Country Report Indonesia July 2009

Outlook for 2009-10

• The president, Susilo Bambang Yudhoyono, has a strong mandate to pursue his reformist policy agenda after preliminary results showed him to have gained an impressive victory in the presidential election on July 8th 2009.
• Mr Yudhoyono's Democratic Party (PD) will be the biggest party in the House of People's Representatives (DPR, the legislature) from September 2009, but holding together a coalition government could still be difficult.
• Fiscal and monetary policy will be used to stimulate domestic demand in 2009-10. The authorities have made moves towards financial and trade protectionism, and could extend these if external conditions deteriorate again.
• The budget deficit will widen to an average of 2.9% of GDP in 2009-10, owing to falling tax revenue as economic growth slows and to the introduction of a Rp71.3trn (US$6.9bn) stimulus package aimed at supporting domestic demand.
• The Economist Intelligence Unit expects real GDP to expand by 2.6% in 2009 and 3.4% in 2010 as robust private consumption growth helps the economy through a downturn in external demand.
• We expect the current account to record an average surplus equivalent to 0.9% of GDP in 2009-10.

Monthly review

• Quick-count results indicated that Mr Yudhoyono received around 60% of the vote in the presidential election. His two rivals, Megawati Soekarnoputri and Jusuf Kalla, received 26% and 12% of the vote respectively.
• The Indonesian Democratic Party-Struggle is at risk of sliding into irrelevancy after the poor showing of its leader, Ms Megawati, in the presidential election. It will now spend a second term as the main party in opposition.
• The presidential election was contested largely on economic issues, reflecting the central importance of poverty, social welfare and jobs to the vast majority of the electorate.
• Mr Yudhoyono's efforts to curb corruption in his second term in office could be jeopardised by vested interests in the government and the DPR, who are seeking to curb the powers of the Anti-Corruption Court.
• Concerns over the sustainability of the state budget have resurfaced in recent weeks as a result of rising global oil prices.
• In month-on-month terms commercial bank credit to the private sector fell by 0.9% in April. In year-on-year terms lending growth slowed to 21.2% in April, from an average of 31.1% in 2008.
• The poverty rate fell to 14.2% in March 2009, from 15.4% in March 2008.

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