Indonesian President Joko Widodo is pushing to speed up infrastructure investment after pledging to build roads, railways and ports to support growth.
He is hampered by one of the weakest tax takes in the Association of Southeast Asian Nations and a fiscal deficit that is dangerously close to Indonesia’s ceiling of 3 per cent of gross domestic product.
Disappointing tax collection, exacerbated by weak commodity prices, has been a significant factor in the deterioration of Indonesia’s public finances. Infrastructure investment, meanwhile, has trailed economic expansion since the Asian financial crisis in 1997-98, resulting in expensive business disruption and high logistical costs. Read more
In a world where financial transactions and capital flows move in milliseconds, getting the right information about the state of a country’s economy is critically important. Unfortunately, the standard and still most reliable measure of the health of an economy, gross domestic product (GDP), has not kept up with the speed of financial markets. This puts emerging market countries at risk from financial gyrations, regardless of the underlying fundamentals of their economies.
Take for example Indonesia, one of the largest and most influential emerging market economies. Its GDP data is reported quarterly with about five weeks’ delay. This means that economic activity that takes place in January is not reported until the first week of May. While Indonesia is no outlier in its delay, it is still late for a real-time assessment of the strength of economic activity. Read more
By Hugo Brennan, Verisk Maplecroft
When the Association of Southeast Asian Nations (ASEAN) launches its economic integration project in December this year, it could provide the region with the impetus to become a key emerging market powerhouse. However, the 10 country grouping needs to overcome several significant hurdles if the proposed ASEAN Economic Community (AEC) is to succeed in freeing up trade and commerce between member states.
Chief among these is ASEAN’s institutional weakness, which is hampering efforts to bring together diverging national interests and counteract economic protectionist sentiment in key members, such as Indonesia. Many countries in the bloc also face difficult political realities on the domestic front which have the potential to divert attention away from the goal of integration. The success of the AEC will hinge on these factors, but whether it prospers or flounders, foreign businesses in the region will face a changing investment landscape that they need to be prepared for. Read more
By Ying Staton, Global Counsel
Jakarta is often called the world’s Twitter capital. Its digital citizens generate more tweets than any other city worldwide. Twitter has prioritised Indonesia as a key growth market and their executives take pride in quoting a McKinsey research paper that shows a 10 per cent increase in the number of internet users in a country leads to a 1 per cent rise in that country’s GDP growth.
But the relationship between social media buzz and economic prosperity is far from linear in Indonesia. The Indonesian digital phenomenon is the result of a several factors including demographics (about half the population is under 29), a robust climate of political debate and a culture in which ‘affiliative’ instincts – the desire to belong to a community rather than stand out from a crowd – are regarded as pronounced. Read more
Indonesia’s new president Joko Widodo has kept his election promise to cut subsidies on fuel. He announced that prices will rise by some 30 per cent in order to tackle the government’s ballooning budget and current account deficits, fast FT reports.
Subsidised petrol will rise from Rp6,500 to Rp8,500 ($0.80) a litre while diesel will jump from Rp5,500 to Rp7,500 a litre. Read more
The dream of an “Asean car” was first floated, in broad terms, by former prime minister of Malaysia, Mahathir Mohamad, when he spearheaded the creation of Proton in the 1980s. The idea was to form a national Malaysian car company that could be exported to Southeast Asia and beyond.
That didn’t quite work. Proton failed to gain traction much beyond its home market of Malaysia, although it did see some success as a low-priced, competently engineered vehicle in Britain for a time, thanks to the provision of engines by Mitsubishi of Japan.
Now, the idea has resurfaced. Najib Razak, current Malaysian prime minister, has announced that Malaysia and Indonesia plan jointly to develop an “Asean car”. Read more
By Gustav F Papanek of Boston University
Indonesia has a once-in-a-century opportunity to reach economic growth of 10 per cent and give 20m families regular jobs with a steady income. This opportunity is the result of increasing costs of production in China, the world’s leading exporter of labour-intensive manufactured goods. Over the next five years other countries will take a share of China’s export markets for these goods. Indonesia could benefit from this reallocation of industrial capacity because of its large and rapidly growing labour force. Two million workers join the labour force every year but under current policies, only half of them will find stable, formal sector jobs. Indonesia already has millions of “surplus” labourers, currently working in low productivity jobs in agriculture and the informal sector. Moving these workers into productive jobs in manufacturing would double their income, increase exports and raise economic growth to a record 10 per cent. Read more
By Maarten-Jan Bakkum, ING Investment Management
Few emerging economies have been under so much pressure lately as Indonesia. Since 2011, the terms of trade of the country have deteriorated sharply. This came as a result of the Chinese slowdown and the drop in coal, palm oil and rubber prices. After having enjoyed ten years of rising commodity prices, the Indonesian economy is now suffering from price declines of its main export products.
This has pushed local incomes down, with a negative impact on consumption and bank deposit growth. And it has led to a sharp correction in fixed investment growth, because of uncertain commodity demand and tighter financial conditions, partly linked to the widening current account deficit. Read more
Japanese fast food lovers: Indonesian yakitori and chicken nuggets may be coming to a table near you soon as Southeast Asia’s biggest economy tries to take advantage of China’s latest food safety woes.
