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Indonesia: Maintain Economic Stability

Key Information
CapitalJakarta
Population258.3 million
CurrencyIndonesian Rupiah (1 USD = 13,318 IDR as of 9 May 2017)
Official languageIndonesian
Form of governmentRepublic

 

Major Merchandise Exports (% of total, 2016)Major Merchandise Imports (% of total, 2016)
Manufactured products (73.8%)Raw & auxiliary materials (70.5%)
Mining & other sector products (20.6%)Capital goods (16.5%)
Agricultural products (3.8%)Consumer goods (12.6%)
Top three export markets (% of total, 2015)Top three import markets (% of total, 2015)
Japan (12.0%)China (17.2%)
US (10.8%)Singapore (14.1%)
China (10.0%)Japan (9.5%)

Source: Economist Intelligence Unit (www.eiu.com)

Political Highlights

Indonesia is the world's third most populous democracy and the world's largest Muslim-majority country. Political environment has been relatively stable since the country’s first direct presidential election in 2004. Current president, Joko Widodo, reshuffled the cabinet in mid-2016 to tackle income inequality and strengthen his position within the government. Since taking office in 2014, Widodo has been successful in pushing through some of his economic reform pledges, aided by the technocrats he has placed in key ministries. Now Widodo still enjoys widespread popularity across Indonesia and is well placed to run for re-election in 2019.

However, Indonesia remains vulnerable to occasional terrorist attacks over recent years. The Indonesian authorities have been working hard to fight terrorism and are proposing to strengthen the anti-terror laws. Meanwhile, Widodo’s foreign policy focuses on deepening commercial and strategic ties with key countries in Asia, with the target of developing Indonesia as a regional ‘maritime axis’. Indonesia also maintains relatively good diplomatic ties with the US, and is one of the few Muslim-majority countries that have been excluded from President Donald Trump's travel bans into the US.

Economic Trend

Economic Indicators2014
2015
2016
2017^
2018^
Nominal GDP (USD bn)890.6
861.1
932.3
1,042.4
1,075.3
Real GDP growth (%)5.0
4.9
5.0
5.2
4.5
GDP per capita (USD)3,520
3,370
3,610
4,000
4,090
Inflation (%)6.4
6.4
3.5
4.1
5.2
Budget balance (% of GDP)-2.1
-2.6
-2.5*
-2.2
-2.3
Current account balance (% of GDP)-3.1
-2.0
-1.8
-1.6
-1.8
External debt (% of GDP)32.9
35.8
33.9*
30.5
29.9

* Estimates ^ Forecasts
Source: Economist Intelligence Unit (www.eiu.com)

Indonesia remained the fastest growth among major emerging markets. Strong growth due to central bank’s easing monetary policy. Benchmark rates cut by 1.5% in 2016 boosted lending and economic growth. Economic stability maintained made Indonesia an attractive investment destination among emerging markets.

Indonesian rupiah remained stable in 2016, thanks to the tax amnesty programme launched in 2016 to 2017, which brought in additional tax revenue of over US$11 billion. However, the favorable effect on boosting income and stabilising the exchange rate is short-lived. The government still faces the challenge of lifting tax base. Indonesia's ratio of tax revenue to GDP stands at around 14.2%, which is the lowest among larger Asian countries. Twin deficits on current and fiscal accounts, and exposure to commodities prices make the rupiah vulnerable to negative turns in global capital markets, posing a downside risk for its economy.

Looking ahead, Indonesia accelerates its economic growth by redirecting public funds and attracting more private-sector participation towards infrastructure development. Widodo has managed to improve Indonesia's business environment by undertaking various deregulation packages which have been recognised positively by World Bank's Doing Business rankings, where Indonesia has moved up from 106th out of 190 countries in 2016 to 91st in 2017. Stronger economic growth supported by rebound in commodity prices. In the long run, Indonesia will target to develop the manufacturing base, which is small relative to GDP compared with those in many ASEAN countries. This would help counter weakness in resources sectors resulting from subdued and volatile prices and weakening external commodities demand.

Chart: Hong Kong total exports to Indonesia
Chart: Hong Kong total exports to Indonesia

Hong Kong-Indonesia Trade

Total exports from Hong Kong to Indonesia decreased by 3.6% from HK$21,712 million in 2015 to HK$20,922 million in 2016. The top three export categories to Indonesia were: (1) telecommunications, audio & video equipment (+10.7%), (2) textiles (-7%), and (3) office machines & computers (-26.9%), which represented 61.8% of total exports to Indonesia.

ECIC Underwriting Experience

The ECIC imposes no restrictions on covering Indonesian buyers. The Corporation’s underwriting experience on Indonesia has been satisfactory, with no claim payment or payment difficulty case reported from May 2016 to April 2017.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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