Indonesia Update: May 31, 2018

Indonesia Update | May 31, 3018
Authors: Kim Yaeger, Artha Sirait and Ian Saccomanno
 
 
THE COUNCIL'S TAKE
 
 

Indonesia Intensifies Response to Market Sell-off

On May 15 and then again during an extraordinary meeting on May 30, Bank Indonesia (BI) raised its benchmark seven-day repo rate by a total of 50 basis points to 4.75 percent amid a fall in Indonesian markets and foreign capital outflows. The moves were the first hikes since November 2014 and come as GDP data for the first quarter registered slightly below expectations. BI argued action was needed to ensure Indonesia’s macroeconomic stability and Governor Perry Warjiyo has promised a continuing tight bias for monetary policy. BI will also continue to intervene in bond and foreign exchange markets to stabilize the currency, though the strategy has not had much success yet. BI has so far bought about $3.5 billion in government bonds in 2018. While these monetary policy instruments would be used to ensure stability in the short term, Governor Perry also promised that BI would also support longer-term growth by loosening macroprudential policy, accelerating money market development plans, and reforming payments systems.

Recent market turmoil has left BI trying to balance political needs to keep the rupiah stable ahead of elections with the need to stimulate growth as GDP growth continues to underperform. Indonesia is one of the countries worst affected by the combination of rising U.S. yields and higher oil prices, with its fiscal and current account deficits making it vulnerable. The outside pressure on Indonesia’s markets has been compounded by an unusual series of terrorist attacks, a slight slowdown in consumption, and weakening corporate earnings. A total of $4 billion has left over the past month. The rupiah broke 14,000 to the dollar in early May, its weakest point since 2014, and foreign investors have sold off $2 billion in government bonds since the start of April (38 percent of all rupiah-denominated bonds are held by foreign investors). The Jakarta Composite Index has now fallen more in 2018 than Philippine markets, making it the worst performer in Asia and delaying several planned IPOs. However, since BI strengthened its policy response, the stock and foreign exchange markets been more stable and some large investors are arguing the market has bottomed out. Indonesia also remains in a stronger fiscal position than it was during the 2013 taper tantrum and still has about $125 billion in foreign exchange reserves and $60 billion in bilateral swap facilitates. Though it may come at the cost of some growth, these reserves and further adjustments of the interest rate as the U.S. Federal Reserve raises its rates should ensure some degree of market stability.

Golkar Supports its Chairman Airlangga Hartarto to be Jokowi’s Running Mate

Senior Golkar figures such as House Speaker Bambang Soesatyo and Head of Golkar Faction in DPR Melchias Marcus Mekeng (simultaneously Chairman of Commission XI overseeing Banking and Finance) have expressed their support for Golkar chairman Airlangga Hartarto to become Joko “Jokowi” Widodo’s running mate in the 2019 Presidential Election. As of the date of this article, Jokowi has yet to decide on his vice-presidential candidate and Hartarto refused to comment when asked of the possibility, although both have acknowledged discussing the matter.

Jokowi and Golkar enjoy a somewhat friendly relationship for a number of reasons. Although Jokowi was nominated by PDI-P in the 2014 Presidential Election, he was not considered as a PDI-P cadre. There were dissenting voices regarding Jokowi’s nomination but since he was a popular figure, PDI-P’s chairperson Megawati proceeded with Jokowi’s nomination. Following his election however, Jokowi and Megawati’s already ambivalent relationship continued to deteriorate. During a PDIP-P national congress in 2015, Megawati delivered a speech with Jokowi sitting in the audience that he was a success story of PDIP-P and his job was to remain in its service. Jokowi also was not invited to speak at his own party’s congress. PDI-P was said to also be unsatisfied as the party was only given four positions in the 34-member cabinet; in addition to Jokowi’s refusal to appoint Budi Gunawan, Megawati’s personal choice for the National Police Chief position.

On the contrary, Jokowi was invited to Golkar’s national congress twice and was asked to address the congress. He arguably has more influence with Golkar than his own party where he has never been treated with the deference one would expect considering his position. His growing popularity with Golkar is also thanks to Luhut Pandjaitan’s political muscle and the influence Pandjaitan has over Golkar. Luhut Pandjaitan was offered a formal position within Golkar’s party structure although he turned down the offer citing that he would like to focus on working as a cabinet member.

Golkar itself has not always been behind Jokowi. Being the government party during Soeharto’s era, Golkar has undergone extensive changes since the 1998 reformasi. Between 2014-2016, Golkar was divided into factions: Aburizal Bakrie v. Agung Laksono. The leadership issue started in 2014 when then Golkar Chairman Aburizal Bakrie decided to ally with Prabowo Subianto supporting him as a presidential candidate following Bakrie’s own failed campaign to become president due to poor support. Bakrie remained Prabowo’s ally even after Jokowi became president marking the first time Golkar playing an opposition role. This resulted in a split in the party. Subsequent to a few rounds of internal conferences, a temporary intervention by the Minister of Law and Human Rights, and the involvement of prominent Golkar political figures such as Luhut Pandjaitan; Bakrie stepped aside from the chairman position and Setya Novanto became Golkar’s chairman in May 2016. Golkar under Novanto’s leadership rejoined the government coalition backing up Jokowi.

