Economic Data

Overseas view of  Indonesia

Overall Standards Summary

Indonesia achieves low overall compliance with international standards and codes, with a score of 38.33 out of 100 in our Standards Compliance Index. The country achieves a relatively high level of compliance for the three standards on macroeconomic policy and data transparency. In the areas of institutional and market infrastructure, however, Indonesia’s compliance with international norms is less promising. Indonesia’s legal framework to combat money laundering and terrorist financing is deficient in several key areas despite the country’s recent attempts to the contrary.

Although the country’s corporate governance regime has a sound legal framework, its effective implementation has been questioned by the World Bank in its assessment of Indonesia. Indonesia has been assigned an ‘intent declared’ compliance level for its Payment Systems, Accounting and Auditing practices as the authorities have clearly identified their willingness to comply with international standards in these areas. Standards regarding financial regulation and supervision all share a common theme – there is a strong intent on the part of the regulators to implement international standards but there is little evidence of actual adoption or implementation of these standards.

For instance, in the case of banking supervision, the Bank Indonesia, the banking sector supervisor, conducts regular self-assessments of Indonesian banks’ adherence to the Basel Core Principle. However, comprehensive results of these self-assessments are rarely made public making it difficult to assign a higher compliance level for the country.

With an overall score of 5.07/12, Indonesia is below standard on the economic, legal, and political indicators that make up our Business Index. Indonesia has a market-based, mixed economy. Although government expenditure as a percentage of GDP is low, SOEs still play a prominent role in the oil and gas, retail distribution, and electric power generation and transmission industries. Indonesia has significant foreign exchange and capital controls and lacks an adequate foreign investment law.

Trade regulations, on the other hand, are less restrictive although the country does impose protective tariffs. The tax regime in Indonesia is welcoming towards investment, both domestic and foreign, and the country has a well established bankruptcy law. Indonesia has signed and ratified the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. Corruption is extensive and of concern to investors, reflected in Indonesia’s ranking of 143rd out of 180 countries in Transparency International’s 2007 Corruption Perceptions Index.

Indonesia is ranked either in the 3rd or the 4th quintile of the global indices benchmarking political, economic, business, and human capital climates, as shown below. The exception is the Bertelsmann Index, where its rank in the 2nd quintile reflects progress in transitioning toward a market democracy. Difficulties remain, however. The Heritage Foundation Index shows that the government interferes extensively with market prices and there is a lack of strong economic institutions.

The World Bank’s Doing Business snapshot of 178 countries offers a three-pronged evaluation of the procedure for closing a business, in which it looks at the time required, the cost (as a percentage of the debtor estate) and the recovery rate for creditors (expressed in terms of cents on the dollar). In Indonesia, it takes an average of 5.5 years to close a business compared to the regional average of 2.7 years and the average for member states of the Organization for Economic Cooperation and Development (OECD), which averages 1.3 years. The cost of proceedings averages 18%, whereas the regional average is 23.2%, and the OECD average is 7.5%. Recovery rates are low, averaging 12.6 cents on the dollar in Indonesia. Regionally, the average is 28.1, and in the OECD states the return averages 74.1 cents.

The main obstacles for further development in Indonesia include deficiencies in basic infrastructure as well as health care and primary education, as highlighted by the Global Competitiveness Index. Furthermore, the country is limited in terms of capital access, due to its macroeconomic environment. Corruption is perceived to be very high, as evidenced by Indonesia’s performance in Transparency International’s Corruption Perceptions Index.

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    J.P. Morgan Helps Indonesia’s Bank Mega Improve Currency Clearing and Payment Flows

    Leading Indonesian Bank Chooses J.P. Morgan’s U.S. Dollar Clearing – Asia Direct and Payment-Versus-Payment Settlement Solutions

    HONG KONG, May 12 /PRNewswire-Asia/ — J.P. Morgan has announced today that it has been selected by PT Bank Mega Tbk. (“Bank Mega”), one of Indonesia’s leading financial institutions, to provide clearing services for both its commercial and treasury payment flows with J.P. Morgan’s U.S. Dollar Clearing – Asia Direct solution and payment-versus-payment (PvP) settlement services for foreign exchange transactions.

    By using J.P. Morgan’s U.S. Dollar Clearing – Asia Direct solution, Bank Mega’s clients are able to make faster payments to beneficiaries in Mainland China and Hong Kong. J.P. Morgan’s U.S. Dollar Clearing – Asia Direct solution is the first and only payment solution to provide direct access to multiple regional and in-country U.S. Dollar clearing systems in Mainland China, Hong Kong, Japan and Taiwan from a single U.S. Dollar account. J.P. Morgan’s Asia Direct clients are not required to establish separate accounts in each country of clearing, resulting in better cash concentration, lower fees, simplified funding arrangements and decreased time spent on reconciliation activities. J.P. Morgan’s U.S. Dollar Clearing – Asia Direct solution also helps Bank Mega’s clients to grow their business through improved relationships with their counterparties.

    Bank Mega has also selected J.P. Morgan’s payment-versus-payment settlement services for its foreign exchange transactions in Indonesia. This new clearing service provides simultaneous delivery of Indonesian Rupiah and U.S. Dollar currencies within the same Asia business day, thereby enabling Bank Mega to mitigate foreign exchange settlement risk, improve its liquidity management and increase its operational efficiency.

    “We are pleased to be working with J.P. Morgan to provide our clients with access to innovative value-added services such as J.P. Morgan’s U.S. Dollar Clearing – Asia Direct service and we will continue to look for ways to surpass our clients’ expectations. J.P. Morgan’s leadership position in U.S. Dollar clearing was also a key factor in our decision to use the bank’s Asia Direct and PvP settlement solutions,” said J.B. Kendarto, president director of Bank Mega.

    “Indonesian banks have been rapidly adopting the latest standards of payment services. Being chosen by Bank Mega to provide both commercial and treasury payments services demonstrates the strength of our world-class cash management service offering. We also invest heavily in maintaining and growing relationships with our clients and look forward to further expanding our relationship with Bank Mega. We remain committed to delivering innovative solutions to our financial institution clients and to our fast-growing client base in ASEAN countries,” added Simon Jones, managing director and Asia Pacific regional Treasury Services executive at J.P. Morgan.

    J.P. Morgan offers a wide range of commercial and treasury payment services to financial institutions and corporate clients in Indonesia. J.P. Morgan is also the world’s largest U.S. Dollar clearing and commercial bank.

    About J.P. Morgan Treasury Services

    The Treasury Services business of J.P. Morgan is a top-ranked, full-service provider of innovative payment, collection, liquidity management, trade finance, commercial card and information solutions to corporations, financial services institutions, middle market companies, small businesses, governments and municipalities worldwide. With more than 100,000 clients and services provided in more than 60 countries and 40 U.S. states, J.P. Morgan Treasury Services is one of the world’s largest providers of treasury management services and a division of JPMorgan Chase Bank, N.A., member FDIC. More information can be found at http://www.jpmorgan.com/ts.

    About JPMorgan Chase & Co.

    JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. In Asia Pacific, J.P. Morgan operates through 26 offices in 15 countries and has developed its wholesale banking franchise during a history of almost 160 years in the region. More information about JPMorgan Chase & Co. is available at http://www.jpmorganchase.com.

    Media Contact:

    Karene Dufour Lo, J.P. Morgan Treasury & Securities Services

    Tel: +852-2800-1924

    Email: karene.c.dufourlo@jpmorgan.com

    SOURCE J.P. Morgan

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