The new cabinet of Joko Widodo is advised to further develop Indonesia’s Internet industry as enhanced Internet connectivity across the vast archipelago will result in higher economic growth. Internet has become such a vital communication channel in governance, business and private lives that a direct link to economic growth is detectable. Recently, an official at Indonesia’s Development Planning Agency (Bappenas) said that with every ten percent growth in number of Internet users, the economy expands by an additional 1.2-1.4 percent.

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The economy of Indonesia is expected to slow further in the next six months ahead according to Standard Chartered Bank economist Fauzi Ichsan. As the US Federal Reserve is expected to raise its key interest rate next year, emerging economies - including Indonesia - will be affected by capital outflows. Moreover, China (one of the most important trading partners of Indonesia) has been experiencing a period of declining economic growth, thus leading to weak demand for Indonesian commodities.

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Lukita Dinarsyah, Deputy Minister at Indonesia’s Development Planning Agency (Bappenas), said that Indonesia requires at least IDR 278 trillion (USD $23.2 billion) worth of investments to build supporting infrastructure for faster Internet connectivity across the country. Enhanced Internet connectivity is one of the tools to support faster economic growth. Dinarsyah cited a study that claims that with every ten percent growth in Internet users the economy expands by an additional 1.2 to 1.4 percent.

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In its October East Asia Pacific Economic Update, the World Bank states that developing countries in the East Asia Pacific will experience slightly slower economic growth in 2014. However, the pace of growth in the region, excluding China, will improve next year, particularly due to a gradual recovery in high-income economies which then boosts demand for exports from the East Asia Pacific region. The report also claims that the developing East Asia Pacific region remains the fastest-growing region in the world.

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The economy of Indonesia, which has been slowing since 2011, will have difficulty to rebound in 2015 as the central bank’s key interest rate (BI rate) is expected to be raised again to avert capital outflows brought on by higher interest rates in the US and to combat accelerated inflation after domestic subsidized fuel prices have been raised by the new government led by president-elect Joko Widodo (Jokowi). After a GDP growth pace of 6.5 percent (y/y) in 2011, economic growth in Southeast Asia’s largest economy fell to 5.8 percent (y/y) in 2013.

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On 28 September 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic topics such Indonesia’s fuel subsidies, US interest rates, poverty, inequality, GDP growth, palm oil, rice, the Anas Urbaningrum graft case, as well as the passing of a new bill that ends direct voting in the regions, and more.

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A new Asian Development Bank (ADB) report says that the Indonesian economy is expected to slow on weak export performance in 2014 before picking up in 2015 as external demand improves and the new government’s reform agenda takes hold. In an update of its Asian Development Outlook 2014, the ADB trimmed its forecast for 2014 growth in Indonesian gross domestic product (GDP) to 5.3 percent from 5.7 percent expected in April. The ADB expects a growth pace of 5.8 percent in 2015, down from 6.0 percent in April.

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Indonesian car sales, an important indicator to measure consumer confidence and domestic consumption, surged 24.1 percent (year-on-year) to 96,728 vehicles in August 2014. However, this growth pace is heavily influenced by public holidays and thus does not signal a marked improvement in Indonesian consumer confidence. In August last year, Indonesian car sales fell because of the limited amount of working days amid the Lebaran holiday (Idul Fitri), causing reduced production and distribution of cars and motorcycles.

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There are mixed opinions about the interest rate policy of the central bank of Indonesia (Bank Indonesia). Tomorrow (11/09), at the Board of Governor’s Meeting, the central bank will decide whether or not to change the country’s interest rates. Indonesia’s benchmark interest rate (BI rate) has been held at 7.50 percent for ten consecutive months. This relatively high figure managed to ease high inflation (which emerged after prices of subsidized fuel prices were raised in June 2013). However, it also further slowed economic growth.

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Newly elected presidential pair Joko “Jokowi” Widodo and running mate Jusuf Kalla, the pair that will guide Indonesia for the next five years starting from October 2014, propose to raise the target for economic growth in Southeast Asia’s largest economy from 5.6 percent to 5.8 percent in 2015. Furthermore, the pair would like to set a stronger average rupiah rate at IDR 11,600 per US dollar over 2015 (from IDR 11,900 as set in the Revised 2015 State Budget). Several reasons are behind these ambitious targets.

