Indonesia Business Forecast Report Q1 2013 - New Study Released

New Country Reports research report from Business Monitor International is now available from Fast Market Research

by Bill Thompson

(WireNews+Co) - Boston, MA - 02 February 2013

Core Views - Economic growth slowed again in the third quarter, and we expect the moderation to continue on into 2013. In particular, we see a relatively challenging outlook for investment in 2013 owing to weakness in commodity prices, policy concerns, and the fragile state of the global economy. We expect headline GDP growth to slow to 5.6% in 2013 from 6.2% in 2012.

Indonesia's business environment may be challenged by the government's pursuit of protectionist policies, especially within the mining sphere. While there have been some signs that the government may move to ease certain laws that business interests have decried as particularly punitive, it will be increasingly difficult for the government to backtrack in view of approaching elections in 2014.

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Major Forecast Changes

We have downgraded our 2013 average forecast for the rupiah to IDR9,700/US$ versus IDR9,400/US$ previously in line with ongoing stresses seen in Indonesia's external position.

We have upgraded Indonesia's 2012 fiscal deficit forecast from 2.9% of GDP to 2.5%. However, we note that the government continues to struggle with efficiency issues as a result of its burdensome energy subsidy programme.

Key Risks To Outlook

Indonesia continues to bear risks to substantial hot money outflows in the event of a rapid deterioration in the global economic environment given the large participation level of foreign investors in the market. Such a scenario could effect a considerable sell-off in the rupiah and rapidly rising yields in Indonesian sovereign debt, as seen in 2008.

Partial Table of Contents:

Executive Summary

Core Views

Major Forecast Changes

Key Risks To Outlook

Chapter 1: Political Outlook

SWOT Analysis

BMI Political Risk Ratings

Political Analysis

Mining Law Questioned, But Protectionism To Persist

- While the mining sector in Indonesia may see a reprieve following a Supreme Court ruling that the country's unpopular restrictions on unprocessed metal ores may not be enforceable, we continue to believe that the government will pursue a relatively protectionist policy track in the run-up to 2014 elections, thus potentially undermining Indonesia's already shaky business environment.

TABLE: INDONESIA POLITICAL OVERVIEW

Long-Term Political Outlook

Outlook Improved, But Uncertainty Lingers

- Although Indonesia has returned to relative orderliness since the chaos of the late 1990s and early 2000s, the country faces multiple challenges and threats to its stability that could flare up again if President Yudhoyono or his successor proves incompetent or if improved governance fails to take hold. As such, investors will continue to view Indonesia as one of Asia's riskier destinations.

Chapter 2: Economic Outlook

SWOT Analysis

BMI Economic Risk Ratings

Balance Of Payment

Rupiah Stabilising, But Hot Money Risks Lurking

- We continue to hold a neutral bias on the rupiah over the short-term, as our expectations for the currency to hit stability have played out well. Although Indonesia's external position has deteriorated markedly over the course of 2012, it too appears to have found some stability, and we believe that pressures from the country's weakening trade position have eased somewhat. As such, we expect the unit to end 2012 at our target of IDR9,600/US$.

INDONESIA-CURRENT ACCOUNT

Economic Activity

Mining Investment Facing Challenges In 2013

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