Country Report Indonesia January 2009

Outlook for 2009-10

• 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%.
• Mr Yudhoyono's Democratic Party is likely to gain seats in the April 2009 legislative election and may win sufficient support to nominate the president for re-election. Otherwise, he will need to form a coalition.
• Maintaining stability in the currency and capital markets will be a key challenge for the authorities in 2009. The rupiah and stockmarket both fell alarmingly in 2008.
• The economy will slow sharply in 2009-10. The Economist Intelligence Unit expects growth of just 1.9% in 2009 and only a mild recovery in 2010.
• Bank Indonesia (BI, the central bank) will be fairly cautious in making interest rate cuts in 2009, but further reductions from the current policy rate of 8.75% are forecast.
• 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 almost 14% against the US dollar in 2009 on an annual average basis.

Monthly review

• The PD extended its poll lead in a December survey by the Indonesian Survey Institute, gaining 23% of support, compared with 17.1% for Golkar, the second most popular party.
• A former deputy chief of the National Intelligence Agency, Muchdi Purwoprandjono, a retired army general, was acquitted of charges relating to the death of a human rights activist in September 2004.
• BI cut interest rates by a cumulative 75 basis points in December and January, to 8.75%, as year-on-year inflation fell to 11.1% in December.
• A new law governing the mining sector was passed in December. Foreign investors did not welcome the increased authority that it granted to district governments.
• The government claimed a fiscal deficit of Rp4.2trn (US$370m) in 2008, equivalent to 0.1% of GDP. Revenue collection exceeded targets, while spending levels fell below expectations.
• Indonesia posted a current-account deficit of US$0.6bn in the third quarter of 2008, but a capital account surplus of US$0.5bn left a balance-of-payments surplus of US$0.1bn.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;10
NAICS Code: 22;212

This report covers the following industry codes:
SIC Code: 49;10
NAICS Code: 22;212