Indonesia - Recent Economic Developments

This the update of Indonesia Economy as of Sept 2013

• Indonesia's economic growth in 2013 is revised down to 5.5-5.9% from 5.8%-6.2% previously as part of rebalancing the domestic economy with the global economic downturn and the impact of rising inflation. Looking forward, Bank Indonesia has also revised its economic growth projection for 2014 down from 6.0-6.4% previously to 5.8%-6.2% in harmony with the weaker global economic outlook.

• Domestic Direct Investment (DDI) and Foreign Direct Investment (FDI) still experienced robust growth in Q2-2013, reflecting Indonesia’s solid fundamentals and positive sentiment from investors part. The distribution of investment activities outside Indonesia’s most populous island (Java) was also increased, which create more added values of domestic goods/services in order to accelerate the quality of national economic growth.

• Indonesia's balance of payments (BOP) deficit in Q2-2013 narrowed from US$6.6 billion in the previous quarter to US$2.5 billion in Q2/2013 supported by the capital and financial account surplus. Indonesia’s BOP is predicted to improve based on a smaller oil and gas trade deficit after large-scale imports of oil and gas as buffer stock to offset demand during the religious holiday of Eid ul-Fitr. Current account deficit will also reduced due to weaker domestic demand as well as various policies introduced to suppress imports. International reserves relatively stable at the end of August 2013 reached US$93.0 billion, equivalent to 5.0 months of imports and government’s external debt services, above the adequacy level of international standard.

• Consumer Price Index (CPI) in August 2013 reached 1.12% (mtm) or 8.79%(yoy) as inflationary pressure eased following a spike in the preceding month. Supported by sufficient policy mix, together with strengthen cooperation and coordination with the Government, inflation is expected to be back within its target corridor of 4.5%±1% in 2014 from projected rate of inflation of 9.0% - 9.8% in 2013.

• On the fiscal front, Indonesia continues to perform prudent fiscal management in H1-2013 with strong commitment to fiscal consolidation, aiming on continue declining in debt-to-GDP ratio, diversifying government debt profile, and reducing funding reliance on international capital market. H1-2013 budget deficit realization is maintained at a safe level of 0.6% of GDP.

• Financial system stability remained solid with improved intermediation function within prudential manner as indicated by high capital adequacy ratio (CAR) which is well above the minimum level of 8% and gross non-performing loan (NPL) below 5%. As of August 2013, credit growth eased to 22.0% (yoy) from 22.3% in July 2013.

• In the Board of Governors' Meeting convened on September 12th, 2013, Bank Indonesia decided to raised the BI rate by 25bps to 7.25%, after previously raising by 50bps to 7.00% in extended Board of Governors’ Meeting convened on August 29th, 2013 . Bank Indonesia will strengthen its policy mix by optimizing an array of monetary and macro prudential policy instruments to curb inflation and maintain macroeconomic and national financial system stability.

Source: Bank Indonesia