Executive Summary.. 5
Core Views...5
Major Forecast Changes.....5
Key Risks To Outlook.....5
Chapter 1: Political Outlook. 7
SWOT Analysis... 7
BMI Political Risk Ratings..... 7
Domestic Politics I..... 8
Foreign Policy Hitting The Right Key....8
Indonesias recent successful turn as intermediary between Myanmar and the Association of Southeast Asian Nations proved the
countrys growing foreign policy efficacy while underscoring how far it has come since its own reform process began in the late 1990s.
TABLE: Political Overview.. 8
Domestic Politics II .... 9
Corruption Concerns Hamper Political Confidence....9
Corruption charges revolving around former Democratic Party treasurer Muhammad Nazaruddin highlight the still deeply rooted
nature of corruption in Indonesian politics. The countrys Corruption Eradication Commission will be heavily scrutinized for its ability to
successfully prosecute Nazaruddin and any other implicated politicians.
Long-Term Political Outlook .. 10
Outlook Improved, But Uncertainty Lingers...10
Although Indonesia has returned to relative orderliness since the chaos of the late 1990s and early 2000s, the country faces multiple
challenges and threats to its stability that could flare up again if President Susilo Bambang Yudhoyono or his successor proves
incompetent or if improved governance fails to take hold. As such, investors will continue to view Indonesia as one of Asias riskier
destinations.
Chapter 2: Economic Outlook.... 13
SWOT Analysis..... 13
BMI Economic Risk Ratings.... 13
Economic Activity.... 14
Powering On Despite External Weaknesses..14
Indonesian GDP growth came in at a strong 6.5% year-on-year for a third straight quarter, reflecting the economys continued domestic
demand-driven resilience in the face of mounting external pressures. We continue to like Indonesia as a regional outperformer, with
peers more dependent on external trade feeling the effects of a protracted slowdown in exports. Indeed, GDP growth stayed above
4.0% in 2009 at the peak of the global financial crisis, and with sound domestic fundamentals, Indonesia is better prepared to weather
such a storm this time around.
TABLE: ECONOMIC ACTIVITY.. 14
Fiscal Policy..... 16
2012 Budget To Spur Infrastructure Development....16
Indonesias 2012 fiscal budget will look to reduce the nations fiscal deficit in a continued effort to achieve the countrys first investment
grade rating as well as support the development of badly needed infrastructure projects, with capital spending set to rise by 17.6%.
Jakarta will also seek to support growth and counteract the possibility of falling foreign direct investment with additional large-scale
infrastructure investments, but efforts could be hamstrung by a stalled land reform bill.We highlight that considerable external risks could
cause the government to introduce further spending measures to protect economic growth, and we expect the 2012 fiscal deficit to
come in near 2.0% of GDP versus a government projection of 1.5%.
TABLE: FISCAL POLICY.... 17
TABLE: MONETARY POLICY.... 18
Monetary Policy ... 18
BI Surprises To Downside Again.....18
Bank Indonesias 50 basis point (bps) cut on November 10 2011 surprised to the downside again following a 25bps cut in October. The
central bank is clearly more concerned about poor external economic conditions than moderating inflation and is looking to support
growth into 2012 even as real GDP growth remains strong. We now expect to see one more 25bps to 5.75% in 2012, with inflation
remaining stable as it heads towards an end-2012 target of 4.5%.
TABLE: CURRENT ACCOUNT ... 20
Balance Of Payments.. 20
Current Account Deficit On The Horizon....20
Increasing income outflows pressured Indonesias current account surplus down to US $199mn in Q311, the accounts lowest print
since the height of the global financial crisis in Q408. While income pressures may ease over the short term, increased investment in
Indonesia along with import outperformance will likely send the current account into deficit over the long term. Still, the account looks
likely to stay in surplus for 2012, and we forecast it to hit 0.3% of GDP in 2012 versus 0.4% in 2011.
Chapter 3: 10-Year Forecast.. 23
The Indonesian Economy To 2021. 23
A Bullish Long-Term Growth Story.....23
Indonesias large domestic demand base and exposure to commodities are two key factors driving our bullish growth outlook for the
next decade. That said, government policy reform will be crucial in determining whether the country can reach its real growth potential.
TABLE: LONG-TERM MACROECONOMIC FORECASTS .... 23
Chapter 4: Business Environment. 25
SWOT Analysis..... 25
BMI Business Environment Risk Ratings.. 25
Business Environment Outlook.. 26
Institutions ... 26
TABLE: BMI Business And Operation Risk Ratings... 26
TABLE: BMI Legal Framework Rating... 27
Infrastructure ... 28
TABLE: Labour Force Quality..... 28
Market Orientation ... 30
TABLE: Asia, Annual FDI Inflows..... 30
TABLE: Trade And Investment Ratings..... 31
Operational Risk .. 32
TABLE: TOP EXPORT DESTINATIONS , 2001-2008..... 32
Chapter 5: Key Sectors... 35
Oil & Gas .. 35
TABLE: Oil & Gas – Historical Data And Forecasts.... 39
Infrastructure ... 40
TABLE: Construction & Infrastructure Industry Data.. 43
Other Key Sectors.... 45
TABLE: Autos Sector Key Indicators... 45
TABLE: Food & Drink Sector Key Indicators..... 45
TABLE: Pharma Sector Key Indicators.... 46
TABLE: Telecoms Sector Key Indicators... 46
TABLE: Defence and Security Sector Key Indicators.. 46
TABLE: Freight Key Indicators.... 47
Chapter 6:BMI Global Assumptions.. 49
Global Outlook.. 49
Eurozone Break-Up Risks Rising ...49
TABLE: GLOBAL ASSUMPTIONS ..... 49
TABLE: DEVELOPE D STATES REAL GDP GROWTH FORECAST .... 50
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .... 50
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST ... 51