Today (06/11), Statistics Indonesia announced that Indonesia's gross domestic product (GDP) expanded 5.62 percent in the third quarter of 2013 from the same period in 2012. The result implies the continuation of Indonesia's slowing economic growth as Q3-2013 constitutes the fifth consecutive quarter in which the country recorded slowing economic growth. Previously, the government had already expressed its concern about the GDP growth figure in Q3-2013 because the current high inflation rate curbs household consumption.

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Indonesia's trade surplus in August 2013 was not continued into September. Today (01/11), Statistics Indonesia announced that the country experienced a trade deficit of USD $657.2 million in September 2013. Exports in September fell 6.85 percent year-on-year (yoy) to USD $14.81 billion, while imports rose 0.77 percent (yoy) to USD $15.47 billion. During January-September 2013, total exports amounted to USD $134.05 billion, while total imports amounted to USD $140.31 billion. This means that the current trade deficit stands at USD $6.26 billion.

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A senior official at Indonesia's central bank (Bank Indonesia) stated that the country's current account deficit is expected to ease to 2.5 - 2.7 percent of Indonesia's gross domestic product (GDP) by 2014. In the second quarter of 2013, the account deficit reached USD $9.8 billion or 4.4 percent of GDP in Q2-2013, an alarmingly high figure that has caused much concern among the investor community. This deficit is particularly brought on by a large deficit in the country's oil & gas sector in combination with strong domestic demand for imports.

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The government of Indonesia will be firm to convince the international community at the Asia- Pacific Economic Cooperation (APEC) forum to place crude palm oil (CPO) - including its derivative products - and rubber on the APEC Environmental Goods List (EG List). In the APEC ministerial meeting in Surabaya (East Java), last April, Indonesia failed to include these products on the list. However, the government will continue its lobby during the current APEC meeting by stressing that these products are environmentally friendly.

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Indonesia’s economy continues to adjust, as weaker commodity prices, tighter international financing, and slowing domestic demand moderate the growth rate to 5.6 percent for 2013. This downward revision is discussed in the latest edition of the World Bank’s Indonesia Economic Quarterly (IEQ). Further moderation of growth (at 5.3 percent) may be expected in 2014, with growth in high income economies firming but international market conditions likely remaining volatile.

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Indonesia's trade deficit is expected to amount to USD $4 billion by the end of 2013, implying a moderation from the USD $5.54 billion deficit that emerged between January and August 2013. Indonesia's exports are forecast to decline by about 5 percent in the remainder of 2013 due to the weak global environment, particularly with the current ongoing political uncertainties in the USA. As such, in order to combat the deficit, the government intends to limit imports. Next year, Indonesia will most likely continue to post a trade deficit.

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Today, Statistics Indonesia (BPS) released Indonesia's export and import figures for the month August 2013. Exports in August amounted to USD $13.16 billion, implying a 12.77 percent decline compared to exports in July 2013, or a 6.31 decline year-on-year. Imports in August 2013 amounted to USD $13.03 billion, a 25.20 percent fall compared to the previous month, or a 5.69 percent fall year-on-year. As such, Indonesia recorded a trade surplus of USD $130 million in August.

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The government of Indonesia is busy preparing an extra package of policy responses aimed at stabilizing Indonesia's financial markets. Previously, the government had released a sort of 'rescue package' in late August after the rupiah depreciated sharply and the country's stock indices plunged. Panic had emerged due to the looming end of the Federal Reserve's quantitative easing program. Coupled with internal issues, it resulted in robust capital outflows from Indonesia. The new package will be released in October.

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Singapore-based DBS Group, a leading financial services group in Asia, expects Indonesia's gross domestic product (GDP) growth to reach 5.8 percent in 2013, while it forecasts growth of 6.0 percent in 2014. This year, Indonesia has to cope with ups and downs due to several domestic and foreign factors. According to the institution, two issues stand out as being significantly influential this year. These are the government's decision to increase prices of subsidized fuels in late June and the country's sharply depreciating rupiah.

