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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Indonesian newspaper Investor Daily reported that stocks at the Indonesia Stock Exchange are still relatively cheap compared to regional stock indices. Currently, the price to earnings ratio (P/E ratio) of Indonesia's main index is about 18. In contrast, South Korea's Kospi index amounts to 34, Japan's Nikkei 28, Taiwan's Taiex 23, and Philippines' PSE stands at 23 times earnings. As the Indonesian economy as well as its companies' profit figures are projected to grow, the P/E is expected to fall to 16 this year.

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Indonesia's central bank (Bank Indonesia) expects the Indonesian economy to grow between 6.3 and 6.8 percent in 2013, supported by strong domestic consumption and foreign investment, with inflation rising by about 4.5 percent. Indonesian exports are expected to increase due to better global demand for Indonesia's commodities such as coal and palm oil, with commodity prices rising accordingly. But some problems in Indonesia's financial system remain to be solved.

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Bank Indonesia, the country's central bank, continued its key interest rate at the level of 5.75 percent. The interest rate has been at this historic low level for the 12th month in a row. The current policy rate is "considered consistent with the contained inflationary pressure in accordance with its target range of 4.5 percent ± 1 percent in 2013 and 2014," according to the website of Indonesia's central bank.

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Bank Indonesia's foreign exchange reserves have fallen by US $4 billion to US $108.8 in January from US $112.8 in December 2012. The current reserves translate to six months of imports and short-term government debt payments. Reasons behind the four percent decline are massive spending by Indonesia's Central Bank to support the weakening IDR rupiah in combination with overseas debt payments.

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Today, Statistics Indonesia (BPS), a non-departmental government institute, stated that the inflation rate of January increased due to the government's decision to raise electricity tariffs and due to massive floods in Jakarta and other cities. January's headline inflation is 1.03 percent. The year-on-year inflation rate now stands at 4.57 percent; still within Indonesia's Central Bank's target of 4.5 ±1 percent.

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Only 50 days since the start of the fiscal year 2014 have passed and the government has already shown that it is not convinced to meet targets of basic macroeconomic assumptions set in the 2014 State Budget (APBN 2014). Therefore, the Indonesian government has lowered the outlook for all basic macroeconomic assumptions in the 2014 State Budget. On Thursday 19 February 2014, the government formally presented the downward revision of economic targets in the State Budget to the House of Representitative's Budget Agency.

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The Indonesian rupiah exchange rate continued its recent appreciating trend on Monday (17/02). Based on the Bloomberg Dollar Index, the currency strengthened 0.39 percent to IDR 11,785 per US dollar at 16:00 local Jakarta time. Main reason for this renewed confidence in the rupiah is Indonesia's current account deficit, which eased significantly by the end of 2013. According to Bank Indonesia, the deficit eased from 4.4 percent of gross domestic product (GDP) in the second quarter of 2013 to 1.98 percent of GDP in Q4-2013.

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The current account deficit of Indonesia is expected to ease further in the first quarter of 2014 due to a possible slowdown of imports according to Deputy Finance Minister Bambang Brodjonegoro. This slowdown is estimated to be caused by the implementation of Indonesia's higher income tax on the import of durable consumer goods, effective from January 2014. However, the deficit will not ease markedly from the USD $4 billion deficit (equivalent to 1.98 percent of the country's gross domestic product) recorded in the fourth quarter of 2013.

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At Bank Indonesia's Board of Governors’ Meeting today (13/02), it was decided to maintain the country's benchmark interest rate (BI rate) at 7.50 percent as well as the interest rates on the Lending Facility and Deposit Facility at 7.50 percent and 5.75 percent respectively. The policy is consistent with the tight monetary policy stance currently adopted in order to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.

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Statistics Indonesia (BPS), a non-departmental government institute, expects that Indonesia's trade balance will post a deficit of around USD $4 billion in 2014. The key question is whether increased manufacturing and agricultural exports can replace reduced raw mineral exports. The forecast of BPS is approximately similar to the country's trade deficit in 2013. Last year, Southeast Asia's largest economy recorded a deficit of USD $4.06 billion as the total value of exports amounted to USD $182.57 billion, while imports reached USD $186.63 billion.

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As companies' financial results of 2013 slowly start to be released, two reports - so far - have raised eyebrows due to significant declines in net profit. These are publicly listed, but majority state-owned, airline Garuda Indonesia and fully state-owned electricity firm Perusahaan Listrik Negara (PLN). Both companies felt the impact of the sharply depreciating Indonesia rupiah exchange rate. The currency fell over 21 percent against the US dollar in 2013 due to capital outflows amid looming US tapering and current account deficit concerns.

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Domestic sales of motorcycles in Indonesia fell 11 percent to 580,288 units in January 2014. The main reason for this decline in the first month of the year were severe floods brought about by high rainfall amid a peak of the rainy season. These weather conditions disrupted the distribution of motorcycles from factories to dealers. As a result, all motorcycle brands recorded lower sales figures according to data released by the Indonesian Motorcycle Industry Association (Aisi). However, more factors were at play.

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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 January 2014 edition, a number of important topics 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 of the newsletter:

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On Wednesday (05/02), Statistics Indonesia (BPS) reported that the economy of Indonesia expanded 5.78 percent in 2013. This result implies that in 2013 Indonesia experienced the slowest pace of GDP growth since its 4.63 percentage growth in 2009. However, this slowing growth was basically self-inflicted as both the Indonesian government and central bank (Bank Indonesia) used various monetary and fiscal policies to curb economic expansion in order to tackle several financial issues.

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Despite higher car prices due to the depreciating rupiah exchange rate, domestic car sales in Indonesia rose 11 percent to 107,496 in January 2014 compared to the same month last year. January sales were particularly supported by sales of the low cost green car (LCGC) and low multipurpose vehicle (LMPV). Both these car types enjoy high popularity in Indonesia. In 2013, the Indonesian government provided tax incentives for the establishment of a domestic LCGC industry.

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