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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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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Indonesia's benchmark stock index (IHSG) was not able to continue its rebound. On Friday (15/11), the IHSG fell 0.73 percent to 4,335.45 points amid widespread profit taking. Foreign investors recorded net selling of IDR 193 billion (USD $16.9 million) on today's trading day. Moreover, investors are concerned about the impact of the higher interest rate of the central bank (7.50 percent), particularly on the property and banking sectors in the fourth quarter of 2013.

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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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Indonesian car sales have already exceeded the one million mark in October 2013. In the January-October period, 1,018,786 car units were sold, a ten percent increase compared to car sales in the same period last year. Growing demand for cars in Indonesia indicates that this sector of Southeast Asia's largest economy is not influenced by current negative market sentiments, such as the sharply depreciated Indonesian rupiah exchange rate (against the US dollar), high inflation (8.32 percent yoy in October 2013), and slowing economic growth.

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Indonesia will most likely not meet its original GDP growth target of 6.3 percent (stipulated in the 2013 State Budget). Yesterday (06/11), it was announced by Statistics Indonesia that Indonesia’s GDP growth figure in the third quarter of 2013 was recorded at 5.62 percent (year-on-year, yoy), the weakest quarterly growth figure since 2009 when the global financial crisis impacted on Southeast Asia’s largest economy. In 2013, Indonesia feels the global impact again, in combination with domestic factors.

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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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Anoop Singh, Director of the Asia and Pacific Department within the International Monetary Fund (IMF), conducted a media roundtable in Tokyo today (30/10) in which he outlined the IMF's view on the economy of Asia. Asia will remain the global growth leader, although the IMF has lowered growth forecasts. Both tighter global liquidity and homegrown structural impediments will weigh on growth, but for most economies a gradual pickup in exports to advanced economies and resilient domestic demand should help support growth.

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The position of consultant, tasked to conduct a feasibility study for the Jakarta-Surabaya toll road, will be tendered in early 2014. The realization of the Jakarta-Surabaya toll road, a 775 kilometer-long toll road that is built above the sea (along the coast line between Jakarta and Surabaya), is an ambition of the Indonesian government and expected to ease the difficulty of transportation on Java, Indonesia's most populous island. The feasibility study should explore the technical and environmental framework related to the establishment of the toll road.

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