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Global credit rating agency Moody’s Investors Service cut its forecast for economic growth in Indonesia this year from five percent (y/y) to 4.7 percent (y/y) due to the perceived hard landing of China’s economy in combination with sluggish conditions in Japan and the Eurozone. Weak demand from China, the world’s second-largest economy and the top trading partner of Indonesia, is expected to continue to plague Indonesian exports and earnings.

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The residential property sector of Indonesia remains attractive in 2015 despite several factors having managed to slow growth over the past two years. In this column I discuss the factors that have slowed growth in Indonesia’s property sector and how Indonesian authorities (such as the central bank and Financial Services Authority) responded to these challenges through new regulations. Lastly, I provide an update on the recently announced plan of the Indonesian government to allow foreign ownership of luxurious apartments.

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A total of 1,555,609 foreign tourists have visited the island of Bali, the most popular tourist destination in Indonesia, in the first five months of 2015, an 11.3 percentage point growth from the same period last year. Given that the number of foreign tourists usually peaks in the period June-September it is most likely that the government’s target of welcoming 4 million foreign tourists on Bali in 2015 will be achieved, or exceeded. Most tourists that visit Bali originate from Australia, China and Japan.

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In a bid to boost economic activity in Indonesia, the central bank (Bank Indonesia) revised several regulations involving down payments for the purchase of cars and motorcycles as well as the maximum loan-to-value (LTV) ratios for first or more home purchases by Indonesian citizens. Yati Kurniati, Director of Bank Indonesia’s Macroprudential Department, said that the central bank implemented the looser monetary policy in the property and automotive sectors in an effort to boost credit growth, hence boosting the whole economy.

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Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), expressed his concern about unemployment in Indonesia, particularly unemployment among the younger generation of Indonesians (aged between 15 and 29). Amid slowing economic growth over the past six years, various industries have been cutting employment. With roughly half of the total population below 30 years of age, Indonesia’s demographic bonus can turn into disaster if this potential workforce fails to obtain employment opportunities.

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Although recently having slowed, Indonesia has experienced solid economic growth over the past ten years, with the country’s gross domestic product (GDP) almost doubling between 2001 and 2012. However, robust economic growth also resulted in significant environmental degradation and accelerated depletion of Indonesia’s natural resources. Sri Mulyani Indrawati, World Bank Group Managing Director (and former Indonesian Finance Minister), emphasized that Indonesia needs to shift from a ‘brown’ to a ‘green’ growth model.

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The Indonesian economy, from the expenditure side, is highly dominated by domestic demand. From Q1-2010 to Q1-2015, the average role of domestic demand reached 99.5 percent, with the lowest level at 96.8 percent. The positive side of this situation is that the Indonesian economy is relatively resilient to external factors. History shows that despite the US subprime mortgage crisis and financial crisis in Europe, economic growth in Indonesia remained relatively high and consistent compared to other countries.

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Within a couple of days Statistics Indonesia (BPS) is scheduled to release Indonesia’s GDP growth figure for the first quarter of 2015. Despite economic growth forecasts for full-year 2015 - both of the Indonesian government and international institutions such as the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) - signalling a rebound from the five-year low of 5.02 percent (y/y) in 2014, various analysts expect to see further slowing economic growth in Q1-2015.

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The Asian Development Bank (ADB) released a report today (24/03) in which it discusses recent economic developments in Indonesia. According to the report, Indonesia’s economic growth is projected to accelerate over the two years ahead provided that the Indonesian government continues to implement structural policy reforms. Such reforms - which include the acceleration of infrastructure development, reduction of logistical costs, and enhancing budget implementation - should lead to an improvement of the investment climate.

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In a surprise move, the central bank of Indonesia (Bank Indonesia) decided to lower its key interest rate (BI rate) by 25 basis points to 7.50 percent at the Board of Governor’s Meeting on Tuesday (17/02). The deposit facility rate (Fasbi) was also lowered by 25 basis points (to 5.50 percent), while the lending facility rate remained steady at 8.00 percent. In a press release the central bank stated that the current policy direction is estimated to moderate the country’s wide current account deficit further, while inflation remains under control.

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