On January 25, 2017, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation
[1]
with Indonesia.
Indonesia has maintained macroeconomic stability, while adjusting well to
recent shifts in the external environment. A prudent mix of macroeconomic
policies and the launch of structural reforms has helped the economy
weather slow global growth, the commodity down-cycle, and several episodes
of financial turbulence affecting emerging market economies. While growth
has slowed slightly, it has remained robust. Inflation has eased and the
external position has improved. A gradual fiscal consolidation has begun.
There has been major progress on the financial stability framework, and
gaps related to the crisis management framework are being addressed.
Structural reforms that began in 2015 have improved the business
environment. Positive sentiment has been reflected in supportive capital
inflows in 2016, which buoyed financial markets before undergoing some
corrections starting in October.
Private consumption remains the main driver of growth, but higher inclusive
growth will require deeper structural reforms. Consumption growth has been
underpinned by an expanding middle class, lower fuel prices, and falling
inflation. Investment has remained subdued, reflecting spillovers from
lower commodity prices, some excess capacity in mining and manufacturing,
and structural impediments, while external demand has been weak. In staff’s
views, consumption-led growth can be sustained over the medium term, but
meeting the authorities’ ambitious targets for inclusive growth will
require deepening structural reforms.
The near-term outlook remains favorable. Growth in 2016 is projected at 5
percent on account of robust private consumption. In 2017, growth is
expected to rise modestly to 5.1 percent, led by a gradual pickup in
private investment in response to stronger commodity prices, low interest
rates, and a recovery in external demand on the back of a pickup in global
growth and trade. Inflation is expected to rise from 3.2 percent at
end-2016 to around 4.5 percent at end-2017 largely due to lower electricity
subsidies and some recovery in commodity prices. The current account
deficit would remain at around 2 percent of GDP next year, with the
expected pickup in fixed investment and imports offset by the impact of
higher commodity prices on exports.
Executive Board Assessment
[2]
Executive Directors commended the authorities for their successful
management of macroeconomic policies and progress on structural reforms,
which have preserved stability amidst challenging shifts in the external
environment. Directors noted that, while the economy is subject to downside
risks, the outlook is positive and Indonesia is better placed today to
weather an uncertain external environment than in previous years. Against
that background, they encouraged the authorities to continue strengthening
the medium-term policy framework through fiscal and structural reforms to
support inclusive growth and preserve macro stability.
Directors welcomed the authorities’ fiscal strategy, which aims to broaden
the revenue base and expand priority expenditures, while enhancing their
efficiency within the statutory fiscal deficit limit. They supported the
government’s short-term fiscal stance, including the start of a gradual
fiscal consolidation in August 2016 focused on rebuilding fiscal buffers.
Directors saw merit in tax reform measures to generate the bulk of
additional revenues needed to increase spending on infrastructure, health
and education, which is low compared to peer emerging market economies.
They supported the authorities’ plans to pursue growth-friendly tax reforms
this year, including administration reforms that would lower taxpayers’
compliance costs.
Directors considered that the current monetary policy stance is broadly
appropriate and encouraged the authorities to remain vigilant to the
resurgence of inflationary pressures, and to stand ready to adjust the
policy stance, as needed. They welcomed reforms to improve the transmission
of monetary policy and financial market deepening, which will help manage
external financial volatility. Directors concurred that the external
position is broadly in line with medium-term fundamentals, and that
continued exchange rate flexibility and
market-determined bond yields would be critical to help absorb external
pressures.
Directors considered that the banking sector is broadly healthy and noted
the progress made by Bank Indonesia and the financial sector supervisor,
OJK, in assessing financial and corporate sector risks. They encouraged
continued close monitoring of pockets of vulnerability, particularly from
somewhat higher NPLs and from corporate external debt exposure. Directors
welcomed the adoption of the Financial System Crisis Prevention and
Mitigation (FSCPM) Law, which has strengthened the financial stability
framework. They encouraged the authorities to make the law fully
operational as early as possible with the issuance of relevant regulations
and to ensure the continued full implementation of corporate hedging
regulations.
Directors welcomed the authorities’ efforts and early successes in
revamping the business climate. They encouraged further structural reforms
to improve the business environment and boost private investment to support
greater and more inclusive growth. In this context, Directors highlighted
priority areas, such as expanding infrastructure, enhancing the regulatory
framework, opening new sectors of the economy to investment, and closing
labor skill gaps through improved education and a more flexible immigration
regime for skilled workers.
[1]
Under Article IV of the IMF's Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country's economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.
