Launching of Mandiri Institute

committed to
a better Indonesia
Launching of Mandiri Institute
May 12, 2014
Four Seasons Hotel, Jakarta
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Mandiri Institute
Commited to a better Indonesia
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Content:
Welcoming Reception......................................................................................................................................6
Opening Remarks
Mr. Budi G. Sadikin, CEO of PT. Bank Mandiri (Persero) Tbk.........................................................8
Keynote Speech
Mr. Dahlan Iskan, Minister of State Owned Enterprise................................................................10
Mr. Agus D. W. Martowardojo, Governor of Bank Indonesia.....................................................12
Official Launching of Mandiri Institute.................................................................................................14
Remarks on Mandiri Institute
Mr. Darmin Nasution, Chairman of Mandiri Institute’s Advisory Board................................16
Panel Discussion Section
Moderated by Mr. Pahala N. Mansury, Member of Mandiri Institute’s Advisory Board
Mr. Guillame de Gantes, McKinsey.....................................................................................................18
Mr. Chatib Basri, Minister of Finance.................................................................................................20
Mr. Muliaman D. Hadad, Chairman of Otoritas Jasa Keuangan (OJK)....................................22
Mr. Darmin Nasution, Chairman of Mandiri Institute’s Advisory Board................................24
The First Advisory Board Meeting...........................................................................................................26
Photo Gallery.....................................................................................................................................................28
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Welcoming Reception
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Welcoming Reception
In May 12, 2014, Bank Mandiri introduced Mandiri Institute (MI)
as an independent research center that is committed to supporting various stakeholders, including the government, Bank Indonesia and other institutions.
The Mandiri Institute aims to generate world-class economic research to shape public sector policies that benefit to the nation.
In addition, the outcome of Mandiri Institute could also help
public and private-sector leaders make wise decisions, by understanding the nation’s development and economic challenges so
that Indonesia can play a larger role in the global economy.
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Opening Remarks
by Mr. Budi G. Sadikin
CEO PT. Bank Mandiri (Persero) Tbk.
Member of Mandiri Institute’s Advisory Board
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We believe that by building physical infrastructure, we will be able to
promote trade and accelerate the nation’s economy. However, lately we
realized that the development of financial infrastructure in Indonesia is
still behind compared to the development of physical infrastructure.
We also realized that there are not enough people who have bank accounts in remote villages and there are not enough loans to those people in order to facilitate their trade. There are also not enough transaction facilities for them. Therefore, improving financial infrastructure becomes urgent to foster Indonesia’s economy in the future.
Mandiri Institute (MI) aims to help the nation in building financial infrastructure as fast and powerful as the physical infrastructure, in the same
pace as Bank Mandiri tries to provide new products in financial transactions, saving, lending and insurance in every corner of Indonesian villages and cities. MI also shapes the global and regional agenda according to the Indonesian perspective, as we need to be more active in the
global agenda such as G20, APEC, IMF and World Bank forum.
MI wants to stand differently with other institutions. MI wants to talk
about movement rather than progress. MI wants to talk about connectivity rather than hierarchy. MI wants to talk about influence rather than
authority. MI prefers action to work. MI wants to deliver an impact rather
than giving advices. MI is expected to help fostering the engagement of
all stakeholders in Indonesia (government, private sector and university)
and to help shaping Indonesia’s agenda to the world in order to benefit
the country.
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Keynote Speech I
by Mr. Dahlan Iskan
Minister of State Owned Enterprise
In financial sector, we must focus more on financial deepening and entrepreneurship. Hence, financial inclusion is very important and it needs
to be supported by low interest rate environment. Furthermore, there
are challenges that needs to be resolved in other sectors, such as energy,
agriculture and manufacturing.
Indonesia must reduce its dependency in the energy sector in a more
significant way, by converting from fuel-based oil to renewable energy
sources. The development of electric car was halted because our society
is still trapped in a mindset that car should be fuel based, instead of electric or gas. There are innovations that can be done and the initiatives
must be pushed to have a more energy-efficient society.
