On 10 August 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic topics such as economic growth in the second quarter, July inflation, the June trade balance, company profiles of PP London Sumatra Indonesia and Perusahaan Listrik Negara, guidelines for the construction of a PT PMA, and more.

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The Indonesian rupiah exchange rate strengthened slightly on the last trading day of the week. On Friday (08/08), Indonesia’s currency appreciated 0.15 percent to IDR 11,779 per US dollar according to the Bloomberg Dollar Index. Most Asian currencies and stocks fell, while prices of gold and oil jumped, after US President Barack Obama agreed to air strikes in northern Iraq (aimed at Sunni extremist militants). In combination with continued tensions in Ukraine as well as Gaza, investors opt for risk aversion (and profit taking).

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The Indonesian rupiah exchange rate came close to the IDR 12,000 per US dollar mark on Wednesday (18/06). Based on the Bloomberg Dollar Index, Indonesia’s currency depreciated 0.87 percent to IDR 11,997 per US dollar. Bank Indonesia stated that the weakening is due to violence in northern Iraq (giving rise to a higher oil price which subsequently pressures the financial balance sheets of countries that import oil, such as Indonesia), and concern about results of the Federal Reserve meeting (17-18 June 2014).

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One of Indonesia's main fiscal problems is the ever increasing amount of public funds spent on energy subsidies (these include fuels and electricity subsidies). These subsidies aim to support the poorer segments of Indonesian society but several studies conclude that it are in fact the middle class and elite segments that benefit the most of these energy subsidies. Furthermore, by keeping energy prices artificially low, the government distorts the economy by creating a more-or-less 'false economy'.

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Pertamina Hulu Energi, subsidiary of state-owned energy firm Pertamina, has been officially appointed as the new operator of the Siak oil block in Riau (Sumatra) after the contract of Chevron Siak Indonesia (CSI) had expired on 27 November 2013. The Indonesian government decided not to renew the production sharing contract (PSC) with Chevron, instead appointing Pertamina Hulu Energi as new operator of the oil block (in line with the government's aim to have more domestic control over the country's natural resources).

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The government of Indonesia will tender a crude oil refinery construction project in mid April 2014. The oil refinery will be located in Bontang (East Kalimantan) and the project is based on the public-private partnership (PPP) scheme. Susilo Siswoutomo, Indonesia's Deputy Minister of Energy and Mineral Resources, said that the government is currently engaged in formulating procedures for submission of the tender bid. The Finance Ministry and Indonesia Investment Coordinating Board (BKPM) are also involved in formulating the terms of reference.

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Indonesia Investments updated the company profile of Elnusa, an integrated upstream oil and gas company. Core business of Elnusa, which is part of the state-owned Pertamina Group, involves geoscience, drilling and oilfield services. As the company is closely connected to the Indonesian government, it would benefit of the government's commitment to increase oil lifting. However, the current condition of Indonesia's oil and gas sector is still not conducive for large investments. Elnusa is listed as ELSA on the Indonesia Stock Exchange (IDX).

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SKK Migas, Indonesia's upstream oil and gas regulator, announced that oil production in 2013 averaged 825,000 barrels per day (bpd), thus falling short of the target (840,000 bps) set in the State Budget (APBN). Meanwhile, the country's gas production averaged 1,218,000 barrels of oil equivalent per day (boepd), short of its target (1,240,000 boepd). As a result, total state revenues from the country's oil & gas sector also fell short of the government's target. In 2013, these revenues totaled USD $31.4 billion instead of USD $31.7 billion.

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The sharply depreciated Indonesia rupiah exchange rate in combination with the inability to raise domestic production of crude oil threatens to balloon government subsidy expenditure. Fuel subsidies may increase 20 percent to IDR 252 trillion (USD $20.8 billion) in 2014 as the rupiah currently has about 14 percent less value (based on the Bloomberg Dollar Index) than the value assumed in the 2014 State Budget (APBN 2014). The government assumed a rupiah rate of IDR 10,500 per US dollar in the APBN 2014.

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Deputy Trade Minister Bayu Krisnamurthi said that the Indonesian government is preparing two strategic steps to anticipate the negative impact of the winding down of the Federal Reserve's quantitative easing program. In January 2014, the Fed's bond-buying program will be reduced from USD $85 billion to USD $75 billion per month. The two strategic steps, which will enhance financial stability in Southeast Asia's largest economy, involve the curtailing of Indonesia's current account deficit and high inflation.

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While Indonesia was enjoying the Idul Fitri celebrations (marking the end of the holy fasting month), global financial markets experienced a massive shock. The panic was fueled by concern over a severe escalation of the Iran War after US President Donald Trump set a 48-hour deadline that would expire on 23 March 2026.

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The key story in March 2026 is obviously the Iran War that broke out after a United States (US)-Israeli coalition attacked various strategic assets in Iran starting on 28 February 2026, thus causing another (possibly long-term) geopolitical conflict after the Russo-Ukrainian War (2022-present) and Israel-Hamas War (2023-present).

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Few should be unaware that the world (particularly Western powers) are pushing for renewable energy to replace fossil fuels. It is difficult to find a newspaper or TV station that does not report on this issue on a daily basis.

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Just like essentially all other currencies around the globe, the Indonesian rupiah has been under pressure from tightening monetary policy in the United States (US). This has serious consequences for the energy market since Indonesia is a net oil importer.

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Besides the novel coronavirus (COVID-19) outbreak, another big news story in March 2020 was the massive decline of global crude oil prices. Not only is the price of oil under pressure because of the enormous slowdown in economic activity as various governments have imposed restrictions (such as travel bans) in an attempt to curb the further spread of the coronavirus, but there also emerged big tensions between some of the world’s biggest oil producers that led to tumbling oil prices.

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Foreign exchange earnings are important assets for a national economy. Therefore, many nations have recently been taking a much more protectionist approach vis-à-vis trade in an effort to strengthen their trade positions, generate trade surpluses, hence see the inflow of more foreign exchange earnings. Foreign exchange assets support a stable local currency as well as economy.

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Again, oil and gas contractors in Indonesia urge the government to clean up bureaucracy (red tape) in this sector in order to make the investment climate more attractive, and hence trigger more (much-needed) investment in Indonesia's oil and gas industry.

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Crude oil production at the Banyu Urip field (part of the Cepu Block) in East Java has reached 201,000 barrels of oil per day (bpd). This peak is reached about three years after operations started at the Banyu Urip field. Considering Indonesia set a 825,000 (bpd) oil production target in the state budget, it implies the Banyu Urip field now accounts for almost a quarter of total (targeted) crude oil production across Indonesia.

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An interesting interview with Lana Soelistianingsih was published in Indonesian tabloid Kontan, a magazine that focuses on the economy and financial markets of Indonesia. Soelistianingsih is Head of Economy at Samuel Aset Manajemen as well as a teacher at the Economics Department of the University of Indonesia. The topic of the interview is crude oil.

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Overall, low crude oil prices are problematic for stock markets as low prices indicate the world economy is not expanding on full throttle. This curbs investors' risk appetite. Particularly those companies that are active in the oil industry (or in related industries) will likely face declining share prices. However, there are also positive effects of low oil prices. For example consumers' purchasing power should improve because prices at the gas pump are lower, while some companies can curb operational costs. Hence, consumer and transportation stocks should actually benefit from low oil prices.

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