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Although Indonesia continues with its plan to ban the export of raw minerals from 2014 onward as stipulated by the 2009 Mining Law, the government is studying the possibility to exempt companies temporarily from this rule if they show serious intentions to build processing factories or smelters in Indonesia in order to produce value-added products. Indonesia is still mainly a raw commodity-exporting country and thus misses out on value-added revenue while being more susceptible to volatility in commodity prices on the global market.

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Investors are eagerly waiting for the release of Indonesia's September inflation rate. Indonesia has been hit by high inflation since the government decided to increase prices of subsidized fuels at the end of June. High inflation limits its people's purchasing power and as domestic consumption accounts for about 55 percent of Indonesia's economic growth, it thus impacts negatively on GDP growth, particularly after Bank Indonesia raised its benchmark interest rate (BI rate) from 5.75 to 7.25 percent between June and September.

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The slowdown of Indonesia's economic growth is expected to continue into the third quarter of 2013. The Indonesian government predicts that economic growth will fall below the GDP growth figure realized in the second quarter (5.8 percent). Acting Head of the Fiscal Policy Agency Bambang Brodjonegoro stated that the main factor that causes the country's slowing economic growth in Q3-2013 is reduced household consumption. Domestic consumption in Indonesia accounts for about 55 percent of the country's GDP growth.

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In its most recent report regarding Indonesia's economy, the World Bank states that high logistic costs form a serious impediment to the country's economic growth. The report, titled Annual Logistics Report, is compiled by Bandung Institute of Technology’s Research Center for Logistics and Supply Chains, the Indonesian Logistics Association (ALI), the STC Group, Panteia Research Institute, and the World Bank Indonesia Office. The report provides an analysis and overview of the progress made in tackling the problem of logistics in Indonesia.

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According to global credit rating and research agency Fitch Ratings, Indonesia's major banks are robust against the rupiah currency slide due to their low unhedged foreign currency exposure, strong loss-absorption cushions and - in some cases - foreign ownership. The slowdown in the economy will weigh on these (rated) banks' operating environment, but is unlikely to damage their credit profiles to any great extent. Below we provide Fitch Ratings' report. This report can also be accessed on their website.

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Indonesia's benchmark stock index (IHSG) went down 2.23 percent on Monday (02/09) after Statistics Indonesia (BPS) released a number of macroeconomic data. The country's inflation pace increased to 8.79 percent year-on-year, while it posted a record monthly trade deficit in July 2013 (USD $2.31 billion). Investors have been highly concerned about the development of Indonesia's current account deficit and after it became known that the figure was high in July, the IHSG quickly lost value.

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The government of Indonesia has revised the macroeconomic assumptions that are stated in the State Budgets (APBN) of 2013 and 2014 after a meeting with the budgetary body of the House of Representatives (Badan Anggaran DPR) on Wednesday (28/08). It is the third time that the 2013 State Budget has been revised in order to put it more in line with recent global developments. As the government was also too optimistic when drafting the 2014 Budget, it felt the need for a revision (only 12 days after the announcement of the Budget).

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Indonesia's current account deficit, which caused much alarm among the investor community, is expected to ease to about 2.5 percent of gross domestic product (GDP) in the second half of 2013. This assumption is supported by Indonesia's central bank and various analysts. The country's current account deficit reached USD $9.8 billion or 4.4 percent of GDP in Q2-2013. In combination with the weakening rupiah, higher inflation and the possible end to the Federal Reserve's quantitative easing program, investors have been pulling money out of Indonesia.

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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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For several weeks now, Indonesia's main stock index (IHSG) has been experiencing a sharp correction. As I wrote in my previous columns, market participants have been waiting for several important macro economic data, to wit Indonesia's economic growth figure for the second quarter of 2013, the July 2013 inflation rate, and the country's trade balance statistics for the first six months of this year. Now all above results have been released, we can analyze further the impact of these macroeconomic results as well as investors' reaction to it.

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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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