Indonesia also must have a strong agriculture sector and should be able
to be the biggest tropical fruit producer in the world. It has the advantage from its nature as Indonesia lies on tropical area. Therefore, Indonesia should be able to export fruits to the entire world and make the
tropical fruit as the main commodity, like CPO or rubber.
Lastly, Indonesia must have a roadmap to shift its paradigm from trading
society to industry society, in order to strengthen its manufacturing sector. Government should foster incentives for industries with high domestic contents. The government and state owned enterprises have to
support invention in production technology, especially those that has
been conducted by Indonesian entrepreneurs. Regulations, such as industrial local content proportion rate and tender offer qualification standards, should be fixed to boost such domestic innovations and inventions.
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Keynote Speech II
by Mr. Agus D. W. Martowardojo
Governor of Bank Indonesia (BI)
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Currently, global economy growth is still supported by advanced countries such as the US and Europe
as the impact of monetary stimulus. On the other hand, China economy has been slowing down caused
by its economic policy. In addition, commodity prices still show declining price movement mainly in
rubber, copper and coal.
Indonesia economic growth in 1Q14 is 5.21%, lower than 5.72% in 4Q13. There are several factors contributed to GDP slow down in 1Q14. First, export has slowed down mainly from coal and mineral sector.
Second, slow down of the government spending in 1Q14. However, domestic consumption expenditure
and investment still show an increase to support growth. In line with this, consumer confidence is still
strong as well as investment. Looking at the regional side, economy slow down is concentrated in mining region mainly in eastern Indonesia, while the growth of Java and Sumatera is still in good shape.
Bank Indonesia (BI) decided to keep BI rate at 7.5%. This is resulted from the implementation of macro
economy stability policies and coordination between government and BI. Low interest rate environment is essential for financial inclusion, however Bank Indonesia needs to emphasized two points that
can explain why interest rate in Indonesia is still high. High interest rate is driven by high inflation rate,
which mainly related to energy management as a consequence of reducing fuel subsidy that trigger
government to increase fuel price last year. BI and government have to maintain good coordination regarding this energy management and inflation control. Increasing the usage of alternative energy can
gradually reduce our dependence of the fossil fuel and will give positive impact to inflation. Furthermore, financial deepening need to be conducted in order to reduce interest rates and to stabilize foreign exchange market.
Balance of payment has performed better in 1Q14 featuring a decrease of current account deficit and an
increase of foreign capital inflow. Current account deficit in 1Q14 is 2.06% of GDP, decreased from
2.12% in the previous quarter. However, there is tough challenge ahead in which related to management of energy and food supply. In general, the good fundamental of Indonesia’s economy reflected in
better performance on balance of payment that led to an appreciation of IDR in 1Q14 compare to end of
year 2013. Several factors contributed to this IDR appreciation are the Fed's view that tend to be more
hawkish, slow down of China and geopolitics crisis in Ukraine.
BI expects that Mandiri Institute is able to give more concrete policy recommendation regarding microeconomic enhancement to create stronger macroeconomic foundation. Several issues related to this
concern are policy coverage in energy sector, financial, market issue, market structure and industry organization.
On top of that, Mandiri Institute must pay attention to global competitiveness especially in the implementation of AEC (ASEAN Economic Community). The competitiveness of SMEs (Small and Medium Enterprises) and entrepreneurs in facing AEC is a particular issue that has to be addressed properly. We
have to be aware about challenges in participating in AEC, such as high inflation rate in ASEAN region,
high competition among ASEAN countries in term of producing goods and services and human capital
enhancement to increase human resources competitiveness.
Finally, numbers of comprehensive studies issued by Mandiri Institute in this area are expected to have
strategic role in defining SMEs position and society welfare in the future.
