agus d w martowardojo : building resilience, diversifying growth keynote address by mr agus d w martowardojo, governor of bank indonesia, at the euromoney indonesia investment forum, jakarta, 22 march 2016. * * * honorable speakers, distinguished guests ; ladies and gentlemen, …. good morning. 1. it has always been a great pleasure to be part of the euromoney indonesia investment forum. let me first thank the organizers for inviting me to this prestigious event. 2. this morning, i would like to share my views, on how we should build resilience and diversify growth engines, and how bank indonesia ’ s role in supporting the indonesian economy as we venture ahead in the volatile world. ladies and gentlemen 3. the past few years have brought us many economic surprises and challenges. even today the global economy is still surrounded by substantial risks and uncertainties. 4. concerns and uncertainty about the global outlook have weighed heavily on world financial markets. last year, emerging market have been particularly hard hit and their currencies have weakened and sovereign credit spreads have continued to widen. 5. entering 2016 market developments have taken a further turn for the worse. concerns about growth and financial stability in china came back to the fore in early january 2016 that struck global investor risk appetite. 6. coupled with worries about the broader emerging market economic outlook and ample supplies, these concerns affected heavily on commodity prices, with oil and metal prices falling to their lowest level in years. 7. indeed, growth in emerging markets – while still accounting for over 70 percent of global growth – declined for the fifth consecutive year. 8. what may be most disconcerting is that the rise in global risk aversion is leading to a sharp retrenchment in global capital and trade flows. last year, for example, emerging markets saw about – $ 735 billion in net capital outflows, compared with – $ 111 billion in net capital outflows in 2014. 9. heavy capital outflows from emerging markets have fed into falling official reserves, as some em central banks have consistently intervened to support their currencies. 10. global trade flows, meanwhile are being pulled down by weak export and import growth in large emerging markets such as china, russia, and brazil, which have been under considerable pressure. 11. everywhere, inflation has fallen to historical lows. at the recent g20 meetings in china there was broad recognition of the risk of a

respective authorities which included capital controls on the one hand and taking measures to attract relatively longer term flows on the other. capital inflows & outflows : hierarchy of choices 10. let me now make some comments on capital controls. our framework of capital account management, has been more inclined towards capital inflows than capital outflows. in a, capital scarce growing economy with large investment needs, it has been our longstanding policy to encourage capital inflows to augment domestic savings with a bias towards flows that are stable, long term and those that are least prone to sudden stoppages and reversals. here i would like to highlight our approach to some of the critical elements of capital flows. foreign direct investments 11. foreign direct investment ( fdi ), characterized by lasting interest and some degree of management control by the investor, is positioned high in the hierarchy of capital inflows not only because of it is resource augmenting but also because it usually brings in better technology and more efficient management and business practices. the framework for fdi, which gets legal sanctity under the regulations notified by the reserve bank under fema, is set by the government of india in consultation with the reserve bank of india, and the only restriction on fdi pertains to sectoral investment limits – the degree of control that can be ceded to a non - resident - motivated by strategic or socio - economic considerations. the rest of the regulatory framework is a matter of procedural detail, and we have been continuously trying to rationalize and streamline the regime to make it as investor friendly as possible. to illustrate the point, one can cite some of our recent measures, such as, doing away with the regulatory prescription of pricing methodology, introduction of optionality in inward fdi, etc. foreign portfolio investors 12. there is a tendency to see inflows on account of foreign portfolio investment as “ hot money ” which can cause sudden stoppages or reversals. over two decades of experience as well as recent studies show that this fear is perhaps exaggerated. portfolio investment flows do exhibit some volatility and surge either way, but at an aggregate level there is a fair degree of stability. since its introduction in 1992, the regulatory regime for portfolio investment has evolved over time. you are all aware of the recent simplifications and liberalizations brought about in the scheme in sync with regulations notified by the securities and exchange board of india ( sebi ) wherein the fiis and