Indonesia's foreign exchange (forex) reserves totalled USD $97.0 billion at the end of October 2013, up USD $1.3 billion from the previous month (USD $95.7 billion). Consequently, the current level of foreign exchange reserves is equivalent to 5.5 months of imports and the government’s foreign debt payment. Bank Indonesia considers the current stockpile of forex reserves adequate to bolster external sector resilience and is above international adequacy standards.

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Today (06/11), Statistics Indonesia announced that Indonesia's gross domestic product (GDP) expanded 5.62 percent in the third quarter of 2013 from the same period in 2012. The result implies the continuation of Indonesia's slowing economic growth as Q3-2013 constitutes the fifth consecutive quarter in which the country recorded slowing economic growth. Previously, the government had already expressed its concern about the GDP growth figure in Q3-2013 because the current high inflation rate curbs household consumption.

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In anticipation of tighter US dollar supplies, the government of Indonesia is considering the issuance of euro-denominated bonds in 2014. This would be the first time for the government to issue bonds in the currency. Robert Pakpahan, head of the debt office within Indonesia's Finance Ministry, said that they are discussing both euro- and yen-denominated sovereign bonds, equivalent to USD $6 billion. The bonds will be used to cover the country's budget deficit, which is set at 1.69 percent of GDP or IDR 175.4 trillion (USD $15.5 billion) in 2014.

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The Rating and Investment Information Inc (R&I), a rating agency from Japan, kept Indonesia’s Sovereign Credit Rating at BBB- with a stable outlook. In their press release, R&I stated that the four key factors behind the decision are: (a) Indonesia’s capacity to achieve sustainable economic growth in the long term (at around six percent per year); (b) conservative fiscal management (causing a marginal fiscal deficit); (c) a sound banking sector; and (d) a low level of government debt.

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A senior official at Indonesia's central bank (Bank Indonesia) stated that the country's current account deficit is expected to ease to 2.5 - 2.7 percent of Indonesia's gross domestic product (GDP) by 2014. In the second quarter of 2013, the account deficit reached USD $9.8 billion or 4.4 percent of GDP in Q2-2013, an alarmingly high figure that has caused much concern among the investor community. This deficit is particularly brought on by a large deficit in the country's oil & gas sector in combination with strong domestic demand for imports.

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The central bank of Indonesia (Bank Indonesia) announced that Indonesia's foreign exchange reserves have increased slightly in September 2013. On 30 September, the reserves stood at USD $95.67 billion, a 2.88 percent increase from USD $92.99 billion one month earlier. The reserves in September are equivalent to 5.4 months of imports, or 5.2 months when servicing of government external debt is included. Recent US dollar demand for the import of oil is what put pressure on the reserves.

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Indonesia’s economy continues to adjust, as weaker commodity prices, tighter international financing, and slowing domestic demand moderate the growth rate to 5.6 percent for 2013. This downward revision is discussed in the latest edition of the World Bank’s Indonesia Economic Quarterly (IEQ). Further moderation of growth (at 5.3 percent) may be expected in 2014, with growth in high income economies firming but international market conditions likely remaining volatile.

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An updated profile of Bank Mandiri is presented in our Indonesian Companies' section. Bank Mandiri, which is Indonesia’s largest financial institution by assets, offers businesses and individuals throughout Indonesia a full set of banking and non-banking products and services. The bank was established as a result of the Asian Financial Crisis when four state-owned banks (Bank Exim, Bank Bumi Daya, Bank Dagang Negara and Bapindo) were merged into Bank Mandiri as part of the government's bank restructuring program.

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The government of Indonesia is busy preparing an extra package of policy responses aimed at stabilizing Indonesia's financial markets. Previously, the government had released a sort of 'rescue package' in late August after the rupiah depreciated sharply and the country's stock indices plunged. Panic had emerged due to the looming end of the Federal Reserve's quantitative easing program. Coupled with internal issues, it resulted in robust capital outflows from Indonesia. The new package will be released in October.

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Indonesia is expected to replace the United States as the world's largest importer of oil by 2018, unless the country is able to limit domestic oil consumption or boost the nation's oil production. Recently, Indonesia has put more effort in limiting oil imports as these have caused a widening trade deficit. The trade deficit was at a new record high at USD $5.65 billion in the first seven months of 2013, particularly caused by the country's oil & gas deficit (USD $7.6 billion), while the non-oil & gas sector posted a surplus of USD $1.9 billion.

