Previous Quarterly Editions
Expropriation Risk: 59 60 60 60 ►Political Violence Risk:51 51 51 51 ►Terrorism Risk:57 57 57 53 ►Exchange Transfer and Trade Sanction Risk: 44 44 44 44 ►Sovereign Default Risk:47 55 55 47 ▼
TREND ▼
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: MediumAnti-austerity: High
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Indonesia remains in a relatively secure position regarding its external debt profile. As of the end of July 2023, the government reported the country’s external debt totaled US$396.4 billion,including US$193.2 billion in government debt and US$193.9 billion private debt. External debt in July 2023 represented a ratio of external debt to GDP of 29.2%, down from 29.3% a month earlier. Household debt was equal to 9.3% of nominal GDP in June 2023.
However, pressures on Indonesia’s current debt position are certain to increase over at least the next two quarters, and likely beyond, reflecting wider global trading conditions and the domestic impact of key elections due to be held in February 2024. Fitch forecasts general government debt to fall gradually to 38% of GDP by 2025, from 38.9% in 2023, but still well above the 2019 level of 30.6%.
Indonesia's exports fell 21.21% in August from a year earlier to US$22 billion, based on weaker prices for coal, palm oil and natural gas — Indonesia’s principal traded commodities. There are also growing concerns of the impact of the El Niño weather pattern on economic and social stability. The government has said it will launch
a US$521.51 million social assistance program to ensure affordable rice supplies to 21 million lower-income households.
Candidates for the presidency and other political posts in the February 2024 elections can also be expected to pledge the continuation or expansion of still-huge fuel and food subsidies in a bid to garner votes, adding to potential longer-term pressure on the economy. Further, such projects as a high-speed railway and the proposed new administrative capital Nusantara in East Kalimantan will require many billions of dollars in funding from foreign investors over the coming decades.
Indonesia may struggle to service these debts if the decline in such key carbon-based commodities as coal and natural gas enter long-term decline due to global green
energy policies. Overall, Indonesia is set to experience real GDP growth of around 5% in 2023, with a marginal increase likely in 2024.
TREND ►
While Indonesia’s known nickel reserves are around 21 million tons, annual production of 1.6 million tons means this resource will be exhausted within a decade or so, unless new reserves are identified and exploited. Nickel ore imports totaled almost 54,000 tons in the first half of 2023, up from 22,500 tons in 2022, as mining companies sought to amortize their obligatory investment in costly refineries by obtaining lower-cost ores.
This appears to reflect a response to expanding domestic exploration and development projects within Indonesia while meeting what many may view as onerous and time-consuming bureaucratic and environmental obligations.
It is now unlikely that the government will add to its already established efforts to ensure foreign companies either process more raw commodities onshore ahead of next year’s elections or add to existing requirements; however, it is possible that at least some projects financed by China may be subjected to increased scrutiny ahead of the polls, primarily to offset any negative public or populist opinion.
Overall, there is no indication that this or the next government intends to introduce any policies that could threaten the interests of any economic or commercial sector involving foreign business beyond those noted in their extractive industries or of developments that may create local instability.
Indonesian elections have in the past been attended by varying degrees of violence. This is usually the result of opportunistic actions by such anti-state actors as Islamist extremist or separatist groups rather than representing any ideological divisions between supporters of the various parties and their presidential candidates. While there are clear divisions between differing socioeconomic groups — notably along the lines of demography, religious adherence and urban/rural backgrounds — none appear likely to be manifested in any serious or sustained unrest ahead of or during the February 2024 elections.
Protests by organized labor groups opposed to the present government’s policies regarding a diminution of their previously long-established rights and benefits can be expected, although they should be largely peaceful unless provoked. Other sources of potential political or social unrest were evident in mid-September, when riot police were deployed at a demonstration in Batam City, about 20 kilometers south of Singapore, called to protest against plans to develop a Chinese-funded economic zone that would displace around 7,500 local inhabitants.
Inter-ethnic tensions involving local or expatriate Chinese are a cause for concern given past instances of episodic or more sustained violence targeting these communities. The high level of existing and anticipated investment from China, and Beijing’s likely response in the event its nationals are targeted, would have major consequences for Indonesia’s short-to-medium economic outlook.
TREND ▲
No serious terrorist attacks have occurred in Indonesia since the previous iteration of the Political Risk Index earlier this year. The most recent incident occurred in December 2022, involving a suicide attack at police station in Bandung, West Java, that killed one officer and wounded eight other individuals.
Numerous sources linked to the government’s National Counter-Terrorism Agency, the police, academic analysts and former militants have separately reported one of the main Islamist groups,Jemaah Islamiyah (JI), now believes that infiltrating the country’s political parties ahead of the February 2024 elections is a more productive tactic than staging attacks against government or foreign targets.
However, JI's main Islamist rival, Jemaah Ansharut Daulah, which is self-affiliated with Islamic State, has warned it intends to target polling stations during the elections. As a result, the threat of terrorist attacks over the pre-election period has now increased.
In mid-August 2023, the Indonesian government announced it had requested World Trade Organization dispute consultations with the European Union regarding the bloc's imposition of duties on imports of biodiesel. The European Union is Indonesia's third-largest market for palm oil products, including biodiesel. According to the Indonesian government, the European Union has imposed countervailing duties of up to 18% for the country’s biodiesel since 2019, which it argues is causing considerable damage to the industry.
Inflation stayed below the central bank's 2% – 4% target range over the past few months, reaching 3.27% in August. The 2024 budget assumes a lower inflation rate at 2.8% against the 3.1% whole year 2023 outlook, with economic growth rising to 5.2% in 2024 from 2023’s 5.1% forecast.
Rising U.S. Treasury yields and concerns over an economic slowdown in China have put pressure on the rupiah (IDR). After reaching a high of IDR14,676 to US$1 on May 6, 2023, the local unit was trading at IDR15,360 on September 20. Nevertheless, Indonesia’s central bank is expected to hold key interest rates at 5.75% ahead of the February 2024 elections.
Foreign exchange reserves fell to a 10-month low of US$137.1 billion in August 2023, down from US$137.7 billion the previous month, mainly due to government foreign debt payments and the need to stabilize the currency exchange rate in response to increased global financial market uncertainty. The reserve level was equal to funding needs for 6.2 months of imports.
The 2024 fiscal deficit was seen at 2.29% of GDP, slightly below 2023’s 2.3% outlook. State revenues are projected to reach IDR2,637.2 trillion (US$175.58 billion), up 7.1% from the initial target, mainly due to high taxation receipts.
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