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

  • Indonesia's economic activity will pick up pace (from the 4.9% y-o-y figure registered in Q116) over the coming quarters, supported by strong investment and public infrastructure drive (we forecast Indonesia's real GDP growth to come in at 5.2% in 2016). BI's accommodative monetary policy stance will also help to bolster investor and consumer confidence. That said, the weakening of the government's fiscal position poses downside risk to our rather constructive view.

  • Despite the proposed amendments to the 2016 State Budget, we maintain our forecast for Indonesia's fiscal deficit to come in at -2.7% of GDP, but note that risks are weighted to the downside. Importantly, the government has a history of missing its revenue targets, and the continuous delay in the proposed tax amnesty bill as well as the subdued oil price environment will continue to weigh on the government's top line. While the government has reaffirmed its commitment to its ambitious infrastructure development targets, expenditure cuts are on the cards, and this could potentially undermine Indonesia's short-term economic growth prospects.

  • Indonesian President Joko Widodo has managed to consolidate his political position and now enjoys an outright majority in parliament. This has helped him score two major political victories in June (particularly the passage of the tax amnesty bill on June 28), and we believe that policy enactment will continue to improve hereafter.

  • We believe that the TPP membership would benefit Indonesia over the medium-to-long term as it would broaden market access for Indonesian goods, improve market efficiency by eliminating weak enterprises, encourage more efficient allocation of resources, and promote innovation. However, as Indonesia's currently stands, its manufacturing sector is not yet ready to compete against other TPP nations and joining the TPP could provide a shock to the still-developing industry. Indonesia would likely be better placed to join the TPP after it has improved its industrial competitiveness and scale up its export-oriented manufacturing sector.

Major Forecast Changes

  • We believe that BI will lower its benchmark interest rate again by an additional 25bps over the coming months as weak government spending could weigh on Indonesia's fledgling growth recovery. The central bank maintained a dovish tone in its official statement, emphasising the need for additional stimulus measures. A fairly stable rupiah and moderate inflation will provide room for additional easing.

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 5.7
Nominal GDP, USDbn 888.3 861.9 939.8 1,017.3
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 14,000.00
Budget balance, % of GDP -2.1 -2.5 -2.7 -2.8
Current account balance, % of GDP -3.1 -2.1 -1.9 -1.4
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 Recovery On Track
8
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
9
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
Fiscal And Public Debt Outlook
10
Fiscal Deterioration To Weigh On Growth
10
TABLE: KEY BUDGET INDICATORS
11
Structural Fiscal Position
12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
12
Currency Forecast
12
IDR To Outperform In Carry-Adjusted Terms
12
TABLE: BMI CURRENCY FORECAST
13
Outlook On External Position
14
TABLE: MAIN EXPORT AND IMPORT PARTNERS
14
TABLE: MAIN EXPORTS AND IMPORTS
14
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
15
Monetary Policy
15
BI To Pause Before Easing Again In H216
15
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
Risks Remain Despite Political Improvements
22
TABLE: POLITICAL OVERVIEW
22
TABLE: KEY TAKEAWAYS
23
Long-Term Political Outlook
24
Outlook Improved, But Uncertainty Lingers
24
TABLE: SEATS AT HOUSE OF REPRESENTATIVES
24
Chapter 4: Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
TABLE: OPERATIONAL RISK
28
Economic Openness
29
TABLE: TOP 5 IMPORT PRODUCTS & IMPORT PARTNERS, 2010 - 2014, USDMN
31
TABLE: FREE TRADE AGREEMENTS
32
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
34
Availability Of Labour
35
TABLE: ASIA - AVAILABILITY OF LABOUR RISK
35
TABLE: LABOUR FORCE EMPLOYMENT BY SECTOR, 2008-2012 ('000)
39
Chapter 5: BMI Global Macro Outlook
41
Global Macro Outlook
41
Emerging Markets Nearing Inflexion Point
41
TABLE: GLOBAL ASSUMPTIONS
41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
43
TABLE: MACROECONOMIC DATA & FORECASTS
45

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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