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On Thursday's trading day (16/01), Indonesia's benchmark stock index (Jakarta Composite Index) fell victim to profit taking after two days of sharp gains (although the index did not came close to its gap at 4,393-4,398 points). The index was also pulled down due to the World Bank's pessimistic forecast for growth of Indonesia's economy as well as today's mixed Asian stock indices. Lastly, the continued Indonesia rupiah exchange rate depreciation contributed to negative market sentiments.

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Despite our concern that Indonesia's benchmark stock index (IHSG or Jakarta Composite Index) would be susceptible to profit taking after the national holiday on Tuesday (14/01) as the IHSG rose signficantly on Monday (13/01), it continued its rise on Wednesday (15/01). The IHSG was supported by positive Asian indices that were influenced by strong US and European stock markets after the release of positive economic data in the USA and Europe. The depreciating rupiah exchange rate, however, limited the IHSG's gain.

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On Wednesday (15/01), Indonesia's rupiah exchange rate depreciated 0.37 percent to IDR 12,095 per US dollar at 14:15 local Jakarta time. Global markets are again in anticipation of the Federal Reserve tapering issue after the Fed officials of Philadelphia and Dallas stated that they support an as-soon-as-possible winding down of the US stimulus program after the release of strong US retail data. The tapering will make it very hard for emerging currencies to gain against the US dollar. At 28-29 January, the Federal Reserve will hold its next meeting.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the December 2013 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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Today, Bank Indonesia kept its benchmark interest rate (BI rate) at 7.50 percent at the Board of Governors’ meeting. The lending facility rate and deposit facility rate were maintained at 7.50 percent and 5.75 percent respectively. An assessment of the economy in 2013 and outlook for 2014-2015 indicated that such policy is consistent with ongoing efforts to keep inflation within the target of 4.5±1 percent in 2014 and 4±1 percent in 2015, as well as to help reduce the current account deficit to a sustainable level.

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Indonesian retail sales surged 14 percent in November 2013 from one year earlier (the highest growth rate since July 2013). On a month-to-month basis, Indonesia's retail sales increased 1.5 percent from October 2013. These findings were the result of a survey conducted by the central bank of Indonesia (Bank Indonesia), which surveyed 650 retailers in 10 Indonesian cities. The bank's survey also indicated that Indonesian retailers may increase prices of their products in 2014 in order to compensate for the depreciating rupiah exchange rate.

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As expected, the Jakarta Composite Index (abbreviated IHSG) continued its downward trend amid falling global indices. From the start of Tuesday's trading day (07/01), the IHSG had to face pressures resulting in foreign net selling. Apart from the weakening rupiah exchange rate, negative market sentiments were caused by the Goldman Sachs Group and JP Morgan Chase & Co that both downgraded emerging market economies. This led to a correction on Asian stock markets.

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Domestic sales of motorcycles in Indonesia are expected to have fallen by 20 percent to 550,000 in December 2013 compared to the previous month (688,527). According to the Chairman of the commercial department of the Indonesian Motorcycle Industry Association (AISI), Sigit Kumala, this decline is not the result of slowing demand for motorcycles but due to the limited amount of working days amid the Christmas and New Year holidays. This then led to less production and distribution of motorcycles to Indonesian dealers.

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From the start of today's trading day (06/01), the Indonesian rupiah exchange rate depreciated against the US dollar. Based on the Bloomberg Dollar Index, Indonesia's currency fell 0.48 percent to IDR 12,238 per US dollar at 13:00 local Jakarta time. This declining trend is in line with the majority of other Asian Pacific currencies. With the exception of the Australian dollar and the Japanese yen, the US dollar appreciated against all Asia Pacific currencies in the morning of Monday (06/01).

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Again positive news for Indonesia's trade balance. Last week, Statistics Indonesia announced that the largest economy of Southeast Asia posted a USD $776.8 million trade surplus in November 2013 (the largest monthly trade surplus since March 2012). After the (revised) USD $24 million trade surplus in October 2013, November was the second straight month in which the country posted a surplus. This development is important to gain investors' confidence as Indonesia's current account deficit has been a major cause for concern.

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