Country Report Indonesia August 2017

Country Report Indonesia August 2017

  • August 2017 •
  • Report ID: 286359 •
  • Format: PDF

Outlook for 2017-21

  • The president, Joko Widodo (known as Jokowi), will comfortably serve out the remaining two years of his current presidential term. The Economist Intelligence Unit expects him to run for a second stint in 2019.
  • Jokowi's re-election bid will be tough, but we believe that he will prevail. His main opponent is most likely to be Prabowo Subianto, the leader of the opposition Great Indonesia Movement Party (Gerindra).
  • The president's policy efforts to boost investment in infrastructure and manufacturing will continue until 2019. However, more politically challenging reforms, including that of reducing graft, will prove elusive.
  • Bank Indonesia (BI, the central bank) is holding a cautiously dovish monetary policy stance. However, we expect this to change in mid-2018, amid sharper rupiah weakness and stronger inflationary pressures.
  • Economic growth will remain below potential, averaging 5% a year in the forecast period. Although private consumption will remain the main driver of growth, its relative stability will be buffeted by the sluggish external sector.
  • The current-account deficit will average the equivalent of 1.6% of GDP in 2017-21, down from an average of 2.6% in 2012-16. In 2020-21 import demand will rebound strongly as infrastructure development gains traction.


  • On July 21st Jokowi ordered the police to gun down non-cooperative drug dealers, eerily echoing his hardline counterpart in the Philippines, Rodrigo Duterte. However, a Duterte-style "war on drugs" is unlikely in Indonesia.
  • At their first official bilateral meeting, on the sidelines of the G20 summit in Germany in July, Jokowi invited the US president, Donald Trump, to make an official visit to Indonesia.
  • On July 27th the legislature approved the revised 2017 budget of the finance minister, Sri Mulyani Indrawati. The move increases the government's deficit assumption to the equivalent of 2.9% of GDP this year, from 2.4% previously.
  • BI decided to keep its monetary policy stance on hold for a tenth consecutive month in July. The central bank's main policy interest rate, the seven-day reverse repurchase rate, was left unchanged at 4.75%.
  • According to data released by Statistics Indonesia (BPS) on August 7th, the economy grew by 5% year on year in the second quarter of 2017. The growth rate was unchanged from that recorded in the first quarter.
  • BPS data published in early August showed that consumer prices rose by a non-seasonally adjusted 3.9% year on year in July, weaker than the 4.4% rate registered in the previous month. Core inflation came in at 3.1% in July.


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