In recent months, the Indonesian economic outlook has been in the spotlight because their government and the Bank of Indonesia have been making concrete efforts toward economic reform. In response to economic ramifications and fluctuations in financial markets there, their authorities have devised various fiscal and monetary measures, e.g., raising their key policy rate twice, as well as cutting back on gasoline subsidies for the first time in 18 months.
KResearch holds the view that this significant economic reform has to some degree mitigated issues that have been eating away at their economy, having also affected Indonesia's credit ratings. Issues that spawned the reform included ongoing depreciation in the Rupiah, mainly from large energy imports and a constant decline in foreign exchange reserves. These issues will likely cause Indonesian's short-term outlook to be affected by recent reforms, since consumer purchasing power will likely be reduced; this in turn may slow their economic performance to perhaps 5.9 percent growth in 2013, from 6.2 percent in 2012. Nonetheless, their intent toward fundamental reform should stabilize the country's economy eventually.
In spite of the many daunting challenges, we at KResearch see that Indonesia possesses many other factors beneficial to investment, e.g., a demographic structure that supports market penetration and abundant natural resources.
Thai investors venturing into Indonesia in the near future should bear in mind that production and wage costs there have had a tendency toward increase, and they may consider the need for international business-related risk protection. Moreover, they should try to gain a thorough understanding of Indonesian rules and regulations that may complicate business for foreign investors, apart from the need to study Indonesian consumer behavior that differs from ours.
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