McDonald’s Japan stopped importing Chinese chicken in July, part of a broader backlash after a major Chinese supplier was accused of selling meat beyond its shelf-life. Read more
Few, if any, Indonesians have heard of Gerald Ratner, the former British jewellery chain executive who became notorious for joking that his company’s products were “total crap” and then seeing sales nosedive.
But, in Ignasius Jonan, the head of the state-owned national rail company, Kereta Api Indonesia, they seem to have their own version of Ratner.
When asked why the trains are so crowded, he has a simple answer: you get what you pay for. Read more
Investors have piled into Indonesia’s $1.5bn worth of Islamic bonds, making bids for over six times that amount. So is the strong demand for the sukuk another sign that Indonesia’s economy is becoming less fragile?
The 10-year sukuk, rated Baa3 by Moody’s, was marketed at the country’s lowest yield since 2012 on optimism over the incoming administration of president-elect Joko Widodo. Strong demand – order books were worth $10bn – pushed down the yield, which started at around 4.65 on Monday before being reduced to 4.35 per cent. Read more
By Jonathan Fenby, Trusted Sources
There’s nothing like an acronym or a catchy label when it comes to emerging markets. The master alchemist, Jim O’Neill, set the pace with the formulation 13 years ago of the four-nation BRICs (with or without a final capital S for South Africa). Fidelity followed that with the MINT collection of Mexico, Indonesia Nigeria and Turkey constituting MINT.
Then Morgan Stanley chipped in with Fragile Five, which – such are the vagaries of nomenclature – includes five members of the previous two aggregations.
Now, a new and potentially more durable grouping is emerging – even if it does not lead itself to an acronym that trips off the tongue. The best I can come up with is CIMI – or, if you twist it to give Mexico rather than China first place, the marginally more memorable MICI, though that would invite too many columnists to compare them to Disney’s mouse. Read more
If ever the phrase “it was the best of times, it was the worst of times” could be applied to Indonesia, it would be to President Yudhoyono’s ten years in power from 2004-2014. Arguably, his first term was the best five-year period of economic reform and revitalisation in the history of the country, while his second term was possibly the worst.
As Indonesia, Asia’s fifth-largest economy, speed-walks towards presidential elections on July 9, it’s probably time now to start looking beyond the elections. What kind of economic-reform program could the newly-elected president pursue to re-ignite our sharply slowing economy?
As it turns out, President Yudhoyono’s first term in 2004-2009 showcases what can be accomplished in Indonesia, given enough political will, and given enough desire to execute and implement. Here’s a sampling of bold, determined and successful reforms from 2004-2009. Read more
The “fragile five” – Brazil, India, Indonesia, Turkey and South Africa – have had a torrid time since Morgan Stanley identified them last year as countries particularly vulnerable to the “tapering” of US monetary stimulus because of their large and rising current account deficits. Read more
If your mental map of the global economy puts emerging markets on the periphery and developed markets at the core, then developments in the global travel industry are set to turn you inside out.
By 2023, according to a new study by Oxford Economics, the “emerging” world will dominate global air traffic, accounting for 51 per cent of total traffic, up from 44 per cent in 2013 (see chart). The main drivers of this trend will be a rapid upsurge in international travellers from China, Russia, Brazil, India and Indonesia who spend at a quicker pace than developed world counterparts. Read more
While Joko Widodo, the wildly popular governor of Jakarta, just about managed to restrain his euphoria when he was finally named as his party’s presidential candidate on Friday, investors were not so coy.
The Jakarta stock exchange jumped by three percent on Friday, its biggest one-day gain for six months, to reach a nine-month high, while the once-troubled rupiah has strengthened by 1.3 per cent against the US dollar since then. Read more
Indonesian GDP came in higher than expected in Q4, up 5.7 per cent year-on-year in the quarter, above the average forecast of 5.3 per cent, as improving exports reduced the impact of slowing growth in domestic consumption and investment.
The full FT story is here. Beyondbrics presents a rundown of the analysts’ viewpoints (with our emphasis in bold). Read more
While speculation about the US Federal Reserve’s plans to curb its quantitative easing programme drags on, Indonesia’s currency continues to “taper” of its own volition.
On Thursday, the dollar rose to over 12,000 rupiah for the first time since 2009. Confidence in Indonesia’s currency is weak because of the country’s large current account deficit and slowing economic growth, which is at a four-year low. Read more
Nothing lasts forever, not even the Federal Reserves’ QE programme. And when it ends, emerging markets will have a new normal to contend with. Time to get ready.
Indonesia is hoping robust investment and the completion of much-delayed infrastructure projects will enable it to contend with the new “basic economic parameters” that will be required once the Fed starts tapering its asset purchases, the country’s vice-president (pictured above) said in an interview on Thursday. Read more
Indonesia’s central bank held its policy interest rate unchanged on Tuesday, ending an aggressive tightening cycle that saw the rate rise from 5.75 per cent a year in May to 7.25 per cent at the bank’s previous policy meeting last month.
The decision was widely expected: 17 out of 18 economists surveyed by Bloomberg predicted no change. But was the decision the right one? Several analysts say Bank Indonesia has left the job unfinished. Read more