Indonesia's palm oil exports (palm oil and palm kernel) rose by 9.1 percent (month-on-month) to 2.04 million metric tons in February, according to data from the Indonesian Palm Oil Association (Gapki). This level - the highest in about five years - was brought on due to increased purchases from China and Pakistan. Indonesia's palm oil industry may experience a better year in 2013 as exports in the first two months of 2013 rose 29 percent from last year.

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BW Plantation (BWPT), a mid-sized crude palm oil (CPO) and palm kernels (PK) producer, felt the impact of weak global demand for commodities in 2012. The company's net profit in 2012 fell 18.17 percent to IDR 262.18 billion (US $26.89 million). Profit per share fell to IDR 64,83 from IDR 79,35 per share last year. The decline in profit was particularly caused by an increase in operating expenses from IDR 131.05 billion (US $13.44 million) to IDR 153.87 billion (US $15.78 million).

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Global financial services company UBS has revised up Indonesia's gross domestic product (GDP) number as it expects the country to benefit from increased exports to the United States. The Switzerland-based company predicts that Indonesia's economy will grow by 6.3 percent, instead of the previous estimate of 6.0 percent. Recently improved economic growth in the USA is cited as the engine of growth for Indonesian exports later this year.

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Contrary to coffee demand in Western countries (which is expected to grow by about one percent per year), coffee demand in Asia - and in line with the region's economic growth - is expected to grow by about five to ten percent annually. A number of Asian coffee bean producing and exporting countries exhibit populations that drink more coffee and thus need to allocate more of its production to the domestic market, at the expense of its export.

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Indonesia's trade deficit narrowed slightly in January as there has been better demand from developed countries. However, Indonesian exports remain under pressure with persistent weak global demand. Moreover, higher crude oil prices increase the country's import costs. In addition to Indonesia's trade deficit, annual inflation increased to 5.31 percent in February due to rising food prices and higher electricity tariffs.

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Exports of Indonesian palm oil may drop to 1.51 million metric tonnes (MT) in February, a 5.6 percent decline from January. Importers prefer to buy the commodity in Malaysia where the government has put in place a duty free tariff on its palm oil exports in order to reduce large stockpiles. Indonesia, on the other hand, has a nine percent export duty as the government tries to gain more revenue out of its natural resources.

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Exports have always been an important asset to Indonesia's economy. Throughout history, Indonesia recorded a continuous series of trade surpluses. In 2012, however, the country recorded its first ever trade deficit as imports rose (partly due to increased demand of the Indonesian people), while exports declined due to global turmoil and uncertainty. A trade deficit is a new phenomenon to Indonesians and has caused some anxiety in the country.

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Although widespread concerns about Indonesia's prolonged trade deficit (and current account deficit) are far from unfounded, the country's October 2013 trade data show a positive result. On Monday (02/12), Statistics Indonesia announced that Southeast Asia's largest economy posted a small trade surplus of USD $42.4 million in October after having recorded a trade deficit of USD $810 million in the previous month. This calender year (January to October 2013), the trade deficit has accumulated to USD $6.36 billion.

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Currently, one of Indonesia's main financial issues (and one which puts serious pressures on the Indonesian rupiah exchange rate) is the country's wide current account deficit. According to data from Statistics Indonesia, Indonesia's current account deficit totaled USD $8.4 billion in the third quarter of 2013. This figure is equivalent to a whopping 3.8 percent of Indonesia's gross domestic product (GDP). Generally, a current account deficit that exceeds 2.5 percent of GDP is considered unsustainable.

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This week, a group of Dutch politicians and businessmen, led by prime minister Mark Rutte, will pay a four day visit to Indonesia. The aim of the visit is to smoothen bilateral relations and search for business opportunities between both countries. This Dutch group, which includes more than one hundred Dutch company delegates, forms the largest Dutch trade delegation that has visited Southeast Asia's biggest economy in the modern history. However, relations between the Netherlands and Indonesia are still complex today.

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Despite rising concerns about the slowing pace of the Indonesian economy, the deputy minister of Finance Bambang Brodjonegoro reminded investors that Indonesia's economic growth in the third quarter of 2013 still constitutes one of the highest growth rates around the globe. Economic expansion in Q3-2013 slid to 5.6% in Southeast Asia's largest economy. With the exception of China (7.8% GDP growth in Q3-2013), Indonesia's growth continues to outpace growth in other emerging markets, such as Brazil (3.3%) and Turkey (4%).

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Bank Indonesia decided to raise the BI rate by 25 bps to the level of 7.50 percent, with the Lending Facility rate and Deposit Facility rate raised to 7.50 percent and 5.75 percent respectively. This policy was taken in light of the persistently large current account deficit amid widespread global uncertainty. Therefore, the decision was taken in order to ensure that the current account deficit is reduced to a more sound level and inflation in 2014 returns to around 4.5±1 percent, thereby supporting sustainable economic growth.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the October 2013 edition, a number of important issues that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt:

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Indonesia's October inflation rate was well-received by investors. On Friday (01/11), Statistics Indonesia (BPS) announced that the country's inflation in October 2013 grew 0.09 percent. Easing inflation was mainly due to falling prices of raw foods and clothes. Year-on-year (yoy), however, Indonesia's inflation is still high at 8.32 percent, although showing a moderating trend from 8.40 percent (yoy) in September 2013 and 8.79 percent (yoy) in August 2013. Inflation had skyrocketed after subsidized fuel prices were raised by an average 33 percent in June.

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The Jakarta Composite Index (IHSG), the benchmark stock index of Indonesia, gained 0.61 percent and ended on 4,546.57 on Friday (18/10). Stock trade showed a consolidating trend with the value of transactions in the regular market amounting to IDR 4.39 trillion (USD $388.5 million). Considering the full trading week, the IHSG gained 0.60 percent with an average daily transaction value of IDR 4.18 trillion. This value is below the previous week's average of IDR 4,36 trillion.

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Bank Indonesia’s Board of Governors decided to hold the BI Rate at a level of 7.25 percent, with rates on the Lending Facility and Deposit Facility held respectively at 7.25 percent and 5.50 percent. Bank Indonesia will continue to monitor global and domestic developments and further synergise the monetary and macroprudential policy mix in order to ensure that inflationary pressures remain under control, that rupiah exchange rate stability is maintained according to its fundamentals and the current account deficit is reduced to a sustainable level.

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Inflationary pressures eased in September 2013 to a 0.35% rate of deflation (mtm), or 8.40% (yoy). The rate of deflation exceeded the projections contained within the Price Monitoring Survey conducted by Bank Indonesia and much lower than inflation expectations by some analysts. Abundant supply in the wake of horticultural harvests (shallots and chilli peppers), triggered a deep correction in food prices. In addition, sliding beef prices also exacerbated further deflationary pressures, with volatile foods recording deflation of 3.38% (mtm).

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