Country Report Indonesia April 2009

Outlook for 2009-10

• Susilo Bambang Yudhoyono is expected to be re-elected in the second round of the presidential election in September 2009, but he will have to defend the performance of his government in the coming months.
• Mr Yudhoyono's Democratic Party (PD) is likely to be the largest party in the next House of People's Representatives (the legislature), but building a coalition government could still be difficult.
• Fiscal and monetary policies will be used to stimulate domestic demand in 2009-10. The authorities have made a number of moves towards financial and trade protectionism, and may look to go further down this path.
• Deteriorating external conditions and signs of strain in the domestic economy have led the Economist Intelligence Unit to forecast an economic contraction of 1.4% in 2009 and weak growth of just 0.5% in 2010.
• The budget deficit will widen to an average 2.7% of GDP in 2009-10, owing to falling tax revenue as the economy contracts and the introduction of a Rp71.3trn (US$6.1bn) stimulus package aimed at supporting domestic demand.
• We expect the current account to slip into a deficit equivalent to 0.3% of GDP in 2009-10.

Monthly review

• Quick counts taken on the day of the national legislative election, April 9th, suggested that the PD, which the president founded and remains a member of, secured 20.5% of the vote.
• The Indonesian Democratic Party of Struggle and Golkar received around 15% and 14% of the vote respectively, followed by the Prosperous Justice Party, with about 8%.
• At the G20 summit in the capital of the UK, London, in late March, MrYudhoyono called on members not to ignore the needs of developing countries as they strive to lift their domestic economies out of recession.
• Bank Indonesia (BI, the central bank) cut its benchmark interest rate by 25 basis points to 7.5% in early April. It has also revised down its forecast for economic growth this year to 3-4%, compared with growth of 6.1% in 2008.
• Concerns about the short-term stability of the rupiah emerged in March, after BI reported that US$22.6bn of corporate overseas debts were due to mature in2009.
• The current account registered a deficit of US$223m in the fourth quarter of 2008, compared with a deficit of US$943m in the third quarter, but the impact of the global recession was evident in a much-weakened trade position.