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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Indonesia's construction industry, which accounts for about ten percent of the country's gross domestic product (GDP), is experiencing turbulent times as the sector is impacted upon by three issues, namely higher minimum wages, higher subsidized fuel prices as well as the depreciating rupiah (against the US dollar). Concerns have arisen that a number of projects cannot be finished due to these issues. Moreover, companies may feel forced to dimiss workers in order to keep a healthy financial balance sheet.

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The Federal Reserve's decision not to change its quantitative easing program seems to have led to a bullish market in Asia. Indonesia's benchmark stock index (IHSG) rose 4.37 percent to 4,658.2 points after the first session on Thursday's trading day (19/09). All sectoral indices were up, with the property sector in leading position. Big cap stocks, in particular, performed well. Investors are relieved that the Fed did not alter its stimulus program. Thus, funds are expected to continue flowing to emerging markets, including Indonesia.

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Despite widespread speculation that the Federal Reserve would tone down its quantitative easing program (QE3) by approximately USD $10 to $20 billion after the FOMC meeting on Wednesday (18/09), the central bank of the USA decided to continue its monthly USD $85 billion bond-buying program as it downgraded its outlook for US economic growth to between 2.0 and 2.3 percent. Chairman Bernanke said that the economic context of the USA is still far from conducive to alter its strategy.

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Investors' appetite for mining and plantation stocks managed to support the benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) on Thursday's trading day (22/05). After the recent decline of the IHSG, market participants continued to accumulate stocks that are considered cheap. Furthermore, indices on Wall Street on Wednesday were up and impacted positively on Asian indices on Thursday, thereby providing positive market sentiments for the IHSG.

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Although most Asian emerging currencies strengthened on Thursday (22/05) against the US dollar due to the preliminary HSBC Flash China Manufacturing Purchasing Managers' Index (PMI) recovering to 49.7 in May 2014 (from 48.1 one month earlier) and the Federal Reserve Minutes indicating that there will be no US interest rate hike soon, the Indonesian rupiah exchange rate continued to decline. Based on the Bloomberg Dollar Index, the currency had depreciated 0.19 percent to IDR 11,531 per US dollar by 5pm local Jakarta time.

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Although initially the benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) declined shortly after the opening on Wednesday (21/05), during the remainder of the day it went up. This is a trend which we often detect: after a sharp fall we see a rebound on the following day as investors want to take advantage of 'cheap' stocks. However, the rebound was only limited as investors prefer to wait and see for further market sentiments first. The main positive factor today were rising Asian stock indices.

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The sharply depreciated Indonesian rupiah exchange rate in the second half of 2013 in combination with the decline in domestic oil lifting has led to a soaring of fuel subsidy spending in 2014. In the 2014 State Budget (APBN 2014), the ceiling of energy subsidy spending for 3-kg LPG and fuels was set at IDR 210.7 billion (USD $18.3 billion). However, in the 2014 Revised State Budget Draft, the government proposes to raise the subsidy ceiling to IDR 285 trillion (USD $24.8 billion), thus swelling IDR 74.3 trillion from the initial ceiling.

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Similar to when the market expects the release of positive companies' corporate earnings reports, the benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) gained significantly at the start of today's trading day (19/05) as the market waited for the official declarations of the presidential and vice-presidential candidates that will participate in the presidential election that is scheduled for 9 July 2014. The two pairs that will compete are the Joko Widodo-Jusuf Kalla pair and the Prabowo Subianto-Hatta Rajasa pair.

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After a promising start of the day, the rupiah exchange rate and Indonesian stocks lost all of their earlier gains ahead of closing on Monday day (19/05). Around 10:00 local Jakarta time, the rupiah rate appreciated more than 0.60 percent to IDR 11,346 per US dollar on speculation that Jusuf Kalla would be nominated as Joko "Jokowi" Widodo's running mate in the presidential election (9 July 2014), backed by a coalition consisting of the PDI-P, NasDem, PKB and Hanura. After the official declaration, however, the currency lost all of its earlier gains.

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The week ended well for both the Indonesian rupiah exchange rate and the benchmark Jakarta Composite Index (IHSG). Based on the Bloomberg Dollar Index, the rupiah appreciated 0.30 percent to IDR 11,413 per US dollar at the end of Friday's trading day (16/05). Meanwhile, the IHSG surged 0.80 percent to finish just above the psychological level of 5,000 points. The good performance was supported by investors' positive response towards the latest political developments in Indonesia.

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The government of Indonesia will submit a new draft proposal for the 2014 Revised State Budget (APBN-P 2014) on 20 May 2014. Of the seven basic macroeconomic assumptions in the 2014 State Budget (APBN 2014), three assumptions are proposed to be revised. These involve general economic growth, the Indonesian rupiah exchange rate, and crude oil lifting. The government felt that the assumptions need a revision as results in the first quarter of 2014 have not been up to expectation.

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The benchmark stock index of Indonesia - known as the Jakarta Composite Index or IHSG - rose 0.17 percent to 4,921.39 points on Tuesday (13/05), impacted by investors' reaction to positive earnings reports of Indonesian coal miners in the first quarter of 2014. Today, foreign investors recorded net buying of IDR 64 billion (USD $5.6 million) and accounted for 31 percent of trading activity. However, investors remain cautious ahead of the presidential election that is scheduled for 9 July 2014 and wait for more clarity about the (vice) presidential candidates that will compete.

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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 April 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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