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Indonesia Business Forecast Report Q3 2014

  • April 2014
  • -
  • Business Monitor International
  • -
  • 44 pages

Core Views

The election results will ultimately depend on whether the electorate clamours for reform or stability. If the preference is for the former, current Governor of Jakarta Joko Widodo (Jokowi) from the PDI-P will likely emerge victorious. If the inclination is towards stability, ex- General Prabowo Subianto (Gerindra) or prominent businessman
Aburizal Bakrie (Golkar) are likely to be the frontrunners. While we have yet to see his policy platform, Jokowi's ability to streamline bureaucratic inefficiencies, improve public finances, strike a balance between pro-business and pro-welfare policies, as well as willingness to take politically unpopular but necessary measures to right economic imbalances could provide some upside potential for the infrastructure, mining and oil and gas sectors.

Judging from the progressive deceleration in inflation, as well as a continuing fall in import demand, Bank Indonesia's (BI) monetary tightening appears to be exhibiting some measure of efficacy. In the near term, we do not expect BI to reverse its policy stance as it continues to allow policy measures to work their way through the economy. Towards the second half of the year, however, with inflation likely to fall within the BI's target range, coupled with an ongoing slowdown in economic activity, we expect BI policy to turn growth supportive and are consequently sticking to our forecast for 50 basis points of interest rate cuts.

Table Of Contents

Indonesia Business Forecast Report Q3 2014
Executive Summary 5
Core Views 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Elections Crib Sheet: Jokowi Ascendant 8
Indonesians are set to vote in the upcoming legislative and presidential elections in April and July, respectively. The impending elections
are particularly crucial as the new administration will assume the task of reinvigorating a slowing economy and rebuilding confidence
from both the electorate and foreign investors. Indonesia, which emerged from the Global Financial Crisis relatively unscathed, is now
witnessing its slowest growth in almost four years. Its citizens have become increasingly disgruntled following current president Susilo
Bambang Yudhoyono's administration's failure to keep to his campaign pledges, while investors, both local and foreign alike, have been
holding back on investment amid hints of surfacing protectionism.
Table: Political Overview 8
Long-Term Political Outlook 10
Outlook Improved, But Uncertainty Lingers 10
Although Indonesia has returned to relative orderliness since the chaos of the late 1990s and early 2000s, the country faces
multiple challenges and threats to its stability that could flare up again if President Susilo Bambang Yudhoyono's successor proves
incompetent or if improved governance fails to take hold. As such, investors will continue to view Indonesia as one of Asia's riskier
destinations.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Jokowi Victory May Carry Infrastructure, Mining and Oil andamp; Gas Upside 14
Current Jakarta governor Joko Widodo's (Jokowi) runaway favourite tag for the presidential elections leads us to believe that it may not
be too premature to deliberate Indonesia's economic trajectory under a Jokowi-led administration. While we have yet to see his policy
platform, Jokowi's ability to streamline bureaucratic inefficiencies, improve public finances, strike a balance between pro-business and
pro-welfare policies, as well as willingness to take politically unpopular but necessary measures to right economic imbalances could
provide some upside potential for the infrastructure, mining and oil and gas sectors.
TABLE: ECONOMIC ACTIVITY 14
Fiscal Policy 15
Property, Infrastructure Spending To Provide Structural Loan Growth 15
On the back of a slowing economy and a likely increase in borrowing costs, we expect to see the pace of credit expansion in Indonesia's
banking sector start to slow in the quarters ahead. Over the longer term, we believe that the banking sector has considerable potential
for growth as the country is still in the early stages of a long-term credit up-cycle and the mortgage market has largely been untapped.
Further support may also stem from an improvement in the government's finances, which would in turn allow for greater infrastructure
spending, and ultimately stronger loan growth.
TABLE: FISCAL POLICY 15
Monetary Policy 17
BI To Maintain Tightening Bias, For Now 17
Judging from the progressive deceleration in inflation, as well as a continuing fall in import demand, Bank Indonesia's (BI) monetary
tightening appears to be exhibiting some measure of efficacy. In the near term, we do not expect BI to reverse its policy stance as it
continues to allow policy measures to work their way through the economy. Towards the second half of the year, however, with inflation
likely to fall within the BI's target range, coupled with an ongoing slowdown in economic activity, we expect BI policy to turn growth
supportive and are consequently sticking to our forecast for 50 basis points of interest rate cuts.
table: MONETARY POLICY 18
Exchange Rate Policy 18
IDR: Set For Further Strength 18
table: Currency Forecast 19
Chapter 3: 10-Year Forecast 21
The Indonesian Economy To 2023 21
A Bullish Long-Term Growth Story 21
Indonesia's large domestic demand base and exposure to commodities are two key factors driving our bullish growth outlook for the
next decade. That said, government policy reform will be crucial in determining if the country can reach its real growth potential.
table: Long-Term Macroeconomic Forecasts 21
Chapter 4: Business Environment 23
SWOT Analysis 23
BMI Business Environment Risk Ratings 23
Business Environment Outlook 24
Table: BMI Business And Operation Risk Ratings 24
Institutions 25
Table: BMI Legal Framework Rating 25
Table: Labour Force Quality 26
Infrastructure 27
TABLE: ASIA - ANUAL FDI INFLOWS 27
Table: Trade And Investment Ratings 28
Market Orientation 29
TABLE: INDONESIA's TOP EXPORT DESTINATIONS, 2001-2008 29
Operational Risk 31
Chapter 5: Key Sectors 33
Defence 33
table : Defence Expenditure , 2011-2018 34
Freight Transport 38
table: Air Freight, 2011-2018 38
table: Rail Freight, 2011-2018 38
table: Maritime Freight, 2011-2018 39
table: Trade Overview, 2011-2018 39
table: Key Trade Indicators, 2011-2018 40
Other Key Sectors 41
table: Oil and Gas Sector Key Indicators 41
table: Food and Drink Sector Key Indicators 41
table: Infrastructure Sector Key Indicators 41
table: Pharma Sector Key Indicators 42
table: Telecoms Sector Key Indicators 42
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Chinese Economy Under Pressure 43
Table: Global Assumptions 43
Table: Developed States, Real GDP GrowtH, % 44
Table: BMI VERSUS BLOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 44
Table: Emerging Markets, Real GDP Growth, % 45

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