Previous Quarterly Editions
Expropriation Risk: 52 56 55 58 ▲ Political Violence Risk: 51 51 51 51 ► Terrorism Risk: 56 54 56 54 ▼ Exchange Transfer and Trade Sanction Risk: 35 35 35 35 ► Sovereign Default Risk: 37 37 47 37 ▼
TREND ▼
Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
On March 1, 2022, President Joko ‘Jokowi’ Widodo told a meeting of senior government officials the country had a wide range of environmentally friendly, renewable green energy assets many other economies lacked. He cited “wind, underwater currents, and sea surface heat [and] solar power”, and said the country’s transformation towards green energy will be a key topic when Indonesia hosts the G20 Forum due to be held in Bali in late October 2022.
Indonesia pledged ahead of the COP26 summit held in U.K. in November 2021 not to build any new coal power plants beyond those already planned and to reach net-zero carbon emissions by 2060, if not earlier. These commitments were made against a present energy mix in which electricity generation is reliant on coal for more than 60% of its total capacity with, according to data published by BP, renewables contributing 4.9% of primary energy, or 4.3 gigawatts, in 2020.
Biomass, biofuels and geothermal combined account for 4.7% of renewables and wind and solar power the remainder. In 2021, the government issued new regulations relating to the use of rooftop solar power systems and released its Electricity Procurement Plan (RUPTL) for 2021-30. The RUPTL sets an ambitious target of renewables meeting more than 51% of national energy needs by 2030. However, these ambitions are contingent on the need for a fair and just transition from carbon-based energy to a greater dependence on renewables, notably their impact on the existing extractive sectors such as coal that provide almost all of country’s present fuel used for electricity generation.
In 2020, some 563.73 million tonnes of coal were mined in Indonesia, with around 158.7 million tonnes consumed domestically, almost all in electricity generation, with the remainder exported. The industry is almost entirely owned and operated by Indonesian entities, including many with strong political links with few incentives to reduce the sector’s profitability. This factor, in addition to the huge investment in renewable infrastructure the present government’s declared energy transition targets would require, makes its declared polices at least aspirational and at most unrealistic.
TREND ▲
Indonesia’s presidency of the G20 throughout 2022 will be seen by the government as an opportunity to emphasise foreign investment opportunities and avoid policies or actions that may threaten this effort. However, the government’s declared intention of processing more of Indonesia’s mineral resources domestically, in order to add value, remains a source of some concern to existing and potential investors over future policy changes that may adversely affect their interests. For example, in early March, Jokowi said the export of bauxite in its raw forms will end in 2022, adding that copper ore shipments will also cease in 2023 with both minerals refined within Indonesia.
TREND ►
A ruling by Indonesia’s Constitutional Court in late November 2021 that gave the government two years to revise and amend sections of its so-called ‘Omnibus’ law passed in 2020 surprised many observers, long used to the country’s court system’s support for the status quo.
While some trade unions viewed the ruling as supporting their position, others demanded it be fully repealed, staging large but peaceful rallies in November and December 2021. Further similar protests can be expected in the coming months.
Another point of friction was the decision by Jakarta’s Governor Anies Baswedan in late 2021 to announce a legally enforceable 5.1% minimum wage increase for the capital’s workers in 2022, far beyond the 0.8% proposed by employers and the government’s 1.09% recommendation.
The security forces continue to maintain a high tempo in their operations against suspected Islamist extremists, with multiple arrests reported each month. However, there have been no serious terrorist incidents in major urban centres since two suicide attacks against the Catholic cathedral in Makassar (Sulawesi) in March 2021.
To date, concerns the sudden withdrawal of Western forces from Afghanistan in August 2021 will serve to encourage attacks by Islamists in Indonesia have yet to materialise, although the threat should be viewed as latent rather than diminished.
In early March, eight workers at a remote telecommunications site in Papua province in the country’s far eastern region were killed in an attack by suspected separatist, the most serious incident of its kind in the region for almost four years. The attack was around 40 kilometres from the foreign-operated Grasberg gold and copper mine, raising concerns that personnel or infrastructure linked to the site could also be targeted.
Indonesia’s gross domestic product (GDP) rose 3.69% in 2021 from the preceding year, largely due to increased investment, domestic consumption and higher commodity prices as the country emerged from the recession caused by the COVID-19 pandemic. In 2020 Indonesia entered its first recession since 1998, with GDP contracting by 2.07%, largely due to COVID-related social restrictions.
The consumer price index rose 2.06% in February, below the 2.2% median estimate in a Bloomberg survey of economists, reflecting government price caps on staple foods. Core inflation was at 2.03% in February, its fastest pace of increase since August 2020, but within the central bank’s 2%-4% target range.
However, oil prices are likely to result in the government increasing the cost of gasoline and take inflation nearer the 2% level in the coming months. The rupiah was trading in a range of IDR14,370-14,403 to USD1 in early March as the Ukraine-Russia conflict supported higher commodity prices offset by the strengthening US unit.
Foreign debt fell 0.4% to USD415.1 billion in the fourth quarter 2021, after increasing by 3.8% in the previous quarter year-on-year, both well within the legally mandated 60% ceiling. In late February, the central bank raised the possibility it will begin selling some of the USD58 billion government bonds purchased as part of fiscal and monetary stimulus measures intended to support the economy at the start of the COVID-19 pandemic. However, the bank indicated the bond sale would only likely commence in 2023. Foreign exchange reserves in January 2022 stood at USD141.3 billion, USD3.6 billion below the December 2021 figure.
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