Country Report Indonesia November 2009

Outlook for 2010-11

• The president, Susilo Bambang Yudhoyono, has a strong mandate to pursue his reformist policy agenda after comfortably winning re-election in July 2009.
• Mr Yudhoyono's Democratic Party is the largest in the House of People's Representatives (DPR, the legislature), but holding a coalition government together could still be difficult in the president's second term.
• The authorities will look to withdraw fiscal and monetary policy stimulus measures in 2010 to contain inflationary pressures.
• The budget deficit will narrow to an average of 1.5% of GDP in 2010-11, from an estimated 2.6% of GDP in 2009, as revenue recovers.
• The Economist Intelligence Unit expects real GDP to expand by 5.1% in 2010 and by 5.6% in 2011. Growth will be driven mainly by private consumption and investment.
• We expect the current account to record an average surplus equivalent to 2.2% of GDP in 2010-11.

Monthly review

• On October 21st Mr Yudhoyono appointed a new cabinet, but his choices disappointed those who had hoped that the scale of his election victory would lead to the appointment of a reform-minded cabinet.
• At a two-day summit in late October, Mr Yudhoyono said that the government aimed to raise real GDP growth to 7% per year, reduce poverty and unemployment, and improve the investment climate.
• The finance minister, Sri Mulyani Indrawati, has signalled that the government is considering making reforms to its fuel subsidies ahead of potential increases in global oil prices.
• According to the trade minister, Mari Pangestu, exporters are not concerned by the recent appreciation of the rupiah, but they are apprehensive about the currency's volatility.
• Inflation slowed in October. Consumer prices rose by just 2.6% year on year, which was the slowest rate of increase for nine years, according to Statistics Indonesia (BPS).
• Bank Indonesia (BI, the central bank) left its main interest rate, the BI rate, on hold at 6.5% for the third consecutive month in November.
• Merchandise exports continued to contract on a year-on-year basis in September, with receipts down by 19.9%, according to the BPS. However, the trade surplus widened owing to an even sharper fall in imports.