1. How does the Indonesian macroeconomic setting affect Citibank Indonesia’s ability to budget revenues and costs?

Citibank was one of eight foreign banks set up in Indonesia, with the intention to serve both international and local customers, assist in the economic development of the country whilst sharing in potential profits and growth that the Indonesian economy could offer.

For Citibank, two significant macroeconomic factors impacted the bank’s ability to budget revenues and costs:

1. Indonesia was highly dependent on oil revenues

Indonesia was a relatively young economy, with excellent growth rich in raw materials, spurring the government’s interest in developing the country’s industrial activities. The country was highly dependent on oil revenues, and when oil prices decreased significantly the country slipped into recession. Citibank had participation in loans to prime government, which provided much lower returns than earned on the rest of the bank’s portfolios. This raised questions about whether the Indonesian government would take the critical steps to correct its balance of payments problem, impacting Citibank’s revenue takings.

The Indonesian government had hopes for foreign banks set up in Jakarta to establish modern banking infrastructure, attract foreign investment and develop trained people. However, the government also placed restrictions on foreign banks that did not allow branches to be opened outside of the Jakarta city limits and limited local currency loans to corporations operating within Jakarta. Paired with the bank’s reputation for first-rate employee training, Citibank suffered from high staff turnover as local employers offered Citibank employees significant opportunities elsewhere. To retain its trained employees, the bank sought to increase its compensation, however the bank’s desire to maintain profitability paired