budi mulya : indonesia – pursuing a better shape of the economy address by mr budi mulya, deputy governor of bank indonesia, at the deutsche bank access asia conference, singapore, 12 may 2010. * * * it is such a great pleasure to be here today, to share and exchange view with all of you. i would like to thanks deutsche bank for the invitation to join at this important event where, various investors, business leaders and senior government officers gather to have a constructive dialogue. it is increasingly recognized that intensive communication, such as what we have today, becomes more important both from the authorities ’ perspective as well as from investors ’ point of view. in particular, in the periods where despite signs of a growing global economic recovery, some uncertainties remain. the most recent concern on global recovery is on the sustainability path of the recovery and the further possible impact of the most recent sovereign debt crisis that just emerged in the euro area. as we just observed a couple of days ago, the global financial market was again shocked by a “ semi - panic ” behavior brought about by the uncertainty with regard to the rescue package on the greece debt crises, and sort of “ safety net ” provided for some peripheral countries in the euro area. thus, having a more convergence view from various parties, with regards to the stage of the particular economy and various government measures will help to avoid unnecessary distortion into the recovery process. with that background, i will start today with briefly describing what indonesia has been through during the crisis and then on how indonesia has changed within the last decade, before i discuss the prospect of indonesian economy and its challenge ahead. indonesia during the recent global crisis during the most recent global crisis, which we all knew as one of the worst global crises in history, the indonesian economy has demonstrated to be fairly resilience. despite some negative impacts on the economy, particularly in the domestic financial market, the indonesian economy was still experiencing a positive growth of 6. 0 % in 2008 and 4. 5 % in 2009. that achievement was mainly sustained by high and inclusive growth of domestic demand, in particular consumption. indonesia is relatively less exposed to external shocks than other economies in the region as its trade share to gdp is relatively small at around 50 percent of gdp, with its export is still dominated by natural resource commodities. accordingly, the unemployment rate fell back from 9. 1 % in 2007 to 7. 9 % in 2009. on inflation, while it has experienced an increase in 2008

development of domestic financial market, in particular, the government bond market. second, the need to increase the efficiency of domestic money market, which in turn benefits to enhance and to further strengthen banks ’ liquidity management. steps were also taken in the area of improving the capacity of financial institution, as well as improving financial market efficiency. banks are encouraged to strengthen their capital and compel to conduct best practices, especially in the area of risk management. on the other hand, we are also bounded to increase our supervisory capacity to ensure a prudent banking practice. years of strong commitment on reform has resulted in a resilient economic fundamental, at least, in the last five years. the economic growth accelerated to a 10 - year high. fiscal consolidation significantly reduces government debt, a proof of commitment of fiscal discipline. prudent macroeconomic management has also led to the declining trend of inflation and exchange rate volatility as well. in the financial sector, the banking sector is well capitalized and in a better balance sheet structure. strong macroeconomic fundamentals and resilient microeconomics structures lead to better risk perception, or a more accurate valuation from my point of view, as reflected by the recent rating upgrade. but to be frank, i feel that from the sovereign risk assessment, indonesia is still somewhat “ undervalued ”. it is perhaps that major rating agencies tend to be too conservative in assessing indonesia ’ s risk profile. this might possibly be a reflection of the “ traumatic ” view relate to the 1998 crisis. however, the recent update from some rating agencies has become a promising recognition into the fundamental transformation process in indonesia. following standard and poor ’ s, fitch, and moody ’ s, oecd has also upgraded indonesia ’ s country risk classification ranks from 5 to 4 on early april 2010. similar progress also came from the ranking upgrade of our global competitiveness index from 72 in 2003 to 54 recently. prospect and challenge ahead global recovery coupled with favorable risk perceptions support our optimism toward the outlook in 2010 and 2011. we are quite confident that the indonesian economy will grow at around 6. 0 % in 2010 and to 6. 0 – 6. 5 % range in 2011. this is mainly supported by the upturn on export and increasing investment. for the next periods, we expect that the economy will keep growing in an upward trend given the proven strong commitment from the government to implement reform measures on infrastructure projects and investment climate. on the later, it is important to