A Semblance of Stability
Executive Summary
A semblance of stability has been felt by the Indonesian business community since the rupiah strengthened a bit against the US dollar, at least narrowing the currency losses seen during the first quarter of the year. However, at the same time, business executives have also felt that business activities are slowing. Whether the return of the rupiah’s strength will help the economy recover is certainly unclear at this time.
The most important factor for this situation has been the slow spending by the government. In April, government spending trickled down slowly. At the same time, government tax revenue is targeted to be high this year. This has generated conjecture among business people as to what will happen to their tax obligations in the coming months, not only in the Central Government, but also in Metropolitan Jakarta, which only recently approved the provincial budget for disbursement.
In the coming months we will see a splurge of government expenditures that can drive the economy faster. At the same time, business investments will start to be realized. A new stretch of highway, linking Cikampek to Palimanan in West Java, at a length of 116 kilometers, will soon be completed, and in May 2015, the road will begin to be tested. The completion of this highway will facilitate transportation between the industrial belts of Jakarta and West Java to Central and East Java. This highway is also connected to the newly developed stretch of Pejagan to Pemalang (currently under construction) that will link the highway further east, to the northern corridor of Central Java. At the same time, the highway that stretches from Solo to Surabaya in east Java is currently under active construction. It is predicted that by the end of the current government, the Trans-Java toll road will be complete. At the same time, the double-tracking projects of the southern railway corridor, which will greatly benefit further development of the country, will also be completed.
On the external side, the Central Board of Statistics released the trade data for March 2015, which showed further improvement in the trade balance. The trade surplus for March 2015 was $1.13 billion, significantly higher than the $0.66 billion in the previous month. Meanwhile, foreign exchange reserves of Bank Indonesia at the end of March 2015 fell to $111.6 billion, $3.9 billion lower than the previous month.
March 2015 was marked by the return of inflation, albeit mild, which reached 0.17%. That left yearly inflation at 6.38%. Given the benign inflation data, Bank Indonesia decided to keep the interest rate constant at 7.5% at its policy meeting in April 2015.
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