Indonesia Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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  • Understand and measure the political, business environment and operational risks to your company
  • Gain insight on emerging trends that could support, strengthen or disrupt your activities in the market
  • Benefit from 10-year macroeconomic forecasts and insight into the structural characteristics of the economy
  • Get the long-term political outlook and explore possible scenarios for change
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Indonesia Country Risk Report
Product Price
$1,195.00

Core Views

  • We expect Indonesia's real GDP growth to pick up pace in 2016, underpinned by strong investment and government spending. The government's accommodative monetary and fiscal stance should help to mitigate external headwinds, informing our forecast for Indonesia's real GDP to expand by 5.2% in 2016.

  • Indonesia's fiscal balance will likely deteriorate in 2016 as a combination of lower-than-expected revenue realisation and strong capital expenditure result in a wider shortfall. As such, we forecast Indonesia's budget deficit as a share of GDP to widen to 2.7% in 2016, versus our previous forecast of 2.5%. The weakening of the government finances could lead to expenditure cuts, potentially undermining the growth outlook for the Indonesian economy in 2016.

Major Forecast Changes

  • Given our expectations for continued emerging market FX outperformance over the coming quarters, we have shifted to a more neutral view on the rupiah, and now expect the unit to fall from the spot rate of IDR13,060/USD, to IDR13,600/USD by end-2016, versus our previous forecast of IDR14,600/USD. Although our end-year forecast for the rupiah marks a depreciation of about 4.3% in nominal terms from the current exchange rate, in total return terms, the currency is likely to outperform the US dollar.

  • Recent improvements in Indonesia's political environment have prompted an upward revision of its short-term political risk score (from 68.8, to 72.9), reflecting positive momentum. However, we stress that political patronage and corruption will remain a hurdle to the legislative process. Moreover, the decentralised form of governance in the archipelago will likely result in slow policy implementation outside of Jakarta, thus limiting the effectiveness of Jokowi's pro-investor policies.

  • After three consecutive interest rate cuts in three months, Bank Indonesia will likely stand pat on its interest rate policy over the near-term as it monitors the effects of its stimulus measures. However, given that the risk of fiscal tightening is rising, we expect the central bank to adopt a more accommodative monetary policy stance and ease its reference rate by an additional 25 bps in H216 to continue to support growth.

Key Risks

  • Indonesia risks a return to the more polarised political environment witnessed before outgoing President Susilo Bambang Yudhoyono took office in the mid-2000s.

  • Indonesia's poor net international investment position, along with a current account deficit, makes it vulnerable to periods of acute risk aversion in the global economy. In an environment of rising global interest rates, this is an increasing risk.

Macroeconomic Forecasts (Indonesia 2014-2017)
Indicator 2014 2015e 2016f 2017f
National Sources/BMI
Real GDP growth, % y-o-y 5.0 4.8 5.2 6.0
Nominal GDP, USDbn 888.3 861.9 923.7 1,009.3
Consumer price inflation, % y-o-y, eop 8.4 3.4 5.0 5.0
Exchange rate IDR/USD, eop 12,388.00 13,788.00 13,600.00 14,300.00
Budget balance, % of GDP -2.3 -2.5 -2.7 -2.8
Current account balance, % of GDP -3.1 -2.1 -1.9 -1.2
Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks
5
Chapter 1: Economic Outlook
7
SWOT Analysis
7
BMI Economic Risk Index
7
Economic Growth Outlook
8
Growth Headwinds To Persist Into 2016
8
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
9
Fiscal And Public Debt Outlook
10
Widening Deficit To Keep Government Bond Yields Elevated
10
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
TABLE: KEY BUDGET ASSUMPTIONS
11
Structural Fiscal Position
12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
12
Currency Forecast
13
IDR: Downtrend To Persist
13
TABLE: BMI CURRENCY FORECAST
13
Outlook On External Position
14
TABLE: MAIN EXPORT AND IMPORT PARTNERS
14
TABLE: MAIN EXPORTS AND IMPORTS
15
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
15
Monetary Policy
16
BI To Embark On Rate Easing Cycle In 2016
16
Monetary Policy Framework
16
Chapter 2: 10-Year Forecast
19
The Indonesian Economy To 2025
19
A Bullish Long-Term Growth Story
19
TABLE: LONG-TERM MACROECONOMIC FORECASTS
19
Chapter 3: Political Outlook
21
SWOT Analysis
21
BMI Political Risk Index
21
Domestic Politics
22
Administrative Obstacles To Curtail Policy Effectiveness
22
TABLE: POLITICAL OVERVIEW
22
TABLE: KEY TAKEAWAYS
23
Long-Term Political Outlook
24
Outlook Improved, But Uncertainty Lingers
24
Chapter 4: Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
TABLE: OPERATIONAL RISK
28
Trade Procedures and Governance
29
TABLE: EXPORT & IMPORT DOCUMENTS
29
TABLE: TRADE PROCEDURES BREAKDOWN
29
TABLE: TRADE PROCEDURES AND GOVERNANCE RISK
30
Vulnerability To Crime
31
Chapter 5: BMI Global Macro Outlook
35
Global Macro Outlook
35
Unfinished Business In 2016
35
TABLE: GLOBAL ASSUMPTIONS
35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
36
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
37
TABLE: INDONESIA - MACROECONOMIC DATA & FORECASTS
39

Assess your risk exposure in Indonesia with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Indonesia with confidence.

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