Credit rating agency Moody's Investors Service stated in a report released on Monday (24/06) that it is positive about the impact of the increase in price of subsidized fuel in Indonesia. Through this measure, the budget deficit of the Indonesian government is estimated to remain within 3 percent of GDP (the maximum threshold that is set by the government). Last Saturday (22/06), the price of gasoline was raised by 44 percent to IDR 6,000 and the price of diesel by 22 percent to IDR 5,500 despite widespread protests across the country.

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After a long plenary session on Monday (17/06), Indonesia's House of Representatives (DPR) and the government have agreed to the revised 2013 State Budget (APBN-P). The revision was needed as original macroeconomic assumptions began to fall out of tune with reality. Due to global and domestic conditions a number of assumptions needed to revised down. Most controversial decision that was taken is the increase in price of subsidized fuel by 44 percent to IDR 6,500 (USD $0.66) per liter.

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To ease pressures on the IDR rupiah, Indonesia's central bank has used about USD $2.0 billion of its foreign exchange reserves to support the currency as the country's continuing trade deficit as well as concerns about the possible increase in price of subsidized fuel in June has caused much uncertainty about the level of inflation in the near future and puts downward pressure on the rupiah. Indonesia's foreign exchange reserves fell to USD $105.2 billion in late May 2013 from USD $107.3 billion at the end of April.

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Indonesia's minister of Economy, Ir. M. Hatta Rajasa, stated that the government of Indonesia intends to realize economic growth of at least 6.2 percent in the second quarter of 2013 in order to remain on track for 6.3 percent growth for full year 2013. Although he reminded that it will take hard effort to realize this target, his message contained more optimism than Finance minister Chatib Basri's statement earlier this week who sees 6.0 percent of economic growth as the limit in Q2-2013.

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The Indonesian government and Commission XI of the House of Representatives (DPR) agreed on several macroeconomic projections for the 2013 Revised State Budget (RAPBN-P 2013). The government requested a number of modifications to the 2013 State Budget as earlier assumptions, mentioned in the original 2013 State Budget, were not in line with the current economic conditions. Before reaching the agreement, fractions in the commission changed a number of proposed revisions of the government.

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In the draft for the State Budget of 2014 (RAPBN 2014), the government of Indonesia projects economic growth of between 6.4 and 6.9 percent. Continued global recovery is expected to result in higher GDP growth compared to 2012 (6.23 percent) as it will result in better demand for Indonesian products, such as commodities. The main pillar of Indonesia's GDP growth - domestic consumption - is expected to grow due to the population's higher purchasing power and the upcoming legislative and presidential elections.

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Market capitalization of the Indonesia Stock Exchange (IDX) has surpassed its psychological boundary of IDR 5,000 trillion (USD $512.82 billion) last week, supported by the new record high level position of the Indonesia Stock Index (IHSG) on Friday at 5,145.68 points. Up to 17 May 2013, the IHSG gained 18.41 percent this year, thus outperforming all other major stock indices in Asia except for the Philippines and Japan's Nikkei, which gained 41.64 percent this year amid an aggressive stimulus plan of the central bank of Japan.

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The central bank of Indonesia (Bank Indonesia, or BI) kept its benchmark interest rate at 5.75 percent and its overnight deposit facility rate (FASBI) at four percent as the country's core inflation figure is still within the target range of the central bank (3.5-5.5 percent). Core inflation currently stands at 4.12 percent (YoY). However, as the price of subsidized fuel is expected to rise in June, inflation may increase and could trigger a policy response by Bank Indonesia later this year.

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Today, Statistics Indonesia released Indonesia's economic growth figure for the first quarter of 2013. Compared to Q1-2012, Indonesia's gross domestic product (GDP) grew 6.02 percent. This growth was supported by almost every sector except for Mining and Extracting, which fell 0.43 percent (YoY), indicating that natural resources are still not back on track. The largest contributor to Indonesia's Q1-2013 growth is Transportation and Communication, which grew 9.98 percent.

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According to data from Statistics Indonesia (Badan Pusat Statistik), Indonesia was visited by over 725 thousand foreign visitors in March 2013, up 10.1 percent compared to the same month last year. The Indonesian government has set the ambitious target of welcoming a total of nine million foreign tourists in 2013. In 2014, it wants at least 10 million foreigners to visit Indonesia. The government expects these increases to originate mainly from the Asia-Pacific region itself.

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The government of Indonesia is busy preparing seven tax incentives to boost investment flows in 2014. Investments currently account for approximately 32 percent of the country's gross domestic product (GDP). Only domestic consumption owns a larger stake towards the economy with 55 percent. The regulatory framework related to the seven incentives is expected to be finalized by the end of this year. The incentives consist of five new ones and the relaxation of two older incentives, namely the tax holiday and tax allowance.

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Indonesia’s inflation rate in July 2013 was significantly higher than analysts had previously estimated. The country’s July inflation figure accelerated to 3.29 percent. On year-on-year basis, it now stands at 8.61 percent, the highest inflation rate since many years. Particularly food commodity and transportation prices rose steeply. The main reason for Indonesia's high inflation is the reduction in fuel subsidies. In late June, the government increased the prices of subsidized fuels in order to relieve the ballooning budget deficit.

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Indonesia's main stock index (IHSG) increased 3.98 points to close at 4,724.41 on the last trading day (19/07). During last week, the index rose a limited 1.97 percent amid the context of a weakening IDR rupiah (Indonesia's currency even fell below the psychological boundary of IDR 10,000 against the US dollar). The IHSG's performance last week was mainly supported by rising shares in the country's finance, property, construction and metal mining sectors, while the cement and plantation sectors were corrected.

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Although the main stock index of Indonesia (IHSG) ended on a positive note last Friday (05/07) by rising 0.46 percent to 4,602.81, foreign investors still sold a net IDR 262 billion (USD $26.5 million) worth of shares, while the value of transactions in the regular market was only IDR 3.17 trillion (USD $320.2 million). The rise of the IHSG at the end of last week was more due to support from Asian indices that were up after the European Central Bank and Bank of England kept interest rates at 0.5 percent.

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Realization of Indonesia's budget deficit in the first half of 2013 reached IDR 54.5 trillion (USD $5.5 billion) or 0.58 percent of the country's gross domestic product (GDP). The figure is still well below the target that is set in the revised state budget of 2013, namely IDR 224.2 trillion (USD $22.6 billion) or 2.38 percent of GDP. As a percentage of GDP, the outcome of the deficit in the first half of 2013 was lower than that in the first half of 2012. However, if we compare it with the years 2010 and 2011, the budget deficit in the first half of 2013 is high.

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Indonesia's central bank (Bank Indonesia) expects that economic growth of Indonesia in 2013 will not meet the government's target as has been set in the revised State Budget (APNB-P). Last month, both government and parliament of Indonesia agreed on a revised GDP growth assumption of 6.3 percent. However, Bank Indonesia believes that, due to slowing domestic consumption and investments in the current global economic context, the growth is more likely to fall between 5.8 and 6.2 percent.

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Weakening American and European stock indices on Tuesday (02/07), as investors mostly refrained from trading ahead of Wednesday when a number of important US economic data are released, caused negative market sentiments in Asia today (03/07). Moreover, the market responded negative towards the World Bank's July report in which the outlook for economic growth of Indonesia in 2013 was cut to 5.9 percent (from 6.2 percent). Lastly, a gap at 4,620 - 4,644 still needed to be closed.

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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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