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INDONESIAN COMMERCIAL NEWSLETTER
INDONESIA ECONOMIC OUTLOOK 2008

December 2007
General Picture

The Indonesian people entered  the year 2007 with great expectation that things would be better than in 2006 when the economy was rocked by soaring oil prices  in the world market and increases in oil fuel (BBM) prices on the domestic market. The government's decision to raise the price of subsidized BBM in October, 2005  resulted in a slump  notably in the manufacturing sector in 2006.

In 2007, the economic condition improved  despite rising prices of crude oil to hit the US$ 100 per barrel level. The inflation in 2007 was kept low as the government maintained the prices of BBM, telephone and electricity tariffs. Meanwhile, Bank Indonesia cut its benchmark interest rate contributing to revival of  the business sector.

In August-Sept. 2007 the world's economy was jolted by the U.S. sub-prime mortgage crisis causing a loss of billions of U.S. dollars to a number financial agencies in a number of countries. the world. Indonesia fared better. The country and a number of other Southeast countries, which have experienced monetary crisis in 1997 were better prepared to face the U.S. crisis.

However, the improvement of the country's macro economic indicators condition fell short of the people's expectation and the business sector in particular. The economic growth  was not strong enough to reduce poverty  and unemployment.
Based on data in the first three quarter of 2007, the country's economy was estimated to grow  6.5%  (y on y) and exports 13%.

In the first three quarters of 2007 the country's GDP grew 6.52% stronger than 2006's growth of  5.48% in 2006.

The soaring prices of crude oil in the world market and the U.S. sub prime mortgage crisis dragged down  the country's  economic growth  in 2007  Exports growth fell short of target because of the U.S. crisis. The main driver of economic growth in 2007 was  the consumption sector which expanded 5.29% in 2007.

Indonesia's GDP has for the past several years been sustained by the household consumption sector and exports of goods and services. The world's economic crisis  did not have direct impact on the country's economy because of the  high  household spending.

Meanwhile, the contribution of the government's consumption  to the GDP growth has declined. In 2007, the contribution of the government's spending to the country's GDP was 7.42%  or down  from 8.63% in 2006.

The decline in the contribution of the government's consumption  was caused by lower growth of the development budget. Low realization of the state budget also means the lower role of the state budget as and  economic stimulant.

The finance ministry said by Nov. 30, 2007, state spending totaled Rp 535.5 trillion or 72% of the amount set in the revised 2007 state budget of  Rp 746.4 trillion. Two weeks before the end of 2007, capital spending increased. According  to the finance minister, realization of the budget for capital spending was estimated to reach 89.4% of the amount set in the revised 2007 state budget. The estimate was much higher than  realization of 82.4% in 2006  and 60% in 2005.

The realization was higher than expected as two weeks earlier the realization was only 83% of the target. The surge in the realization gave rise to suspects of irregularities in the utilization of the state budget fund. The suspicion was mainly in the realization of the special fund allocation (DAK), which turned out to have been fully disbursed   amounting to Rp 17.094 trillion. .......

MONTHLY REPORT

INDONESIAN  COMMERCIAL NEWSLETTER
       
December 2007

ECONOMIC OUTLOOK 2008


ECONOMIC OUTLOOK 2008        1
  • General picture        1
  • APBN contributes little to GDP growth        2
  • Export performance improves with commodity price hikes        4
  • Inflation in 2007, exceeding target        6
  • Outlook 2008        7
  • Indonesia's economic prospects, 2008        9

INDUSTRY OUTLOOK: PROSPECTS OF MANUFACTURING SECTOR IN 2008        10
  • Current issue-De-industrialization        10
  • GDP growth by sectors        11
  • Transport equipment industry revived in 2007        12
  • Metal industry takes advantage of high steel price in export markets        13
  • Cement industry growing to follow revived of property sector in 2007        13
  • Fertilizer and chemical manufacturing sector to grow at slower rate        14
  • Food, beverages and tobacco manufacturing sector        15
  • Timber and forestry products sector        15
  • Textile, rubber goods and footwear manufacturing sector        16
  • Export of non-oil/gas boosted by high commodity prices        18
  • Realization of investment surges        20
  • Growth target manufacturing sector in 2008        23
  • Textile industry expected to revive        24
  • Motor vehicle industry expected to continue to grow        25
  • Cement industry to grow by slower pace        25
  • Food, beverage and tobacco sector        26
  • Steel industry facing dumping prices        26
  • Timber product industry        26
  • Paper and printed materials        27
  • Fertilizer and chemical industry        27
  • Projection for 2008 by the government        28


AGRIBUSINESS        
  • Current issue        29
  • Agribusiness sector expanded 10.23% in 3rd Q of 2007        30
  • Prices of several agribusiness commodities expected to continue to scale up in 2008        31
  • CPO price is expected to rise to US$ 900 per ton        31
  • Price of cacao        32
  • Rubber price        33
  • Coffee price        34
  • Prospects of agribusiness 2008        35

INFRASTRUCTURE: PROSPECTS OF INFRASTRUCTURE AND PROPERTY SECTORS  2008        37

TOURISM: OVERVIEW AND PROSPECTS OF TOURISM SECTOR        42

TELECOMMUNICATION: OUTLOOK OF TELECOMMUNICATION INDUSTRY        49

MINING: PROSPECTS OF MINING COMMODITIES, 2008        54

CORPORATE NEWS IN BRIEF:
  • Barito Pacific to acquire 70% of Chandra Asri        58
  • Medco to team up with sheel upstream to develop CBM Deposits        58
  • Indofood Group acquires Lonsum        58
  • Djarum Group to expand business to coal mining industry        58
  • Etilsat acquires 16% stake in XL from  Sondahk        59
  • BII-Danamon Bank closer to merger        59
  • Bank Lippo and Bank Niaga heading for merger        59
  • Polysindo to spend US$ 75 million in 2008        60
  • ATPK acquires Otoma Global Mitra BII-Danamon Bank closer to merger        60
  • Garuda doubles order for Boeing 737-800 NG        60
  • Rajawali to establish Cambodian flag carrier        61
  • Pertamina to build new oil refinery in East Java        61

ECONOMIC NEWS IN BRIEF:
  • Implementation of investment 184% from target        62
  • Indonesian Airlines asked not to buy European aircraft        62
  • Indonesia-Qatar joint venture to finance projects        62
  • More incentives offered to boost oil and gas explorations        63
  • Investment in oil and gas sector predicted to rise 22.2%        63
  • Indonesia-Iran oil refinery project shelved        63

APPENDICES:
  • Monetary indicators        64
  • Banking indicators        65
  • Economic Indicators        66
  • Export and import        67
  • Gross Domestic Product        68
  • Oil Price and Foreign Exchange        69
  • The Indonesian Economic Trends        70

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