The economy of Indonesia, which has been slowing since 2011, will have difficulty to rebound in 2015 as the central bank’s key interest rate (BI rate) is expected to be raised again to avert capital outflows brought on by higher interest rates in the US and to combat accelerated inflation after domestic subsidized fuel prices have been raised by the new government led by president-elect Joko Widodo (Jokowi). After a GDP growth pace of 6.5 percent (y/y) in 2011, economic growth in Southeast Asia’s largest economy fell to 5.8 percent (y/y) in 2013.

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On 28 September 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 Indonesia’s fuel subsidies, US interest rates, poverty, inequality, GDP growth, palm oil, rice, the Anas Urbaningrum graft case, as well as the passing of a new bill that ends direct voting in the regions, and more.

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Indonesian Finance Minister Chatib Basri stated that the Indonesian government plans to set aside a total of IDR 10 trillion (USD $837 million) in the state budgets of 2014 as well as 2015 to support the poor people of Indonesia through social safety programs. This is yet another indication that prices of subsidized fuels will be raised before the end of the year. Recently, it has been increasingly speculated that Indonesian president-elect Joko Widodo (“Jokowi”) will raise these prices by IDR 3,000 (USD $0.25) per liter.

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The Budgetary Committee of Indonesia’s parliament announced on Monday (22/09) that it proposes the government to spend 1.6 percent less on energy subsidies in 2015. Originally the government allocated IDR 363.5 trillion (USD $30.4 billion) for energy subsidies (which involves fuel and electricity subsidies) in 2015, up from IDR 350.3 trillion (USD $29.3 billion) in 2014. This would be good news for president-elect Joko "Jokowi" Widodo as he would imply have more fiscal room for his reform programs.

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On 21 September 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 Indonesia’s fuel subsidies, the Federal Reserve’s FOMC meeting, the IPO of Blue Bird, August car sales, foreign investments in the insurance sector, a palm oil update, the current account deficit, and more.

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Indonesian car sales, an important indicator to measure consumer confidence and domestic consumption, surged 24.1 percent (year-on-year) to 96,728 vehicles in August 2014. However, this growth pace is heavily influenced by public holidays and thus does not signal a marked improvement in Indonesian consumer confidence. In August last year, Indonesian car sales fell because of the limited amount of working days amid the Lebaran holiday (Idul Fitri), causing reduced production and distribution of cars and motorcycles.

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On 14 September 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 Indonesia’s fuel subsidies, economic growth in 2015, monetary policy of Bank Indonesia, the Anas Urbaningrum corruption case, emerging Indonesian companies on a global scale, and more.

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Indonesian newspaper Investor Daily reported in today’s edition (11/09) that Joko Widodo (who will become Indonesia’s 7th president on 20 October 2014) plans to raise prices of subsidized fuel in November or December 2014. Reportedly, the price of gasoline (premium) will be raised by IDR 1,000 (USD $0.08) to IDR 7,500 (USD $0.64) per liter and the price of diesel (solar) by IDR 1,000 as well to become IDR 6,500 (USD $0.55) per liter. Meanwhile Widodo will enhance the social safety net to protect the poor.

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There are mixed opinions about the interest rate policy of the central bank of Indonesia (Bank Indonesia). Tomorrow (11/09), at the Board of Governor’s Meeting, the central bank will decide whether or not to change the country’s interest rates. Indonesia’s benchmark interest rate (BI rate) has been held at 7.50 percent for ten consecutive months. This relatively high figure managed to ease high inflation (which emerged after prices of subsidized fuel prices were raised in June 2013). However, it also further slowed economic growth.

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On 7 September 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 Indonesia’s fuel subsidies, August inflation, July trade balance, the conflict between the government and Nusa Tenggara Newmont, Jero Wacik’s possible involvement in a corruption case, and more.

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Indonesia has the potential to become a global force in the biodiesel industry because of the country’s position as the world’s top producer of crude palm oil (CPO). In 2014, Indonesia’s CPO production is estimated to total 30 million tons. Traditionally, Indonesia exports about 75 percent of its total CPO production, particularly to the giant economies of China and India. As such, this commodity is one of Indonesia's most important foreign exchange earners, apart from coal, in the non-oil and gas sector.

