Indonesia's central bank (Bank Indonesia) said that it expects the Indonesian rupiah exchange rate to trade between IDR 11,600 and IDR 11,800 per US dollar throughout the fiscal year of 2014. Governor of Bank Indonesia Agus Martowardojo said that this assumption is based on pressures that originate from Indonesia's current account deficit. In 2013, the current account deficit hit USD $29.09 billion, or 3.33 percent of the country's gross domestic product (GDP). The current account balance has a major influence on the performance of a currency.

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Indonesian Finance Minister Chatib Basri said that the country's current account deficit, the broadest measure of international transactions, may widen in the second quarter of 2014 as many local companies engage in business expansion. Such expansion usually triggers an increased amount of imports, thus impacting on the trade balance. A widening current account deficit in the second quarter of the year is a normal trend. The balance usually improves in the third and fourth quarters.

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The non-oil & gas industry of Indonesia grew 5.56 percent in the first quarter of 2014. Although general economic growth in Southeast Asia's largest economy has slowed to 5.21 percent in the first quarter, several industries such as the Food and Beverage Processing Industry, the Transportation Equipment Industry, Machinery & Equipment Industry, as well as Farming & Plantation-based Industries post strong growth. The Indonesian Industry Ministry targets a 6.5 percentage rate for the country's industrial sector in 2014.

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One day after the official announcement that two pairs will compete in the presidential election (9 July 2014), the benchmark stock index of Indonesia (Jakarta Composite Index or IHSG) and the Indonesian rupiah exchange rate are still in a state of decline. Although yesterday (19/05) the rupiah and IHSG strengthened considerably prior and shortly after Joko "Jokowi" Widodo declared that Jusuf Kalla would be his running mate (the vice-presidential candidate) in the election, markets have been selling Indonesian assets since Monday afternoon.

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In front of the Joang '45 Museum, which illustrates Indonesia's battle for independence, Joko "Jokowi" Widodo (Governor of Jakarta) officially declared that Jusuf Kalla is his running mate (or the vice-presidential candidate) in the upcoming presidential election (scheduled for 9 July 2014). It had been speculated for weeks that Jusuf Kalla (former Indonesian Vice-President, businessman and philanthropist), would be Jokowi's running mate but it was only officially declared just after noon (local Jakarta time) on Monday (19/05).

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Although we are still waiting for the official announcement (which is expected to follow shortly), more and more signs are pointing towards the nomination of Jusuf Kalla as the running mate (or vice-presidential candidate) of Jakarta Governor Joko "Jokowi" Widodo in the presidential election that is scheduled for 9 July 2014. The pair will have the full support of the PDI-P, NasDem, PKB and Hanura coalition. The chairmen of the NasDem (Surya Paloh) and PKB (Muhaimin Iskandar) have reportedly confirmed that Kalla will be the running mate.

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Both the Indonesian rupiah exchange rate and the country's benchmark stock index (known as the Jakarta Composite Index or IHSG) have strengthened significantly on Wednesday's trading day (14/05). The rupiah appreciated 0.76 percent to IDR 11,450 per US dollar by 15:00 local Jakarta time according to the Bloomberg Dollar Index. Meanwhile, the IHSG gained 1.09 percent to 4,975.13 by the same time. Main reason for this strong performance is the official declaration of the PDI-P to form a coalition with NasDem and PKB.

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The Indonesian rupiah exchange rate continued its recent depreciating trend on Thursday (08/05). According to the Bloomberg Dollar Index, the currency had depreciated 0.36 percent to IDR 11,619 per US dollar at 13:30 local Jakarta time. Apart from market participants' wait and see attitude ahead of results of Bank Indonesia's Board of Governors Meeting, which is held today and will inform whether the current benchmark interest rate of 7.50 percent will be maintained, increased concerns about exports to China also put pressure on the rupiah.

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The Indonesian government revised down its target for the country's manufacturing growth in 2014 to 6 percent year-on-year (yoy) from 6.4 to 6.8 percent (yoy) previously. Main reason for the downgrade was the lower than expected GDP growth result in the first quarter of 2014. Earlier this week, Statistics Indonesia announced that the Indonesian economy expanded 5.21 percent in Q1-2014, the slowest quarterly growth pace since the fourth quarter of 2009. Last year, Indonesia's manufacturing sector grew 6.19 percent (yoy).

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Indonesian companies engaged in the production of crude palm oil (CPO) recorded impressive financial figures in the first quarter of 2014. Combined, 13 CPO companies that are listed on the Indonesia Stock Exchange posted IDR 3 trillion (USD $260.9 million) in net profits over the first quarter of 2014, a 116.1 percentage growth from the same period last year. Main reasons for this growth are the sharply depreciated Indonesian rupiah exchange rate in combination with the rising global CPO price and looming new El Niño cycle.