In November 2017, Novanto was charged and later sentenced for his involvement in a major corruption scandal which resulted in him being replaced by Airlangga Hartarto. Hartarto has since led Golkar as its chairman and is simultaneously serving as the Minister of Industry in the Jokowi cabinet. Golkar currently is the second largest party in Indonesia following PDI-P.

 
 
IN THIS UPDATE
 
 
National Affairs
Jokowi's growth dream fades as Indonesia seeks stability instead
State-owned firms prohibited from seeking fresh loans
Finance Ministry lowers economic growth projection
Golkar firmly supports Hartarto as vice presidential candidate 
Indonesia holds simulations to prepare for IMF-World Bank Meeting

Customs
EU upbeat on I-EU CEPA deal amid palm oil issue 
Indonesia, Peru to Enter a Free Trade Agreement
Provisions on the Utilization of National Maritime Transportation and National Insurance for Imports and Exports of Certain Goods Amended
Indonesian products marketed at ASEAN street bazaar in Singapore

Economics
Indonesia's New Central Bank Governor Pledges Focus on Rupiah Stability

Energy
Digging Deep: New Indonesian Mining Law to Replace the Mining Law?

Financial Services
Bank Indonesia increases reference rate to 4.75 percent
Indonesia Raises Interest Rates Again to Stem a Slide in Its Currency
Indonesia rate hike is coming early with election on horizon
Indonesia's Two Interest-Rate Hikes May Not Halt Rupiah's Rout
Indonesia: Umbrella law for disaster risk insurance needed
India, Indonesia among Asia's most debt risky nations
TRANSFAST Ties Up with Indonesia Post Office for Remittances | Markets Insider
Bank Indonesia projects 5.2 percent growth in 2018
For Asia's Newest Central Bank Chief, It's a Trial by Fire
Indonesia: Formation of state-owned insurance holding company still in early stages
Indonesia central bank steps up FX swap auctions to support liquidity
Indonesia Says Ready to Act, After Rate Hike Fails to Stem Rupiah Fall
New Legal Framework for E-Money

Food & Agriculture
Industry Ministry to open food and beverage innovation center 
House speaker urges government to consolidate rice data
Big Ag Turns to Peas to Meet Soaring Global Protein Demand

Health & Life Sciences
Health coverage challenge: Reaching informal workers
UGM launches app to help you help disaster victims
Industry group seeks to enhance trade with India

ICT
Indonesia welcomes APEC initiative in inclusivity, digital economy
Gov't Wants More Local SMEs in E-Commerce to Reduce Inequality
Disruptive Technology, Automation Force Change in Workers' Skills: McKinsey
Hukumonline English | Industry 4.0: The Indonesian Perspective
Indonesian ride-hailing firm Go-Jek says to expand abroad
Ministry Blocks Thousands of Radical Websites, Accounts

Infrastructure
West Java’s Kertajati Airport starts operation on Thursday
 
ARTICLE CLIPS
 
 
National Affairs

Jokowi's growth dream fades as Indonesia seeks stability instead The Jakarta Post 31st May 2018
Indonesia has now all but given up on the economic growth target set by President Joko "Jokowi" Widodo when he swept to power four years ago.

State-owned firms prohibited from seeking fresh loans The Jakarta Post 30th May 2018
The government has prohibited state-owned enterprises (SOEs) from seeking new bank loans. Instead, they are required to find alternative financing, such as securitization and bonds.

Finance Ministry lowers economic growth projection The Jakarta Post 30th May 2018
Finance Minister Sri Mulyani Indrawati says the ministry is lowering its economic projection, which is in a rage of 5.17 to 5.4 percent, compared to the 5.4 percent economic growth projected in the 2018 state budget.

Golkar firmly supports Hartarto as vice presidential candidate - ANTARA News Antara News 29th May 2018
The Golkar Party has adopted a firm stance to support its general chairman Airlangga Hartarto as the vice presidential candidate pairing up with Joko Widodo (Jokowi) in the 2019 presidential race.

Indonesia holds simulations to prepare for IMF-World Bank Meeting The Jakarta Post 24th May 2018
Organizers are  preparing for the IMF-World Bank Meeting 2018 in Bali, including by holding simulations.  

Customs

EU upbeat on I-EU CEPA deal amid palm oil issue  The Jakarta Post 28th May 2018
The European Union believes ongoing debate over palm oil with Indonesia will not hamper the progress of the Indonesia-European Union Comprehensive Economic Partnership Agreement (I-EU CEPA).   

