary operation strategy will be to continue
to absorb structural excess liquidity in a guided and measured manner. This is conducted
among others by extending the open market operation tenor through the introduction of the
1 year or longer SBI tenor and the Medium Term Notes.
46. Furthermore, Bank Indonesia will continue to strengthen the development of the rupiah
and the forex money market and the deepening of the financial market. As an initial step, the
facilitation of the "mini" Master Repo Agreement initiative for a number of pilotbanks is seen
as a meaningful step and will contribute to the implementation of a larger scale initiative
which is the General Master Repo Agreement. In addition, Bank Indonesia will also issue a
number of money market regulation and several funding instruments for financial institution
liquidity management such as the revision of the commercial paper regulation and the inter
bank repo transaction based on syariah principle. We will also undergo policy harmonization
and increase dissemination and education to the market player.
47. One policy which we will continue to take to improve external endurance is the
strengthening of the second line of defence through financial cooperation with other central
banks and financial authorities in the region. We view these types of cooperation should be
continuously strengthened to anticipate against uncertainty of risk of the global economic
condition that can instantly weakened the external sector performance.
Distinguished Guests, Ladies and Gentlemen,
[Macroprudential Policy Direction]
48. In an effort to strengthen external sector endurance, we will also adopt macroprudential
policy through supervisory action. The macroprudential policy is aimed at strengthening
credit composition extended to productive sectors with export orientation and which provide
import substitute goods and support efforts to increase economic capacity.
49. Bank Indonesia will also buttress the implementation of its new function and authority as
the macroprudential authority. In this context, macroprudential policy will be directed towards
systemic risk management, including credit risk, liquidity risk, market risk, as well as
strengthening the capital structure [FIGURE 4].
Figure 4
Macroprudential policy mix
50. In managing liquidity risk, we will improve the syariah minimum reserve requirement and
introduce a staged Liquidity Coverage Ratio (LCR) instrument starting from January 1, 2015.
As the time for its implementation is nearing, I urge banks to include the LCR target in their
respective 2014 Bank Business Plan. In the area of capital buffer, the calculation of bank
capital will be enhanced by the incorporation of more complex and comprehensive risk
elements, such as the economic cycle and assessment of banks with systemic impact.
51. In the area of strengthening financial system stability, I view the enhancing of a
macromicro coordination between Bank Indonesia and OJK to be important. I have initiated the
macro-micro coordination effort by the signing of the Joint Decree (SKB) on October 18,
2013. In principle, the Joint Decree includes commitment to ensure the smooth transition of
the bank microprudential supervision and the effective implementation of the task, function,
and authority of each institution.
52. Enhancement of macro and microprudential coordination is important to prevent any
increase in regulatory cost, discourage regulatory arbitrage, and improve the quality of the
Crisis Management Protocol (CMP). In the area of financial sector policy, I am confident that
OJK will preserve consistency of the banking regulation and supervision and continue the
policies/commitments agreed thus far with the banking industry.
53. Nevertheless, I view coordination between the two authorities can be further
strengthened with coordination and cooperation between institutions in the context of crisis
prevention and resolution. Such coordination is necessary to provide legal certainty basis in
terms of crisis prevention and resolution. On that note, I am hopeful that the financial system
safety net law can be introduced soon to serve as an umbrella for a better cooperation
between relevant authorities.
54. Strengthening the financial system, specifically the banking sector, becomes more critical
in response to the implementation of the AEC in the financial services sector in the year
2020. It is in my view that improving perseverance and competitiveness as key factors to a
healthy competition. Banks must escalate their business scale in order to achieve a higher
level of economic of scale and concurrently an improved governance.
55. It is in this context that I wish to remind banks undergoing corporate actions or holding an
unfavorable governance rating and bank soundness level by the end of 2013, to adjust their
ownership composition to be in line with the threshold established. Such adjustment should
also follow the existing regulation in place and the transfer of ownership share to other
parties must gain clearance from the authority. I wish to avoid the buying and selling of
business permit since in principle business permit granted are merely facilities provided by
the state and cannot be transferred without prior approval from the rightful authority.
56. The same principle also applies to the transfer of bank ownership share to foreign
investors. In principle, these investors can play a role in the national banking industry.
However, it must be carried out in a proportional and reciprocal manner and delivering
benefits to the economy. In this context, authorities agreement and commitment between
countries is necessary to ensure equality in terms of market access as well as national
treatment and an adequate cross-border supervision.
57. The development of syariah financing is also a priority in strengthening financial system
stability. The relatively rapid development of legal and institutional infrastructure, as well as
syariah financial market and its supporting instruments since 2008 will continue to be
broaden to boost syariah principle based economic contribution to the national economic
growth. Within this framework, existing syariah education program will be enhanced to
become an economic movement, the so called Syariah Economic Movement which is
expected to commence in the near future.
