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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Car sales in Indonesia declined 8 percent to 98,198 units in May 2014 from 106,811 units in the previous month. The Indonesian Automotive Industry Association (Gaikindo) said that the decline was the direct consequence of several public holidays (International Labour Day and the commemorations of Buddha’s birthday as well as ascensions of Prophet Muhammad and Jesus Christ). These holidays caused a lower car production rate and a reduced number of car deliveries to wholesale dealers.

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The central bank of Indonesia (Bank Indonesia) expects Indonesia’s economy to grow by 5.3 percent in the second quarter of 2014. If realized, it means that gross domestic product (GDP) of Southeast Asia’s largest economy will accelerate from the disappointing GDP growth result recorded in the first quarter of 2014 (5.21 percent). Perry Warjiyo, Deputy Governor at Bank Indonesia, said that growth in Q2-2014 will be primarily supported by household consumption and investments which traditionally peak in the second quarter.

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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 April 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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The central bank of Indonesia (Bank Indonesia) decided at today’s Bank Indonesia Board of Governors’ Meeting, convened on 8 May 2014, to maintain the country's benchmark interest rate (BI rate) at 7.50 percent, with the Lending Facility rate and Deposit Facility rate held at 7.50 percent and 5.75 percent respectively. This policy is consistent with efforts to steer the rate of inflation towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.

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After Statistics Indonesia (BPS) had announced on Monday (05/05) that Indonesia's gross domestic product (GDP) grew by 5.21 percent year-on-year (yoy) in the first quarter of 2014 (considerably below analysts' projections of around 5.6 percent), concerns have risen about the country's economic expansion for the remainder of the year. The government of Indonesia targets a GDP growth rate of between 5.8 and 6.0 percent (yoy). However, several international institutions do not agree with this optimistic target.

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Statistics Indonesia (BPS) announced on Monday (05/05) that the economy of Indonesia - Southeast Asia's largest economy - grew at a much slower pace in the first quarter of 2014 than had been expected by analysts. Gross domestic product growth slowed to 5.21 percent (year-on-year) in Q1-2014, significantly down from the 6.03 percentage growth (yoy) that was recorded in Q1-2013. Gross domestic fixed capital formation (GFCF) slowed to 5.13 percent from 5.9 percent in the same period last year.

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ICRA Indonesia released an analysis of the economic impact of the ban on export of raw minerals. The ban - stipulated by the new 2009 Mining Law - became effective per 12 January 2014 (although in a milder form as some mineral ore exports are allowed under specific terms) and aims at boosting domestic processing. However, it led to great concern among domestic and foreign stakeholders as its implications on the economy of Indonesia - a global leader in exports of mineral resources - were unknown.

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Standard Chartered Bank Economist Eric Sugandi expects that the central bank of Indonesia (Bank Indonesia) will have raised its benchmark interest rate (BI rate) by 50 basis points (bps) to 8.00 percent by the end of 2014. Sugandi also said that it is highly unlikely that Bank Indonesia will lower its BI rate in the next two years amid further Federal Reserve tapering and possible US interest rate hikes in 2015 and 2016. Moreover, the Indonesian government may still decide to reduce fuel subsidies further (thus triggering inflationary pressures).

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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 March 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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The central bank of Indonesia (Bank Indonesia) expects Indonesia's economic growth to slow to 5.77 percent (year-on-year) in the first quarter of 2014. However, despite this further slowing trend, the institution is content with recent macroeconomic developments: external demand is growing, while domestic demand is moderating, thus impacting positively on the country's current account deficit as well as inflation. Household consumption is expected to have grown in Q1-2014 due to the holding of legislative elections on 9 April 2014.

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