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Today's release of the economic rescue package was not able to put Indonesia's main stock index (IHSG) into green territory. Also, the Indonesian rupiah maintained its losing streak. The IHSG fell 0.04 percent to 4,169.83 points. Interestingly enough, the IHSG was rising previous to the release of the package. After the release, however, it started to weaken slightly, which seems to indicate that market participants were a bit disappointed with the contents of the package as it contained no quick fixes to the economy.

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As had been announced previously, today (23/08) the government of Indonesia released an 'emergency plan' that aims to improve the financial sector while restoring confidence in the country's fundamentals as turmoil emerged on Indonesia's stock exchange, bonds market and the rupiah. Economic minister Hatta Rajasa said that this plan consists of four packages. These four packages cover the current account deficit, rupiah performance, economic growth, purchasing power, inflation and investments.

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On Thursday (22/08), Indonesia's main stock index (IHSG) was not able to continue the rebound that occurred yesterday when the country's biggest pension fund, Jamsostek, began buying blue-chip stocks in a move to support the ailing index. Indonesia's benchmark index has now lost about 20 percent since its record peak in May 2013. Today, it fell 1.11 percent to 4,171.41 points. Eight sectoral indices weakened, of which the top losers were construction (-5.78 percent), basic industry (-3.42 percent), and finance (-2.39 percent).

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Concerns about Indonesia's weakening rupiah intensified on Wednesday (21/08) as the currency is now balancing on the psychological boundary of IDR 11,000 per US dollar. The rupiah continued its downward spiral today although its decline was limited due to the intervention of Indonesia's central bank (Bank Indonesia) that started selling US dollars again in an effort to support the rupiah. According to data compiled by Reuters, the rupiah has now fallen 10.7 percent this year.

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On Tuesday (20/08), Indonesia's benchmark stock index (IHSG) continued its decline with its fourth consecutive day of losses. Amid major concerns about Indonesia's economic growth, high inflation, tighter monetary policy and current account deficit, the IHSG fell 3.21 percent to 4,174.98 points. It means that the index now stands about 21 percent lower than its record peak in May 2013. Foreign investors have been pulling money out of the Indonesian market. According to Bloomberg, about USD $255 million has been retracted in the last two days.

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The government of Indonesia proposes to allocate IDR 336.24 trillion (USD $32.6 billion) for subsidy spending in the 2014 state budget draft: IDR 284.7 trillion (USD $27.6 billion) for energy subsidies and IDR 51.6 trillion (USD $5.0 billion) for non-energy subsidies. The proposed amount implies a 3.41 percent fall in total subsidy allocation compared to Indonesia's state budget in 2013. However, despite a reduction, subsidy expenditure is still large at 18.5 percent of total government spending (IDR 1,816.7 trillion).

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Analysts expect that Indonesia's benchmark stock index (IHSG) will end mixed today (20/08) after yesterday's large plunge amid heavy market concerns. Yesterday, the index dropped 5.58 percent to 4,313.52 points, the lowest since October 2011. Indonesia posted a current account deficit in the second quarter of 2013, while Thailand entered into a recession. The MSCI Emerging Market index¹, which includes both countries, fell 1.4 percent to a six-week low. Below a short overview of factors that caused negative sentiments on Indonesia's market.

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After two days of growth, Indonesia's main stock index (IHSG) became victim of profit taking on Thursday (15/08). Particularly domestic investors were eager to sell their Indonesian assets. Falling indices on Wall Street on Wednesday (14/08) in combination with global uncertainty about the end of the Federal Reserve's quantitative easing program made a negative impact on Asian stock indices, including the IHSG. Indonesia's central bank's decision to keep its benchmark interest rate at 6.50% was well-received by most investors.

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The foreign exchange reserves of Indonesia keep on falling from its historical peak of USD $124.64 billion in August 2011 to USD $92.67 billion at the end of July 2013. This development seems to highlight long-standing weaknesses in Indonesia's sovereign's external finances, as credit agency Fitch Ratings detected on several occasions before. The republic of Indonesia is currently characterized by four deficits, to wit a current account deficit, a balance of payments deficit, a trade balance deficit and a fiscal deficit.

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After Wall Street turned back into the green zone on Tuesday (13/08) and was accompanied by continued rising stock indices in Europe, it provided good support for Asian stock indices on Wednesday (14/08), including Indonesia's main stock index (IHSG). Indonesian mining commodities and plantation stocks fell but these losses were offset by rising big cap stocks (particularly finance stocks) and speculation that Indonesia's central bank will keep its benchmark interest rate (BI rate) at 6.50 percent.

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