Indonesia, Peru to Enter a Free Trade Agreement Jakarta Globe 25th May 2018
Indonesia and Peru agreed to step up economic cooperation during a meeting between their foreign ministers in Lima, Peru, on Wednesday (23/05). The cooperation is going to start with a trade in goods agreement (TIGA) to intensify trade engagement.

Provisions on the Utilization of National Maritime Transportation and National Insurance for Imports and Exports of Certain Goods Amended Hukum Online 22nd May 2018
The Minister of Trade (“Minister”) recently issued Regulation No. 48 of 2018 (“Amendment”), which amends Regulation of the Minister No. 82 of 2017 on Provisions for the Utilization of National Maritime Transportation and Insurance for the Imports and Exports of Certain Goods (“Regulation 82/2017”).

Indonesian products marketed at ASEAN street bazaar in Singapore The Jakarta Post 20th May 2018
Products from Indonesian small and medium enterprises (SMEs) are being sold at the ASEAN Street Bazaar at Wisma Geylang Serai Market, Singapore, which runs until June 12. The bazaar is part of a plan to promote the ASEAN Community by the Singaporean government, which is currently the ASEAN chairman. 

Economics

Indonesia's New Central Bank Governor Pledges Focus on Rupiah Stability Jakarta Globe 24th May 2018
Indonesia's newly sworn in central bank governor on Thursday (24/05) promised to use interest rate policy to stabilize the rupiah currency in the near term and to be "more pre-emptive" and ahead of the curve on monetary settings. 

Energy

Digging Deep: New Indonesian Mining Law to Replace the Mining Law? Lexology 25th May 2018
News of a new Indonesian mining law first emerged in 2016. Since then, the Indonesian House of Representatives (“DPR”) has prepared several revisions, including the latest draft dated 10 April 2018 by Commission VII of the DPR. 

Financial Services

Bank Indonesia increases reference rate to 4.75 percent The Jakarta Post 30th May 2018
Bank Indonesia (BI) has decided to raise its seven-day reverse repo rate to ensure stability against volatility that is expected to rise out of the United States Federal Reserve’s planned interest rate hike.

Indonesia Raises Interest Rates Again to Stem a Slide in Its Currency WSJ 30th May 2018
Indonesia’s central bank raised its benchmark interest rate for the second time in two weeks, the latest attempt by policy makers in an emerging market to tame the effects of a stronger dollar.

Indonesia rate hike is coming early with election on horizon The Business Times 30th May 2018
For Indonesia's new central bank chief, politics will play a key role in Wednesday's interest-rate decision as he tries to stem a currency rout. With elections looming next year, Governor Perry Warjiyo needs to stabilise the rupiah as well as support growth in an economy that's already lackluster. 

Indonesia's Two Interest-Rate Hikes May Not Halt Rupiah's Rout Bloomberg.com 30th May 2018
Indonesia’s second interest-rate increase in two weeks may be followed by more policy tightening to stem a slide in the rupiah amid an ongoing rout in emerging markets. 

Indonesia: Umbrella law for disaster risk insurance needed Asia Insurance Review 29th May 2018
Indonesia's Finance Ministry is considering a disaster risk insurance and financing scheme, that could be included in the State Budget in 2019. Until now, there is no single legal umbrella covering this issue. 

India, Indonesia among Asia's most debt risky nations The Jakarta Post 29th May 2018
It’s no surprise that India and Indonesia are among the worst-hit Asian currencies this year when you look at their foreign debt exposure and the level of reserves they have to cover that. 

TRANSFAST Ties Up with Indonesia Post Office for Remittances | Markets Insider markets.businessinsider.com 29th May 2018
NEW YORK, May 29, 2018 /PRNewswire/ -- TRANSFAST, a leading money transfer services company with presence in over 125 countries, ties up with POS Indonesia, the State-owned postal service and one of the largest remittance providers in the country, to enable the Indonesian community residing around the world to send money transfers to their Indonesian counterparts. 

Bank Indonesia projects 5.2 percent growth in 2018 The Jakarta Post 25th May 2018
Bank Indonesia (BI) expects the Indonesian economy to expand by 5.2 percent this year on the back of strong commodity prices and fiscal stimulus policies aimed at attracting investors.

For Asia's Newest Central Bank Chief, It's a Trial by Fire Bloomberg.com 23rd May 2018
When Perry Warjiyo was named as Bank Indonesia’s new governor last month, a rout in global emerging markets was only just starting to take hold. With the rupiah having slumped almost 3 percent against the dollar since his appointment, and investors continuing to dump the nation’s stocks and bonds, the 59-year old faces a trial by fire.