[2]
At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An
explanation of any qualifiers used in summings up can be found
here:
http://www.imf.org/external/np/sec/misc/qualifiers.htm
.
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Indonesia: Selected Economic Indicators, 2012–2017
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2012
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2013
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2014
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2015
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2016
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2017
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Est.
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Proj.
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Proj.
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Real GDP (percent change)
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6.0
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5.6
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5.0
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4.8
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5.0
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5.1
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Domestic demand
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7.3
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4.7
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5.0
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4.4
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4.7
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5.1
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Of which:
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Private consumption 1/
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5.5
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5.5
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5.3
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4.8
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5.0
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5.1
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Government consumption
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4.5
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6.7
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1.2
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5.4
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0.9
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4.5
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Gross fixed investment
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9.1
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5.0
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4.6
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5.1
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4.6
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5.4
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Change in stocks 2/
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0.8
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-0.6
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0.4
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-0.5
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0.2
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0.0
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Net exports 2/
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-1.5
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0.6
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-0.3
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0.9
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0.0
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0.1
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Saving and investment (in percent of GDP)
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Gross investment 3/
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35.1
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33.8
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34.6
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34.6
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35.0
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35.0
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Gross national saving
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32.4
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30.6
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31.5
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32.5
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33.0
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33.0
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Prices (12-month percent change)
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Consumer prices (end period)
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3.7
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8.1
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8.4
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3.4
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3.2
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4.5
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Consumer prices (period average)
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4.0
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6.4
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6.4
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6.4
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3.5
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4.4
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Public finances (in percent of GDP)
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Central government revenue
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15.5
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15.1
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14.7
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13.1
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12.7
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12.5
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Central government expenditure
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17.3
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17.3
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16.8
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15.7
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15.3
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14.9
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Of which
: Energy subsidies
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3.6
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3.2
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3.2
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1.0
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0.8
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0.6
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Central government balance
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-1.8
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-2.2
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-2.1
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-2.6
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-2.7
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-2.4
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Primary balance
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-0.6
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-1.0
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-0.9
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-1.2
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-1.2
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-0.8
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Central government debt
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23.0
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24.8
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24.7
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26.8
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28.0
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28.4
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Money and credit (12-month percent change; end of period)
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Rupiah M2
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14.4
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9.4
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13.5
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9.0
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6.5
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8.5
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Base money
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14.9
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16.7
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11.6
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3.0
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3.1
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9.0
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Private sector credit
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22.3
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20.0
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11.8
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10.3
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5.9
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8.8
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One-month interbank rate (period average)
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4.4
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5.8
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7.5
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7.2
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…
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…
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Balance of payments (in billions of U.S. dollars, unless
otherwise indicated)
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Current account balance
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-24.4
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-29.1
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-27.5
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-17.6
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-18.1
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-19.9
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In percent of GDP
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-2.7
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-3.2
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-3.1
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-2.0
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-2.0
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-2.0
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Trade balance
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8.7
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5.8
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7.0
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13.3
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15.1
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16.3
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Of which
: Oil and gas (net)
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-5.2
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-9.7
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-11.8
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-6.5
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-5.6
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-6.4
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Inward direct investment
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19.1
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18.8
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21.8
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17.1
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14.2
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17.5
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Overall balance
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0.2
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-7.3
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15.2
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-1.1
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11.8
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5.1
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Terms of trade, percent change (excluding oil)
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-3.1
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-3.4
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-3.0
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-12.3
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1.1
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6.3
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Gross reserves
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In billions of U.S. dollars (end period)
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112.8
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99.4
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111.9
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105.9
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117.8
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122.9
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In months of prospective imports of goods and services
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6.4
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5.9
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8.1
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8.1
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8.4
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8.3
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As a percent of short-term debt 4/
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206
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177
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189
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191
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217
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231
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Total external debt 5/
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In billions of U.S. dollars
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252.4
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266.1
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293.3
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310.1
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317.3
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325.1
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In percent of GDP
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27.5
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29.1
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32.9
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36.1
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34.1
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32.3
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Exchange rate
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Rupiah per U.S. dollar (period average)
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9,375
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10,414
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11,862
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13,391
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…
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…
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Rupiah per U.S. dollar (end of period)
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9,638
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12,171
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12,435
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13,788
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…
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…
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Memorandum items:
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Jakarta Stock Exchange (12-month percentage change,
composite index)
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12.9
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-1.0
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22.3
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-12.1
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…
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…
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Oil production (thousands of barrels per day)
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860
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830
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794
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800
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820
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815
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Nominal GDP (in trillions of rupiah)
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8,616
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9,546
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10,566
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11,541
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12,401
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