More signs of optimism

INDONESIA - Report 29 Jan 2020 by Cyrillus Harinowo

Approaching the end of 2019, there seemed to be an improving sense of optimism among various segments of the population. On the political side, the success in the general election in the first half of 2019 and the success in installing a relatively strong cabinet in October 2019 fostered an improvement in sentiment toward the government. On the economic side, while the Ministry of Finance did not succeed in reaching the revenue target, prudent fiscal management led the budget deficit to a relatively manageable 2.2% of GDP. At the same time the current account deficit was also manageable, at 2.7% of GDP. Meanwhile, Bank Indonesia had aggressively slashed the benchmark interest rate four times, to a level of 5%.

During the same period, there was also a sharp improvement in the price of Crude Palm Oil, which significantly helped companies in that sector, as well as millions of farmers in the islands outside of Java. These developments led to a great improvement in various business sectors in the country. The improvement in the price of CPO succeeded in improving the trade balance in December 2019. At the same time there was also a significant rise in the Central Bank's foreign exchange reserves​.

These factors, together with the increased capital inflow and the institutional improvement in the foreign exchange market, led to the strengthening of the Indonesian currency, the rupiah. After reaching Rp.15,253 per USD in October 2018, its lowest level, the rupiah eventually gained ground and crossed the Rp.14,000 level at the end of 2018, before breaching the Rp.13,000 level in early December 2019. These signs of optimism affected business sentiment at the beginning of 2020.

In more economic news, the Central Board of Statistics reported that the trade balance in December 2019 registered a small deficit. Exports for the month reached $14,473.1 million while imports reached $14,501.3 million, bringing the trade deficit for December 2019 to $28.2 million. Cumulative exports between January to December 2019 reached $167,525 million while cumulative imports for the same period reached $170,721.9 million. Therefore, the cumulative deficit for full-year 2019 stood at $3,196.9 million.

The Central Board of Statistics also reported that the Consumer Price Index for the month of December 2019 resulted in inflation of 0.34%. With that monthly inflation, Y/Y inflation in December 2019 reached 2.72%, a level still at the lower part of the inflation corridor. With that level of Y/Y inflation, Bank Indonesia decided to keep the benchmark rate at 5.00%. This policy has succeeded in strengthening market sentiment on Indonesia.

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