The Indonesian government, central bank (Bank Indonesia) and Commission XI of the House of Representatives (DPR) agreed to revise several macroeconomic targets in the Revised 2015 State Budget (APBN-P 2015). The revisions include the country’s economic growth (GDP) pace, the average rupiah exchange rate, and inflation target. In essence, the revisions indicate that Indonesian authorities have become less optimistic about the Indonesian economy in 2015 amid external pressures.
Most importantly, Indonesia’s GDP growth was downgraded from 5.8 percent year-on-year (y/y) to 5.7 percent (y/y), while the average rupiah rate was downgraded from IDR 12,200 per US dollar to IDR 12,500 in the Revised 2015 State Budget. These changes are the result of external pressures as global economic growth remains sluggish thus pushing global commodity prices down (and therefore limiting Indonesia’s foreign exchange earnings from commodity exports), while monetary tightening in the USA causes bullish momentum for the US dollar at the expense of the value of most other currencies, including Indonesia’s rupiah rate. Ahead of looming higher US interest rates, Indonesia is expected to be vulnerable to capital outflows as the country is still plagued by a wide current account deficit of about 3 percent of GDP. On the other hand, the recently unfolded quantitative easing program in the Eurozone will provide some protection as it increases global liquidity as well as investors’ appetite for lucrative (yet riskier) emerging market assets. Last week, the European Central Bank (ECB) officially announced a 60 million euro per month bond-buying program (quantitative easing) up to September 2016 in a move to boost the region’s inflation.
Bank Indonesia Governor Agus Martowardojo said that he is content to see that the average rupiah rate target has been revised to IDR 12,500 per US dollar as it reflects a more realistic outlook in current volatile times. He added that it will be vital for the government to push for infrastructure spending in order to realize the 5.7 percent GDP growth target set for in 2015. After the government scrapped low-octane fuel subsidies and introduced a fixed IDR 1,000 per liter subsidy for diesel at the start of January 2015, it will save a total of IDR 230 trillion (USD $18.4 billion) in the 2015 State Budget. Indonesian Finance Minister Bambang Brodjonegoro recently said that 60 percent of these saved funds will be spent on infrastructure development in Southeast Asia’s largest economy. Besides infrastructure development, the government also places great priority on (foreign and domestic) investment to support economic growth in 2015. Therefore, the new one-stop service center, which aims to simplify the licensing procedures for investment projects, was officially launched at the start of the week. Particularly investments in manufacturing industries are welcomed in order to boost the domestic supply side, thus curbing inflation and the current account deficit.
Indonesian Macroeconomic Assumptions:
| State Budget
| 1st Revised
| 2nd Revised
annual percent change
annual percent change
|Treasury Bills Interest Rate
USD $ per barrel
thousand barrels per day
|Natural Gas Lifting
barrel of oil equivalent/day
º still needs to be discussed among the Ministry of Energy and Natural Resources and Commission VII of the DPR