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The inflation rate of Indonesia rose slightly in November 2013 (month-to-month) and confirms estimations that inflation in Southeast Asia's largest economy is under control after having accelerated sharply due to the introduction of higher subsidized fuel prices June 2013. In recent months, inflation moved sideways and is expected to ease considerably in the first quarter of 2014. Indonesia's consumer price index rose 0.12 percent in November due to rising electricity, processed foods and health care costs.

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Indonesian car sales have already exceeded the one million mark in October 2013. In the January-October period, 1,018,786 car units were sold, a ten percent increase compared to car sales in the same period last year. Growing demand for cars in Indonesia indicates that this sector of Southeast Asia's largest economy is not influenced by current negative market sentiments, such as the sharply depreciated Indonesian rupiah exchange rate (against the US dollar), high inflation (8.32 percent yoy in October 2013), and slowing economic growth.

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Usage of biodiesel for transportation in Indonesia is expected to reach 7.2 million kiloliter by 2015, a sharp increase from 600,000 kiloliter in the first nine months of 2013. State-owned Pertamina is expected to supply the extra 6.6 million kiloliter of biodiesel. The reason why the Indonesian government is eager to develop palm-based biofuel for transportation purposes is to reduce the country's reliance on the import of expensive diesel fuel. Imports of fuels and gas are the foremost reason that Indonesia is coping with a wide current account deficit.

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Forecasts for Indonesia’s gross domestic product (GDP) growth in 2013 and beyond have been revised down by all institutions, including the Indonesian government and central bank as well as international organizations such as the World Bank and the International Monetary Fund (IMF). Initially, the country’s economic growth was expected to reach around 6.5 percent in 2013. However, most institutions have downgraded forecasts for the country’s economic growth to below the 6.0 percent mark.

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Car sales in Indonesia are expected to exceed the target set by the Indonesian Automotive Industry Association (Gaikindo) in 2013. The institution originally set a target of 1.1 million sold car vehicles in 2013, which is similar to the sales result in 2012. However, in September 2013 car sales recorded a new monthly record (115,921 sold units) after consumers sped up car sales as prices will increase in October. Up to the third quarter of 2013, total car sales have increased 11.2 percent compared to the same period last year.

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After three months of high monthly inflation rates, Indonesia's inflation eased in September due to falling prices of food, transportation, communications and financial services after the Muslim celebrations of Idul Fitri, which always cause a spike in inflation, have passed. In September 2013, Indonesia posted deflation of 0.35 percent. It was the first time in 12 years that the country posted deflation in this month. The annual inflation rate eased to 8.40 percent from 8.79 percent in August 2013.

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Indonesia's central bank, Bank Indonesia, expects deflation of about 0.9 percent in September 2013. Statistics Indonesia, on the other hand, believes there will be limited inflation this month. Both institutions agree, however, on a forecast of at least 9 percent of inflation over full-year 2013. The bank's September forecast is based on a survey that was conducted in the second week of September. This survey showed that food commodities and government administered prices eased.

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Starting from May 2013, Indonesia's benchmark stock index (IHSG) has been on a weakening (bearish) trend inflicted by various reasons. First, in early May, Standard & Poor's downgraded Indonesia's credit rating due to the government's hesitancy to slash fuel subsidies. Then, the Federal Reserve started to speculate about ending its quantitative easing program. Capital outflows that followed indicated the vulnerable state of the Indonesian economy. Moreover, the controversial hike in fuel prices in late-June resulted in high inflation.

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On Thursday (19/09), most currencies and stock indices outside the USA were bullish after the Federal Reserve decided to continue its massive monthly USD $85 billion bond buying program. Today (20/09), Asian currencies and stock indices took the foot off the gas as many investors sought to cash in on yesterday's gains. The MSCI Asia Pacific was still able to rise slightly (0.1 percent) after jumping 2.2 percent yesterday, but Indonesia's benchmark stock index (IHSG) plunged 1.86 percent (after gaining 4.65 percent yesterday).

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