After the Indonesian government abandoned the idea to increase excises on cigarettes, the production of cigarettes in Indonesia is expected to increase to between 355 and 360 billion cigarettes in 2014. However, in order to meet that target, it is also important that the country's macroeconomy - particularly the inflation rate - remains stable. This year, Indonesian cigarette production is expected to reach 340 billion cigarettes. Indonesia has one of the world's largest markets for cigarettes.

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Perry Warjiyo, Deputy Governor of Indonesia's Central Bank (Bank Indonesia), expects that the inflation rate in October 2013 will fall below 0.26 percent (which is the average October inflation rate since 2007). Warjiyo said that a survey of Bank Indonesia indicated that up to the third week of October, inflation had only reached 0.06 percent. Low inflation - or preferably deflation - is needed to curb Indonesia's current high inflation rate. In September 2013, annual inflation was recorded at 8.40 percent.

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The government of Indonesia will release a second economic policy package at the end of October. This new package, which aims to provide attractive tax incentives to investors, is in addition to the package that was released in August 2013 when sharp rupiah depreciation and a rapidly falling stock index occurred as panic emerged after the Federal Reserve hinted at an end to its quantitative easing program. In combination with a widening current account deficit and high inflation, it resulted in large capital outflows from Indonesia.

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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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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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An updated profile of Bank Mandiri is presented in our Indonesian Companies' section. Bank Mandiri, which is Indonesia’s largest financial institution by assets, offers businesses and individuals throughout Indonesia a full set of banking and non-banking products and services. The bank was established as a result of the Asian Financial Crisis when four state-owned banks (Bank Exim, Bank Bumi Daya, Bank Dagang Negara and Bapindo) were merged into Bank Mandiri as part of the government's bank restructuring program.

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Contrary to what most analysts expected, Indonesia experienced deflation of 0.35 percent in September 2013. The figure was released today (01/10) by Statistics Indonesia. Deflation was particularly triggered by easing food prices (including onions, peppers, beef, fresh fish and carrot) and lower tariffs for air and train transportation as well as inter-city transport fares. Previously, it was expected that Indonesia would record low inflation (less than 1 percent) in September. Year-on-year inflation eased to 8.40 percent (from 8.79 in August).

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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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The central bank of Indonesia (Bank Indonesia) has raised its benchmark interest rate (BI rate) and deposit facility rate (Fasbi) by 25 basis points to 7.25 percent and 5.50 percent respectively on Thursday (12/09). It is the fourth time since June that Bank Indonesia raised the interest rate. Previously, it maintained a historic low BI rate of 5.75 percent for 16 months. The increase is one of the measures taken to control inflation, stabilize the rupiah exchange rate and to ensure that the current account deficit is managed to a sustainable level.

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The International Monetary Fund (IMF) expects the economy of Indonesia to expand by 5.25 percent in 2013, which is considerably lower than the IMF's earlier forecast. In its World Economic Outlook, released in April 2013, the institution set economic growth of Indonesia at 6.3 percent. However, after emerging markets were hit by large capital outflows when the Federal Reserve began to speculate about an end to its quantitative easing program (QE3), Indonesia's GDP growth assumptions were quickly revised downwards.

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Without any support from the United States, where Wall Street was closed due to the 4th of July festivities, stock indices in Europe found their way up. President of the European Central Bank, Mario Draghi, caused positive market sentiments after stating that the interest rate will remain low for a long while and that the current monetary (easing) policy will remain unchanged. Stock indices in Germany, France, Great Britain and the Netherlands went up between 2.1 and 3.1 percent on Thursday's trading day (04/07).

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Indonesia's main stock index (IHSG) took another large blow on Wednesday (03/07). The index fell 3.20 percent to 4,577.15 points as investors were worried after reading the revised outlook of the World Bank. The institution downgraded its forecast for economic growth in Indonesia in 2013 from 6.2 percent to 5.9 percent. Higher inflation, because of the recent subsidized fuel price hike, is expected to result in lower domestic consumption. The IDR rupiah posted a slight weakening to IDR 9,941.

