Both Industry minister M.S. Hidayat and Economic minister Hatta Rajasa confirmed that on Friday (21/06) the government will announce the increase in price of subsidized fuel after it had already been approved by the House of Representatives (DPR) last Monday (17/06). Immediately after the announcement, the price of fuel is set to be raised. It has been reported that the government's announcement will be revealed at midnight, implying that the price hike is effective starting from Saturday.

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After a long plenary session on Monday (17/06), Indonesia's House of Representatives (DPR) and the government have agreed to the revised 2013 State Budget (APBN-P). The revision was needed as original macroeconomic assumptions began to fall out of tune with reality. Due to global and domestic conditions a number of assumptions needed to revised down. Most controversial decision that was taken is the increase in price of subsidized fuel by 44 percent to IDR 6,500 (USD $0.66) per liter.

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Late on Monday evening (17/06), the increase in the price of subsidized fuel, as stated in Law No. 19/2012, was approved by Indonesia's House of Representatives (DPR) through a voting session as political parties could not agree collectively on the price hike as well as on cash programs for the poor to mitigate effects of the higher fuel price. Demonstrations against the price hike were staged in various regions. In Medan (North Sumatra), Jambi (Central Sumatra) and Ternate (North Moluccas), it led to clashes between the police force and protestors.

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The plenary session of Indonesia's House of Representatives (DPR) is still ongoing as the various political parties could not agree yet on the increase in the price of subsidized fuel. Five political parties agree to the price hike, while four others have rejected it. If the political parties can not agree to the proposal, then it will be decided by individual voting starting from midnight (Indonesian time). The price hike has been long awaited as a measure to relieve pressure on Indonesia's budget deficit.

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Today (15/06), it was reported in Indonesia's media that the government will announce details regarding the new price of subsidized fuel on Monday (17/06) after a plenary session of the House of Representatives (DPR). The Union of Indonesian Workers (Konfederasi Serikat Pekerja Seluruh Indonesia) has announced that it will stage a large demonstration on 17 or 18 June at the DPR/MPR building (the seat of the government) in Indonesia's capital city as well as smaller demonstrations in various cities across the archipelago.

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The central bank of Indonesia (Bank Indonesia) decided today to raise its benchmark interest rate by 25 basis points to 6.0 percent. The decision was made amid concerns about the inflationary impact of a hike in subsidized fuel prices (planned this June) as well as increasing uncertainty in global financial markets as central banks' may scale back stimulus programs. The Indonesian rupiah has weakened considerably in 2013 and forms the worst performer in Asia after the Japanese yen among the 11 most-traded currencies tracked by Bloomberg.

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To ease pressures on the IDR rupiah, Indonesia's central bank has used about USD $2.0 billion of its foreign exchange reserves to support the currency as the country's continuing trade deficit as well as concerns about the possible increase in price of subsidized fuel in June has caused much uncertainty about the level of inflation in the near future and puts downward pressure on the rupiah. Indonesia's foreign exchange reserves fell to USD $105.2 billion in late May 2013 from USD $107.3 billion at the end of April.

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Indonesia's minister of Economy, Ir. M. Hatta Rajasa, stated that the government of Indonesia intends to realize economic growth of at least 6.2 percent in the second quarter of 2013 in order to remain on track for 6.3 percent growth for full year 2013. Although he reminded that it will take hard effort to realize this target, his message contained more optimism than Finance minister Chatib Basri's statement earlier this week who sees 6.0 percent of economic growth as the limit in Q2-2013.

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In recent months, positive fundamentals have coloured stock indices green. Despite volatility, these positive fundamentals remain today. Therefore, analysts of JP Morgan emphasize that people should not turn their backs to stock markets now. Risks are obviously always present but the analysts stress that people should not be too concerned about ongoing volatility. In fact, volatility should be used to one's advantage by purchasing when the index is low. Below are five arguments that JP Morgan mentions as reason to keep buying stocks.

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According to data released by Statistics Indonesia (Badan Pusat Statistik, abbreviated BPS), a non-departmental government institution, Indonesia's inflation figure eased 0.03 percent (month-to-month) in May 2013. The Head of BPS, Suryamin, said that it was the first time since ten years that the country experienced deflation in the month of May. The deflation figure is particularly triggered by the government's policy to allow for more imports of certain food products (such as onions, garlic, tomatoes, and chili).

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The Indonesia Stock Exchange (IHSG) experienced a mixed week. At the start of the week, the index rose, but towards the end of the week it weakened, although ending in the green on Friday. Recently, the IHSG has hit record levels, and this makes market participants worried that the index might fall in case there emerge negative market sentiments. These concerns are what made the index turn away from the next psychological boundary: 5,000 points.

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Usually, news about inflation is not well-received by market participants. Particularly when inflation turns out to be higher than expected. This time, however, something interesting happened in Indonesia. Although the country's March inflation rate was high (5.90 percent year-on-year), it was not followed up by a negative response of market players. In fact, the inflation rate seems to have strengthened the Indonesia Stock Exchange (IHSG), which gained 0.40 percent on Tuesday.

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With a number of important global stock exchanges still closed due to Easter, it seemed that the Indonesia Stock Exchange (IHSG) lacked a reference point to which it could cling. It is also likely that market participants have already consumed most of the 2012 corporate company reports and are therefore not waiting for new data of listed companies. Moreover, today's announcement of the relative high inflation rate of March did not support the IHSG either.

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Yesterday, Statistics Indonesia (BPS), a non-departmental government institution, released Indonesia's export and import numbers of February 2013. Indonesia's imports reached US $15.32 billion, while its exports stood at US $14.99 billion. It has thus resulted in the continuation of a trade deficit (US $327.4 million). For Indonesia, which always reported trade surpluses until last year, it is a worrying scenario as the trade deficit and higher inflation put pressure on the IDR rupiah.

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This week, the World Bank published its Indonesia Economic Quarterly (IEQ, edition March 2013) titled 'Pressures Mounting'. It reports on key developments over the past three months in Indonesia’s economy, and places these in a longer-term and global context. To read the whole report, please visit the World Bank's website at www.worldbank.org or download this edition directly through this link. Below we present the executive summary.

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After continuously reaching new record-high levels last week, the Indonesia Stock Exchange (IHSG) finally had to give up some of its gain and closed 1.04 percent lower. Declining Asian stock markets (excluding Japan's main index) and fears that the IHSG had already reached a (too) high level impacted on today's result. Market participants, who recently confirmed good corporate annual results of many companies by buying, now engaged in profit taking.

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Apparently, yesterday's decline was only a small stumbling block for the Indonesia Stock Exchange (IHSG). Indonesia's main indicator rebounded strongly after feeling the effects of stronger American stock indices that were positively influenced by a rise in Housing Index and Consumer Confidence. Moreover, the IHSG accelerated its gain after Asian stock markets and the opening of Europe's stock indices were positive.

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