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Official Launching of Mandiri Institute
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Remarks on Mandiri Institute
by Mr. Darmin Nasution
Chairman of Mandiri Institute’s Advisory Board
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Indonesia is entering a middle income class country with income per
capita reached US$3,600. Nevertheless, many of middle class income
countries were trapped in a condition of which they can not go further
to become an advanced country. In regards to that concern, Mandiri Institute plans to develop comprehensive analysis and studies in order to
create accurate solution, to give contribution for Indonesia in avoiding
middle income trap. Indonesia as a democratic country needs a thinktank institution, which is able to formulate long term policy and should
not be influenced by political interests.
There are three main groups in Indonesian society. Lowest income
group that needs for financial inclusion, entrepreneurship, food and energy access as well as productive social assistance. Middle income group
that needs social protection, financial deepening, food and energy security. Highest income group that needs strong industry structure and
sound business climate
Financial inclusion in Indonesia needs to be improved significantly as
there are still around 50% of Indonesia’s population has yet access to the
financial sector. While 85% of transaction is still paid by cash, 90% of Indonesian people have use cellular phone for communicating. That figure
gives an implication that Indonesia is still behind in using financial or
banking instrument, yet on the other hand there is huge potency to develop financial inclusion through technological utilization like cellular
phone.
In comparison, loan to GDP and saving to GDP ratio in Indonesia are also
considerably low compared to Singapore and Malaysia. This issue must
be resolved soon regarding the implementation of AEC (ASEAN Economic Community), especially in financial sector. One way to improve it
is by developing more competitive entrepreneurship-based competence in order to increase competitiveness in facing AEC.
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Panel Discussion Session
McKinsey’s Presentation
“Unleashing Indonesia’s Banking Sector”
by Mr. Guillame de Gantes
Partner at McKinsey & Company
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Indonesia has performed extremely well as it is one of the most stable
country in the world with consumer driven growth. Growh is driven by
mid-sized and large cities outside Jakarta such as in Sumatera, Kalimantan, Sulawesi and productivity have increase instead of labor. Indonesia’s
productivity rate is at 60%, which is a similar to productivity in South Korea. Meanwhile, natural resources contribution in the economy has
started to decline.
As an emerging country, there are several reasons that Indonesia should
be looking forward to. Achieving Indonesia’s targeted 7% annual GDP
growth will require human capital investment and labor productivity to
grow 60% faster than in 2000–2010. An estimated 90 million Indonesians could join the consuming class by 2030. Indonesia’s savings and
investments and retail sectors are also expected to become large consumer markets by 2030. However, financial asset to GDP is still low even
compared to Vietnam. Therefore Indonesia still needs to expand its financial sources including that from overseas. Indonesia is also still facing
challenges in ensuring that workers receive the right level of education.
Based on our findings, there are still significant room for banking penetration growth. Indonesia banking sector challenges include financial
deepening, lower asset to GDP than peers, financial penetration (as
measured in financial assets as percent of GDP) is significantly lower
than peers. Financial inclusion means lower access branches or ATM and
lower access to financial sector. Access to branches and ATMs has significantly improved over the last 5 years, but still lags compared to other
ASEAN markets. Indonesian banks is much more domestically focused.
The country is a very open market for foreign banks and even foreign
banking ownership in Indonesia is higher than global peers of around
27% compare to 5% in China, 7% in India, 8% in Thailand, and 23% in
Malaysia. Indonesia is likely to have both the largest and fastest growing
banking market in ASEAN, however there are still challenges in banking
market structure.
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Panel Discussion Session
Ministry of Finance’s Presentation
by Mr. M. Chatib Basri
Finance Minister of Republic Indonesia
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We need to emphasize on the importance of looking at economic situation in term of its sustainability on the short term, mid term and long
term. Today, government focuses in stabilization policy rather than
growth policy. In the short term, the economic policy has focused on demand side while in the medium and longer term the policy should focus
on supply side. In the medium and in the long term Indonesia must be
able to lower the ICOR (Incremental Capital Output Ratio) number from
5.3% to 4% in order to achieve targeted growth (7%) without widening
current account deficit above 3%. Increasing efficiency and producti-vity
of capital is the best way to lower the ICOR number.