Distinguished Guest, Ladies and Gentlemen,
[Payment System Policy Direction]
58. In the area of payment system policy, Bank Indonesia will remain to be the rightful authority
to regulate, develop, monitor and grant payment system operation license. In this capacity, we
will develop a more efficient domestic payment system industry through the improvement of
payment system architecture and broadening access to payment services. Such policy is taken
to anticipate rising public needs for non cash instrument payment. We will also reinforce
regulatory and payment system monitoring aspect through the improvement of capacity,
including improvement of the Bank Indonesia human resource competency in the area of fund
transfer operation and foreign exchange merchant [FIGURE 5].
Figure 5
Payment system policy
59. In its implementation, the payment system policy will be based on three main strategies
as follows: (1) strengthening the domestic industrial structure, (2) technical and mechanism
standardization to improve efficiency, and (3) expansion of access to payment services. The
first strategy is implemented through the development of the National Payment Gateway
[FIGURE 6]. This initiative can increase domestic industry efficiency in terms of cost
reduction - cost of transaction, mitigate systemic risk on settlement activities and broaden
payment access.
Figure 6
National payment gateway timeframe
60. The second strategy will be carried out by developing standardization aspect in the
national payment system industry. Such strategy will create a safe and smooth functioning of
the system, preserve a healthy competition and will not create any economic rent.
Furthermore, we will also promote the standardization of Government routine expenditure
through non cash mechanism.
61. The third strategy will be conducted as an integral part of the financial inclusion policy
supported by education program and consumer protection. This is done by making use of
innovation and information technology, specifically through the simplification of know your
customer, while maintaining its reliability in the implementation of the know your customer
principles. To further promote non cash payment system we will explore cooperation with the
Government for the possibility of providing fiscal incentive for non cash transactions.
Distinguished Guests, Ladies and Gentlemen,
[Financial Inclusion and SMEs Policy Direction]
62. In addition to the monetary, macroprudential, and payment system policy, Bank
Indonesia will also strengthen its policy in relation to financial inclusion and SMEs
[FIGURE 7]. The two policies have roles in promoting banking intermediation and efficiency
hence contributing to the strengthening of the financial system stability and supporting policy
in the payment system area.
Figure 7
The scope of financial inclusion & SMEs policy
63. The financial inclusion policy is focused on five main strategies. First, enhancing financial
education as an effort to alter financial management behaviour, especially to the low income
part of society. Second, improving financial access supported by the firming up of the
payment system infrastructure, utilizing information technology and innovation, as well as
local economic unit network. Third, consumer protection to ensure the public's rights when
using financial access and the payment system. Fourth, reduction of asymmetric information
by providing financial profile data of the public currently untouched by the banking sector and
commodity information data. Fifth, introduction of regulation under the financial system
stability framework as well as providing policy recommendation to relevant authorities
[FIGURE 8]. Meanwhile, the policy on SMEs in principle adopts a similar strategy to the
financial inclusion and further complemented with the improvement of SMEs capacity.
Figure 8
The principles of financial inclusion & SMEs policy
Distinguished guests,
<Coordination with Government>
64. Efforts in responding to economic challenges necessitate coordination with the
Government, especially on issues related to structural challenges. Within the scope of
cyclical challenges, Bank Indonesia once again appreciates the steps taken by Government
in controlling the 2014 Budget deficit at 1,7% of GDP. That target reflects our similar
perspective in prioritizing efforts for economic stabilization. Nevertheless, persistent strength
in demand for subsidized fuel remains as our common challenge.
Figure 9
A global race to prosperity
65. In addressing the dimension of structural challenges, it is noteworthy for us to improve
the quality and speed in implementing public policy in order not to lag behind competitors in
the global strategic environment [FIGURE 9]. In this regard, a need for acceleration in
various policies to improve the quantity and quality of infrastructure, strengthening the
management of domestic energy, including speeding up the development of a clean and
renewable alternative energy, and ameliorating every aspect related to ease of doing
business in Indonesia such as law and regulation. I believe that the strengthening of every
elementary aspect in our competitiveness will lessen our technology deficit and improve our
industry capabilities.
66. Within the same context, Indonesia needs to strengthen its investment strategy in
promoting the development of upstream industry for intermediate goods with high
valueadded. Therefore, the presence of manufacturing FDI by global manufacturers of quality and
who are market leaders within their respective industries must become the complementary
part of our national investment policy in the future. In the same sense, Indonesia will also
benefit by the downstreaming of natural resources extractive activity.
Distinguished guests,
Ladies and gentlemen,
67. I am aware completely that everything that I have conveyed regarding improvement of
production structure on the supply side could not be materialized in the near term.
Nonetheless, I hold the view that not much time is available to keep postponing steps in
materializing them.
68. Indonesia's position as a middle income country which is progressing to become a high
income country requires us to rethink the relevance of economic growth model that we have
always been implementing. Indonesia as a middle income country could no longer rely only
on cheap labor wages and extractive activities. It is about time for us to switch towards a
growth model that emphasizes increased industrial capabilities.
69. Also within that context, the