Country Report Indonesia December 2008

Summary

The president, Susilo Bambang Yudhoyono, is likely to be re-elected in July 2009. Mr Yudhoyono's popularity has recovered following the government's controversial decision in May 2008 to increase fuel prices by around 30%.
Unless Mr Yudhoyono's Democratic Party (PD) can increase its share of the vote, the president will have to form a coalition with one or more political parties in order to be eligible to stand for re-election in 2009.
Stabilising the currency and capital markets is the most pressing priority for the authorities. The rupiah depreciated by 11% against the US dollar in November 2008.
The economy will slow sharply in 2009-10. The Economist Intelligence Unit has lowered real GDP growth for 2009 to 2%, from 3.5% previously, and expects only a mild recovery in 2010.
Bank Indonesia (BI, the central bank) will be fairly cautious in making interest rate cuts in 2009.
BI will deplete its foreign-exchange reserves in an attempt to defend the rupiah in 2009, but the currency is still expected to depreciate by 14% against the US dollar in 2009 on an annual average basis.

The latest opinion poll from a local firm, the Indonesian Survey Institute, found that public support for Mr Yudhoyono in November had risen to 63%, its highest level since December 2006.
Three of the Jemaah Islamiah terrorists responsible for the 2002 Bali bombings were executed in November. Tight security was put in place for the executions in the capital, Jakarta, but no revenge attacks were attempted.
In November the finance minister, Sri Mulyani Indrawati, appeared to block a potential bail-out of a conglomerate, the Bakrie Group, demonstrating that economic policy has become harder to subjugate to the needs of the wealthy.
BI announced a 25-basis point reduction in the policy rate at its meeting in December, which took the rate down to 9.25%.
The Ministry of Finance revised its projection for the 2008 state budget deficit to 1.1% of GDP, from 1.3% of GDP previously.
Real GDP growth slowed in the third quarter of 2008, but it still exceeded 6% on a year-on-year basis.
The rupiah fell to Rp12,650:US$1 in late November, its weakest level since 1998 and down by more than 25% compared to the start of 2008.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52