On the other hand, Indonesia can not rely on natural resources anymore
because the era of commodity boom is over. In the longer term, the
trend of commodity prices and energy prices may decline due to the invention of cheap shale gas in the US and many big size oil companies
have improved sophisticated methodology in reducing cost of production of oil and energy. These factors will reduce the US dependence on
oil from Russia, Middle East and other countries and therefore will substantially decrease the energy price. The slowing down of energy price
will be followed by declining of commodity prices, because in the last
ten years there was a positive correlation between commodity prices
and energy prices. It can be explained as many commodities can be converted as a substituted energy forms are used to substitute the energy.
Unfortunately, Indonesia export is relying on commodities since around
65% our export is dominated by commodities.
There are three things that could be done to increase productivity in the
supply side in example are improving infrastructures, human capital and
institution. Despite the progress of infrastructure is little bit slow, the
next government should be able to speed up the progress because
some of land related regulations have been worked out. In the term of
human capital, government is discussing to impose double tax deduction on company that has invested in Research and Development. Furthermore, government provides scholarship program to any Indonesians who has accepted at top 200 universities in the world. That is the
best way to equip our human capital in order to compete with other
countries. The last thing that has important role in improving productivity is good institution or governance. The comparative advantage of
country in the future is the quality of the policy that issued by good governance.
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Panel Discussion Session
Otoritas Jasa Keuangan (OJK) Presentation
by Mr. Muliaman D. Hadad
Chairman of OJK Board of Commissioners
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The role of Otoritas Jasa Keuangan (OJK) of Financial Services Authority
(FSA) is substantial in supervising financial sector and educating society
about the financial sector. High quality growth can be achieved by widening financial access, which is translated into financial inclusion. The
next challenge that has to be addressed is how to create financial institution and capital market that can response to economy needs. Financial deepening may come from both banking sector and non banking
sector such as capital market, insurance and other non bank financial
institutions.
Financial integration in the ASEAN countries should be inline with our
main goal of improving domestic society welfare. Therefore, Indonesia
should have an agreement with its peers in ASEAN that financial integration demands one condition that is beneficial to the society welfare
as a whole.
Several points that become our banking priority right now includes a
prompt response to the ever–increasing demands from growing working age population and middle class. Anticipation of growing demands
are caused by an expected industrial revitalization, response to current
regulatory landscape of banking sector and anticipation of increasing
global competition
Meanwhile key priorities that should be addressed in capital market in
Indonesia consist of broadening participation of the business community in capital market on the supply side, broadening participation of
the public in capital market on the demand side, enhancement of capital market infrastructure and enforcement and enhancement of debt
market
In addition to that, governments policies also focus on non-bank financial institutions (NBFI) by having policies as a faster response to the
growing demands from the middle and lower income, enhancing regulation and supervision of NBFIs, better supports to the national agenda
on social protection and strengthening industrial capacity.
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Panel Discussion Session
Moderated by Mr. Pahala N. Mansury
CFO of PT. Bank Mandiri (Persero) Tbk.
Member of Mandiri Institute’s Advisory Board
Mr. Darmin Nasution highlighted the findings by McKinsey that Indonesia has good shape not only on
growth point of view but also on stabilization of the economy. However, Indonesia still experiences lack of
access to financial sector. Our financial inclusion is relatively still behind our peers in ASEAN. Therefore, we
have to put our best effort in implementing financial inclusion. Government needs to actively do some significant changes not just business as usual.
Some important points elaborated in discussion were :
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Government has to finish their homework in restructuring remuneration system in public sector in
order to attract good talent join the public sector. Currently, the best and the brightest work in private sector that offers much higher salary than public sector does. Furthermore, government has to
create incentives for the best talents from university join the public sector.
