Infrastructure Drive
The Indonesian economy has been relatively sanguine through the end of the second quarter. Kohlberg Kravis and Roberts, a large private equity fund, made a bullish report on the Indonesian economy based on their recent visit to the country. The strong endorsement by the firm promoted further favorable sentiment on the country after the recent upgrade of the country’s credit rating by S & P.
In the past few months, the Indonesian drive in infrastructure has continued unabated. In fact, several acquisitions underscore the optimism. At the beginning of this year, Saratoga and Surya Nusa, which jointly held 45% of the shares of the Cipali toll road, at the eastern part of West Java, sold their shares to Astratel, the infrastructure arm of the Astra Group, at a handsome profit. The main sponsor of the Cipali toll-road, United Engineering of Malaysia (UEM), having succeeded in the project, recently proposed to the Indonesian government to build a toll road to connect Tasikmalaya and Solo in the southern corridor of Java Island. The planned toll road is three times longer than the Cipali, and the Cipali is so far considered the longest stretch in the Trans Java toll road network.
The recent interest in toll-road development follows the successful progress in highway development, which was demonstrated by travelers' use of unfinished roads during the home-bound traffic in June 2017. The strong interest in using the unfinished toll roads was a signal for developers to expand their networks. With this, we expect that by 2020, the Indonesian highway system will be greatly improved, which may increase the efficiency of the Indonesian logistics system.
In other economic news, the external sector continues to show encouraging results. The trade balance jumped to $1,631.2 million in June 2017 from $578.3 million in May. However, the figures were skewed by the holidays. Indonesian exports in June were compressed to $11,644.9 million from $14,345.4 million in May, a decline of $2,700.5 million or 18.82%. However, imports were compressed even further; they declined to $10,013.7 million in June from $13,767.1 million in May, a decline of $3,753.4 million or 27.26%. All the declines in exports and imports were due to the long holidays that month. However, the sharper decline in imports was driven by the higher peak reached because of the festive season.
In the domestic economy, June 2017 was marked by relatively mild inflation of 0.67% despite the Muslim holidays. Year-over-year inflation in June 2017 was 4.37%, a level at the higher side of the target corridor of the Central Bank. However, that increase in inflation did not change the policy of the Central Bank, which kept its benchmark rate (the seven-day reverse repo rate) at 4.75%.
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