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Indonesia’s economy faces gathering headwinds

From Bloomberg

Dec 6, 2013

Indonesian policy makers are grappling with a depreciated exchange rate, elevated inflation and diminished foreign capital inflows undermining President Susilo Bambang Yudhoyono’s legacy of economic stability before he steps down next year. His failure to fix infrastructure gaps in his two terms has added to price pressures, threatening his party’s chances at elections in 2014.


The government will allow foreign ownership of as much as 100 percent on airports, airport services and ports, Mahendra Siregar, chairman of the Investment Coordinating Board, told reporters today. For ground and freight terminals, it may be as high as 49 percent, while a cap on overseas holdings in 10 other industries may be eased, he said.


The World Bank said last month downside risks to Indonesia’s economic outlook are sizeable, as higher borrowing costs and inflation may have a greater-than-expected effect on domestic demand. Exports have dropped for 18 consecutive months.


“External demand continues to provide little boost to growth,” as exporters’ earnings remain under pressure from low commodity prices, Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd., said before the report.


The current-account shortfall was a record 4.4 percent of GDP in the three months through June, and central bank Governor Agus Martowardojo has said it may have narrowed to about 3.3 percent to 3.5 percent of GDP last quarter.


Bank Indonesia and the government are serious about addressing the current-account deficit, Finance Minister Chatib Basri said Oct. 25. “To manage it, our macro policies must be tight” for both monetary and fiscal matters, he said.


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