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The best way to do some reformation in governance is doing it in the small actions until people start
to realize the change has been happening. It will make the reformer gain political credibility and finally the reformer has success story and then he or she can start to move to another bigger target
and do the same. The approach is gradual rather than radical.
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Tax incentives are not substitution of doing business easiness or infrastructure readiness. They have
to be conducted together in order to attract capital inflow as well as foreign investors. Government
wants to give tax incentives for investor who reinvests the profit in Indonesia.
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Development and efficiency in supply side must be pushed , considering Indonesia ICOR is still high
at 5.3. With such figure, Indonesia needs investment growth at 38%, an unbalanced figure compared
to savings rate and resulting into current account deficit.
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The First Advisory Board Meeting
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Attendees:
Mr. Darmin Nasution – Chairman of Advisory Board
Mr. Budi G. Sadikin – Member of Advisory Board
Mr. Pahala N. Mansury – Member of Advisory Board
Mr. Bejoy D. Gupta – Member of Advisory Board
Ms. Destry Damayanti – Executive Director of Mandiri Institute
Ms. Moekti P. Soejachmoen – Head
Ms. Andjarsari Paramaditha – Staff
Mr. Andrian Bagus Santoso – Staff
Ms. Mei Winaningtyas – Executive Assistant to the CEO of Bank
Mandiri
 Mr. Gilang Permana - Executive Assistant to the CEO of Bank Mandiri
 Mr. M. Ajie Maulendra – Industry Analyst OCE
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Results of the meeting:
1. Board agreed on the Mandiri Institute’s activities and schedule for period 2014 – March 2015.
2. Board agreed to find a research fellow for financial deepening either
from the candidates proposed by Mr. Nasution and Mr. Gupta or
other sources.
3. Board agreed that the next Advisory Board Meeting will be held on
the same date with the public policy dialogue on Financial Institution
which is scheduled on 22 October 2014.
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Photo Gallery
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List of Participant
Government
Coordinating Ministry of Economy
Ministry of Finance
Ministry of Trade
Ministry of State Owned Enterprise
Ministry of Industry
National Development Planning Agency (Bappenas)
Bank Indonesia
Indonesia Financial Services Authority (OJK)
Deposit Insurance Agency (LPS)
Indonesia Investment Coordinating Board (BKPM)
Vice President Office
National Economy Committee (KEN)
Institution
The National Team for the Acceleration of Poverty Reduction
Indonesian Chamber of Commerce & Industry
Indonesia Infrastructure Guarantee Fund
Indonesia Forum
SMERU Research Institute
Danareksa Research Institute
Definit Asia
Indonesia Bankers Association
Samuel Asset Management
Bank Rakyat Indonesia
Bank Nasional Indonesia
Bank Tabungan Negara
Bank Central Asia
Standard Chartered Bank
CIMB Niaga
Bank Internasional Indonesia
Bank Danamon
Mandiri Sekuritas
Mandiri General Insurance
PT Pegadaian
PT MRT Jakarta
International Award for Young People
Academia
University of Indonesia
Gadjah Mada University
Bandung Institute of Technology
Padjajaran University
Bogor Agricultural University
Atmajaya University
Paramadina University
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International Institution
United State Embassy
United Kingdom Embassy
Australia Embassy
Canada Embassy
Japan Embassy
China Embassy
India Embassy
World Bank
Asian Development Bank
Institute of International Finance
Asia Foundation
Australia Indonesia Partnership for Economy Governance
Economic Research Institute for ASEAN and East Asia
Institute for Development of Economic and Finance
International Finance Corporation
McKinsey Global Institute
Oliver Wyman
Boston Consultant Group
Van Zorge & Heffernan
Australian Aid
Schroders
The Asia Group
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c/o Office of Chief Economist
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