IDR Outlook (1-3 Month)– Less constructive view of IDR

Indonesian Rupiah was one of the worst performing AXJ currencies last month (-1.97% against USD) after data showed GDP shrank for a second quarter in a row (-0.18%q/q, cons: +0.25%q/q) highlighting the challenge facing President Widodo. The President has set himself a target of 7% growth by 2017. 

Expectations of higher government spending on infrastructure to lift GDP growth (BI GDP forecast: 5.4-5.8% in 2015, from 5.02% in 2014) are not being realised, notes RBC Capital Markets. Finance Minister Bambang Brodjonegoro told reporters in late April that as of April 25, the government had spent only IDR7trn (2%) of its IDR290trn budget for infrastructure spending. 

President Widodo has lost a great degree of political capital in the six months since he took power and his slow progress in lifting infrastructure spending is a factor behind our less constructive view of IDR. The month of May saw sustained net equity outflows from Indonesia amid negative foreign sentiment.