Indonesia: Formation of state-owned insurance holding company still in early stages Asia Insurance Review 23rd May 2018
The Ministry of State-Owned Enterprises is continuing to work on forming state-owned insurance holding companies. The goal is to enhance the companies' capability to raise capital and achieve greater operational efficiency.

Indonesia central bank steps up FX swap auctions to support liquidity The Business Times 21st May 2018
Indonesia's central bank will conduct three foreign exchange swap auctions this week to ensure there is enough rupiah liquidity in the market following its benchmark interest rate hike, a senior bank official told Reuters on Monday. 

Indonesia Says Ready to Act, After Rate Hike Fails to Stem Rupiah Fall Jakarta Globe 18th May 2018
Bank Indonesia's governor stressed that the central bank is ready to act again to "ensure stability" after its first interest rate hike since 2014 failed to stop the rupiah from sliding on Friday (18/05). 

New Legal Framework for E-Money Hukum Online 18th May 2018
In light of this rapid growth in E-Money transactions, Bank Indonesia (“BI”) recently established a new set of rules for players operating within this sector through the issuance of Regulation of BI No. 20/6/PBI/2018 on Electronic Money (“Regulation 20/2018”). 

Food & Agriculture

Industry Ministry to open food and beverage innovation center - ANTARA News Antara News 30th May 2018
The Industry Ministry plans to open a Food and Beverage Innovation Center (PIMM) to support implementation of Making Indonesia 4.0 or fourth industrial revolution in Indonesia.

House speaker urges government to consolidate rice data The Jakarta Post 22nd May 2018
House of Representatives Speaker Bambang Soesatyo has called on the government to consolidate its data on rice stocks, following different statements from government officials on whether the country needed to import rice or not. 

Big Ag Turns to Peas to Meet Soaring Global Protein Demand Jakarta Globe 19th May 2018
In a joint venture at a Wisconsin plant, flour milled from Iowa yellow peas is mixed with water and spun at high speed through stainless steel drums, separating the protein from starch and fiber. 

Health & Life Sciences

Health coverage challenge: Reaching informal workers The Jakarta Post 21st May 2018
The establishment of the National Health Insurance (JKN) in 2014 marked the watershed of Indonesia’s ambitious commitment to achieve Universal Health Coverage (UHC) by 2019. 

UGM launches app to help you help disaster victims The Jakarta Post 19th May 2018
Through its Center for Natural Disaster Studies (PSBA), Yogyakarta-based Gadjah Mada University (UGM) has launched a disaster information system named GOTRO that can be accessed through smartphones running Android. 

Industry group seeks to enhance trade with India The Jakarta Post 18th May 2018
In an effort to boost economic cooperation between Indonesia and India, the Indonesian Chamber of Commerce and Industry (Kadin), in collaboration with the Indian Embassy in Jakarta, launched on Friday the India Bilateral Committee of Kadin.

ICT

Indonesia welcomes APEC initiative in inclusivity, digital economy The Jakarta Post 29th May 2018
A recent meeting of ministers from Asia Pacific Economic Cooperation (APEC) countries in Port Moresby, Papua New Guinea (PNG), highlighted the optimization of technology and importance of inclusivity in economic growth. 

Gov't Wants More Local SMEs in E-Commerce to Reduce Inequality Jakarta Globe 29th May 2018
Jakarta. Indonesia might force local e-commerce sites, like Alibaba-backed Lazada, Softbank's Tokopedia and Bukalapak to offer a certain amount of goods from local small and medium enterprises, a minister said on Monday (29/05). 

Disruptive Technology, Automation Force Change in Workers' Skills: McKinsey Jakarta Globe 28th May 2018
Changes in global demand for different types of workforce skills, caused by the rapid growth of technology, will require business organizations to provide training programs to employees. 

Hukumonline English | Industry 4.0: The Indonesian Perspective Hukum Online 25th May 2018
In April 2018, the Government launched a roadmap that it calls “Making Indonesia 4.0”, which sets out a number of strategies formulated by the state in a bid to embrace Industry 4.0. 

Indonesian ride-hailing firm Go-Jek says to expand abroad The Star Online 24th May 2018
Indonesian ride-hailing and online payment firm Go-Jek on May 24 said it would enter Vietnam, Thailand, Singapore and the Philippines in the next few months, investing US$500mil (RM1.99bil) in its international push.

Ministry Blocks Thousands of Radical Websites, Accounts Tempo 21st May 2018
Yogyakarta - The Communication and Information Ministry has blocked thousands of websites and social media accounts it deemed spreading radicalism. 

Infrastructure

West Java’s Kertajati Airport starts operation on Thursday The Jakarta Post 22nd May 2018
Kertajati International Airport in Majalengka, West Java, will officially start its operation as an international airport on Thursday, Transportation Minister Budi Karya Sumadi said in Jakarta on Tuesday.