Courageous First Steps
Executive Summary
The Jokowi government began in earnest in November, with impromptu presidential visits to several places, beginning with the headquarters of the Indonesian Investment Board. That sent a strong signal that he wants to streamline the investment approval process, by introducing a “one roof service.” Just as when he was a mayor in Solo, and governor of Jakarta, the president can be counted on to return later to check on progress. He also visited victims of the Mount Sinabung eruption in North Sumatra.
The government has also begun implementing its new social programs: an Indonesian Health Card, Smart Card and Welfare Family Card. These are Jokowi priorities. We may see debates over implementation in coming weeks, but we’re convinced he’ll sort out those problems.
He also impressed during the APEC Summit in Beijing in November, at ASEAN in Myanmar and at the G20 Meeting in Australia. He dispelled skepticism over his supposed shaky English-language skills by giving a presentation in English at APEC. Though it’s true he spoke in simple English, was able to convey a strong message about the need for investment to move the country forward. It was an outstanding beginning for a politician who has cultivated an image of his life as simple person.
However, his boldest step was raising domestic fuel prices by Rp. 2000 per liter, to Rp. 8,500, and diesel oil to Rp. 7,500, despite rising resistance, including from his own party. That will give next year’s budget significant fiscal space, of more than Rp. 100 trillion (about $9 billion) for both infrastructure and social programs.
Q3 growth slowed further, to 5.01%, putting growth for the first nine months of 2014 at 5.11%. The Q3 current account reported a deficit of $6.836 billion, down from both Q2 and the same period of 2013. The CAD was 3.07% of GDP; lower than the 4.06% in Q2. With a large surplus in the financial account, the balance of payments for Q3 posted a surplus of around $6.475 billion. That increased FX reserves in September to slightly over $111 billion.
Trade in September repeated its performance of August, and was again in deficit. Exports did increase 5.48%, from $14.48 billion in August to $15.28 billion in September. But imports likewise rose, to $15.55 billion in September from $14.79 billion in August, up 5.09%. That left a $270.3 million trade deficit, slightly less than in August, and put the Q3 trade deficit at $464 million. FX reserves rose to $112 billion by the end of October, part of a trajectory of steady increase for the last few months.
Inflation was 0.47% in October, with y/y inflation ticking up to 4.83%. With the surprise domestic fuel price hike, Bank Indonesia preemptively raised the benchmark rate by 25 bp. Yet it simultaneously loosened a liquidity regulation, by broadening the definition of deposits in the loan-to-deposit ratio.
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