darmin nasution : indonesia – sustaining growth during global volatility keynote speech by dr darmin nasution, governor of bank indonesia, at a seminar, jakarta, 13 february 2012. * * * fellow speakers, distinguished guests, ladies and gentlemen : assalamu alaikum wr. wb. good morning and may god bless us all, to open my speech here today, i would like to invite you all to join me in expressing thanks and praise to god almighty who has blessed us again with the opportunity to come together here for this seminar. this seminar is held to have a better understanding on the improvement of macroeconomic management and banking regulation that indonesia has achieved following asian crisis in 1997 – 98, as documented in the new imf book titled “ indonesia : sustaining growth during global volatility ”. distinguished guests, ladies and gentlemen it has come to our common understanding that changes in the constellation of the global economy since the global financial crisis of 2008 and its aftermath had left a profound and widespread consequence. against the backdrop of lingering effects from the global crisis, significant challenges in managing an increasingly complex macroeconomic stability has risen considerably. external shock and uncertainties seem becoming a constant dimension that continually shadows us in the process of policy formulation and implementation. the problem is we do not know when, how big and through which channel the shock will happen. as we might be aware, the unprecedented global financial turmoil from 2007 to 2009 was a big shock to the global economy, and represented the deepest deterioration since the 1930s. thus far, indonesia ’ s economy has weathered the global storm well. indonesia has continued to record strong macroeconomic performance with sustained high economic growth. provided that many economies had negative growth in 2009, indonesian economy in that year still grew by 4 %, which was one of the highest in the region. in the following years indonesian economy continued improving with well - maintained macroeconomic and financial system stability. economic growth in 2011 was recorded at 6. 5 %, increased from the growth in 2010 at 6. 1 %. this strong growth was supported by strong private consumption and investment along with good export performance. looking forward in 2012, we believe indonesian economy would expand in the range of 6. 3 % – 6. 7 %. the main source of the growth is expected to come from domestic demand as investment activity gains momentum, owing to stronger economic fundamentals and improved business climate. the recent upgrades of indonesia ’ s rating by fitch and moody ’ s will help boost growth up to its

indonesia also implemented dual intervention strategy in the fx and government bond markets simultaneously. this strategy had stabilized both the currency and government bond price from further drop, while also increase the stock of government bond in bank indonesia portfolio for monetary operation purpose such as reverse repo. currently, we hold around rp 70 trillions of government bond. on the financial sector, our financial system stability has been well - preserved during the recent global turbulences. this goes back to more than a decade of repairs and improvement since the asian crisis 1997 / 1998 which has made our financial system, including the banking sector, more resilient and able to absorb instability risk as big as the 2008 and 2011 turmoil. the banking industry has been more resilient, as indicated by secure level of capital adequacy ratio ( car ) above the minimum level, reaching 16. 0 % at the end of 2011 and gross non - performing loans ( npls ) managed at comfortably safe level of 3. 0 %. nevertheless, i believe the role of indonesian banking sector and its efficiencies can still be further strengthen in supporting the economic development. last year, bank lending grew by 25 % dominated by productive loan such as investment loan ( 36 % ) and working capital loan ( 24 % ). despite this encouraging progress, the ratio of bank credits to gdp in indonesia is still very low, only standing at 30 %, well below other countries such as malaysia, thailand and china, which ratio has reached above 100 %. this is in line with bi survey which indicated limited role of banking as companies still rely more on internal fund. at the end, this condition reflects the remaining large potential for business expansion. distinguished guests, ladies, and gentlemen, the prevalent opinion points toward the improvement of macroeconomic management where indonesia has implemented a program of wide - ranging policy reforms, particularly since the 1997 – 98 asian financial crisis. as pointed out above, the source of indonesia ’ s resilience includes a prudent monetary and fiscal policy, a sound banking system, a large stock of international reserves, and a more flexible exchange rate. bis central bankers ’ speeches these underlying strengths allowed bank indonesia and the government to respond with standard “ countercyclical ” monetary and fiscal policies to mitigate the adverse impact of the global economic crisis. yesterday, at the board meeting we decided to cut bi rate further down by 25 bps to 5, 75 %. this kind of policy reaction contrasts sharply with past episodes such as the 1997