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Indonesia’s $65 billion equity

rout this year is slowing after

first-half corporate earnings provided some relief, especially

in commodity-related industries.

Investor sentiment, however, remains fragile amid

massive selloffs fueled by a gradual interest rate increase by

the United States Federal Reserve.

Economic growth in Indonesia remains lackluster, with

5.06 percent expansion posted in the first quarter amid

sluggish consumer spending, raising a question whether the

country will ever achieve this year’s 5.4 percent growth target.

The benchmark stock index has declined by about 6

percent so far this year, although it performed a little better

in July. The rupiah depreciated by around 6.25 percent so far

this year and it has broken through the psychological level

of 14,000 – the first time since December 2015. Markets

apparently still need more positive news to allow a solid

rebound from the current position.

Indonesia historically has always been fragile to capital

outflows, as it is one of a few emerging markets in Asia that

run current-account deficits. Furthermore, its financial

markets remain very shallow, and the government runs a

budget deficit, which adds to the country’s greater reliance on

foreign funds to help stimulate the economy.

Despite this bleak short-term picture,



performance review of the country’s 100 largest business

groups for this year is still positive, as the giant players are

apparently still enjoying revenue growth, especially those with

assets in the financial, consumer goods and commodity sectors.

Indonesian conglomerate PT Astra International Tbk,

which has diverse interests ranging from automotive to

finance and commodity-related businesses, posted a rebound

in its first-half earnings. The company reported 11 percent

growth in January-June net income, thanks to higher profit in

its commodity-related business arms.

Financial companies and banks also performed well,

with Djarum Group-controlled lender PT Bank Central Asia

Tbk, Indonesia’s largest bank by market value, seeing its net

income rise 8.4 percent, thanks to healthy loan growth.

As we review the giant players’ recent financial

performance, we also look into their long-term strategies,

including moves to enter the next level of modern business

practices with help from the internet-of-things.

Many Indonesian business groups have made serious

investments in the digital economy over the past five years,

banking on the prospect that this will be a steady revenue

generator in the future as operations in their brick-and-

mortar stores are being slimmed down to become more

efficient. This is in response to changing customer behavior

as millions of Indonesians now go online for much of their

daily activities, including shopping, booking accommodation,

buying travel tickets and much more.

Meanwhile, as the country is currently in dire need of

foreign funds, there are high hopes for a significant inflow

of foreign exchange during the Asian Games, scheduled to

take place between Aug. 18 and Sept. 2. Government officials

have already made their own calculations of the prestigious

sporting event’s potential economic impact. This will include

a revenue boost from tourism and ticket sales, and a potential

economic stimulus from the money sponsors are likely to

spend during the event.

At the same time, Indonesia is speeding up its

infrastructure development, while the private sector is also

gearing up hotel development to welcome more foreign

visitors, all of which are expected to create more jobs and

stimulate the economy.

Companies, including large groups, will reap some financial

benefit from the Asian Games, with analysts saying banks,

consumer goods and infrastructure-related companies are

likely to see a boost in income from the international multisport

event, which may also lift the country’s sports industry.

The year 2018 may be a challenging one for Indonesia

amid financial market volatility, lackluster economic growth

and the runup to next year’s legislative and presidential

elections. Good news may have to wait until the end of this

year. Meanwhile, Indonesian companies slowly but surely are

positioning themselves to embark on their journeys to the

digital world, which is expected to offer more steady returns in

the long run.

The Economy Needs a Boost



In our July edition, the correct question on page 36 paragraph

3 should have read

“Citi recorded interest and fee revenue

of more than 1.5 trillion rupiah this quarter. Is there a similar

target for the following quarters and the year?”

We regret the inconvenience.

The Editor