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The World Bank has revised down its forecast for economic growth in Indonesia in 2013 to 5.9 percent from its original estimate of 6.2 percent. Similarly, the institution has altered its forecast for economic growth in 2014 from 6.5 percent to 6.2 percent. The revised figures were published in July's edition of the Indonesia Economic Quarterly (IEQ), titled 'Adjusting to Pressures'. The World Bank's forecast is also in sharp contrast with the GDP assumption of the Indonesian government, which puts economic growth in 2013 at 6.3 percent.

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Last week, Indonesia's main index (IHSG) rebounded 303 points to 4,818.90. After weeks of foreign outflows, Indonesia finally experienced capital inflows again during the last two days of the week. For example, on Friday (28/06) foreigners bought IDR 960 billion (USD $97.0 million) more Indonesian shares than they sold. However, considering the full week, foreigners still recorded net selling amounting to IDR 1.02 trillion (USD $103 million). Do these last couple of days tell us that the bearish market is over? Lets take a closer look.

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After several years of significant foreign capital inflows into Indonesia, a sharp contrast has been visible in recent weeks. Global panic that followed in the days after Ben Bernanke announced that the Federal Reserve intends to withdraw its quantitative easing program in 2014 (if economic recovery of the USA continues), hit Indonesia hard. It triggered a massive capital outflow from the country's stock exchange (IDX) as well as from government securities (Surat Berharga Negara, or SBN).

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Similar to the Jakarta Great Sale event, Indonesia's main stock index (IHSG) trades its stocks at low prices as foreign investors have sold large parts of their Indonesian stock assets in recent weeks. Last week, foreign investors sold IDR 4.9 trillion (about USD $492.4 million), meaning that this year's accumulated foreign net buying has evaporated. Will these sales continue? Yes, I think so. Foreigners have invested about IDR 144 trillion in Indonesia's capital markets between 2007 and Q1-2013. As such, there is still plenty to sell.

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It is official. As of Saturday 22 June 2013, after months of uncertainty and speculation, the price of Indonesia's subsidized fuel has finally been raised. Starting from 0.00 am (midnight) on Saturday, all Indonesians have to pay a higher price of gasoline and diesel. Gasoline has been raised by 44 percent to IDR 6,500 (USD $0.66) and diesel by 22 percent to IDR 5,500 (USD $0.56) per liter. The minister of Energy and Mineral Resources, Jero Wacik, made the announcement on late Friday evening, after which the hike took effect immediately.

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Indonesia's main stock index (IHSG) moved wildly last week. During the first two days of the week, the index fell to 4,609.95 points, which is considerably below its record high level of 5,214 on 20 May 2013. However, on the last trading day of the week (14/06), a 3.32 percent recovery occurred. Generally, it were domestic market participants that supported the IHSG. Foreign market participants continued to sell parts of their Indonesian stock portfolios. Total foreign selling totaled IDR 9 trillion (USD $910.4 million) last week.

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On Friday (14/06), the main stock index of Indonesia (IHSG) jumped 3.32 percent to 4,760.74 points as financial market participants were optimistic about the effects of the higher central bank interest rate that was announced the day before. Moreover, Indonesia's IHSG was supported by a green wave across Asian stock markets, which was partly due to a strong rebound in markets in the United States on Thursday (13/06). Stocks in Indonesia's banking and property sectors were the top-gainers on Friday's trading day.

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On Thursday (13/06), Indonesia's main stock index (IHSG) could not continue the recovery it had shown on the previous day. The index fell 1.92% to 4,607.66 points amid international and domestic concerns. Investors are worried about central banks' policies and the World Bank's downgrade of global economic growth in 2013. On the domestic side, negative sentiments were brought on by the fuel subsidy issue (and its inflationary impact), the weakening rupiah, the BI rate hike, falling foreign exchange reserves, and the trade deficit.

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