This Week's Headlines (Apr. 20 – 26, 2024)

26 Apr 2024

2024 Elections
Electric Vehicles
This Week's Headlines

Indonesia court rejects election challenges, upholds Prabowo's win


An Indonesian court on Monday rejected challenges from both losing candidates seeking a re-run of February's presidential election and the disqualification of winner Prabowo Subianto and his running mate, bringing an end to all election disputes. 


The Constitutional Court ruled that there was no evidence of systematic fraud and presidential “meddling”, nor that state bodies, regional officials and social assistance had been mobilized to sway polls in the world's third-largest democracy. 


“The plaintiff's petition has no legal basis in its entirety,” said Chief Justice Suhartoyo, announcing the decision for one former candidate, ex-Jakarta governor Anies Baswedan. The other former candidate to dispute the result was Ganjar Pranowo, a former Central Java governor. 


Five judges ruled in favor of rejecting both petitions, with three dissenting opinions, he said. 


The Constitutional Court's decisions are final and binding and both former candidates said they would respect the ruling, with Ganjar wishing luck to the “winner”. 


Anies said in a video address that he was committed to a peaceful governmental transition and called Prabowo a “patriot”, adding that the court ruling marked the end of the election. 


Otto Hasibuan, a lawyer for Prabowo's camp, said the ruling was “a victory for all Indonesians”. 


Prabowo, 72, is set to take office in October, replacing the hugely popular President Joko Widodo, better known as Jokowi. 


The presidential palace respects the ruling and will help support the transition of the president-elect, palace spokesperson Ari Dwipayana said. 




Anies and Ganjar had both separately alleged there was state interference to favor Prabowo, who won by a huge margin. They had also complained that Prabowo’s running mate, the current president's 36-year-old son, should not have been allowed to take part. 


In court, they had sought Prabowo’s disqualification, arguing the government's widespread distribution of social aid, including handouts of rice, cash and fertilizer, in key areas had swayed the vote in his favour. 


The administration and Prabowo rejected the allegations. During the court hearings, cabinet members denied that the aid had swayed voters while Prabowo, who won 58% of the vote, has dismissed the claim as baseless. 


Judge Arief Hidayat, who cast one of the dissenting votes, had said the president and state agencies lacked neutrality. 


Anies and Ganjar, who won about 25% and 16% of votes respectively, had also alleged that tacit support from Jokowi had gifted Prabowo an unfair advantage. 


Jokowi came under intense scrutiny in the election run-up, with critics alleging he abused his position to favor Prabowo, with the aim of preserving his legacy after a decade in charge of Southeast Asia's biggest economy. 


The losing candidates also complained to the Constitutional Court about the inclusion of Jokowi’s son Gibran Rakabuming Raka as Prabowo’s running mate, which was enabled by a decision in October by the same court to change eligibility rules. 


The chief justice at the time was Jokowi’s brother-in-law, who was later reprimanded by an ethics panel for allowing intervention from an unspecified “external party”. He was barred from involvement in election-related cases. 


Despite the ethical violation, the judges said on Monday there was no evidence of nepotism or presidential intervention in relation to that decision. 


Source: Reuters 



BI Raises Interest Rates to 6.25 Percent Over Geopolitical Concerns


Bank Indonesia (BI) increased the benchmark BI-Rate by 25 basis points to 6.25 percent, citing escalating geopolitical tensions in the Middle East and rising interest rates in the US, causing the rupiah to weaken. 


During its Board of Governors Meeting on April 23-24, the central bank also raised the Deposit Facility rate to 5.5 percent and the Lending Facility rate to 7 percent. 


“This rate hike aims to strengthen the rupiah exchange rate amid worsening global risks and to ensure inflation remains within the target of 2.5 plus-minus 1 percent in 2024. It is in line with our pro-stability policy stance,” said BI Governor Perry Warjiyo during a press conference after the monthly Board of Governors Meeting on Wednesday. 


This is the first interest rate hike since October 2023 and was contrary to analysts’ expectations. 


Perry said that global economic and financial dynamics were rapidly changing due to increasing risks and uncertainties stemming from changes in US monetary policy and escalating geopolitical tensions in the Middle East. 


“As a result, global investors are shifting their portfolios to safer assets, particularly the US dollar and gold, leading to capital outflows and further depreciation of currencies in emerging markets,” explained Governor Perry Warjiyo. 


According to Perry, high inflation and robust economic growth in the United States were fueling speculation of a smaller and longer-than-expected decline in the US Federal Reserve’s benchmark interest rate (Fed Funds Rate/FFR), in line with statements from Federal Reserve officials. This, along with the US’s increasing debt needs, has led to a continuous increase in US Treasury yields and a stronger US dollar globally. 


“The strengthening of the US dollar is also driven by the weakening of several world currencies such as the Japanese Yen and the Chinese Yuan,” added Perry. 


Moving forward, risks related to the direction of the FFR decline and global geopolitical tensions will continue to be monitored as they could lead to further uncertainty in global financial markets, increased inflationary pressures, and decreased prospects for global economic growth. 


“These conditions require a strong policy response to mitigate the negative impact of global uncertainty on the economies of developing countries, including Indonesia,” said Perry. 


Meanwhile, Indonesia’s economy is considered resilient amidst increasing global uncertainty. Economic growth in the first and second quarters of 2024 is expected to be higher than in the fourth quarter of 2023, supported by strong domestic demand from household consumption in line with the seasonal Eid trend. 


Investment in construction is higher than expected, supported by the continuation of National Strategic Projects (PSN) in several regions and the growth of private property due to government incentives. With these developments, economic growth in 2024 is estimated to be in the range of 4.7-5.5 percent. 


“In the future, BI will continue to strengthen policy synergy with the Government, including through the Government's fiscal stimulus with Bank Indonesia's macroprudential stimulus, to support sustainable economic growth, especially from the domestic demand side,” added Perry. 


The rate hike was contrary to analysts’ expectations, who anticipated BI to maintain its benchmark interest rate. 


Teuku Riefky, an economist from the Institute for Economic and Social Research (LPEM) Faculty of Economics and Business, University of Indonesia (FEB UI), had recommended Bank Indonesia (BI) to maintain its benchmark interest rate at 6 percent to mitigate the impact of geopolitical tensions in the Middle East. 


“The rupiah is currently facing significant currency pressure and a surge in capital outflows over the past two weeks, triggered by geopolitical tensions in the Middle East,” said Teuku Riefky in Jakarta on Tuesday. 


So far, the rupiah has depreciated by around 2.98 percent month-to-month or 5.5 percent year-to-date against the US dollar and is one of the worst-performing currencies compared to peer countries, only performing better than the Brazilian real in the last month. 


“Although there is room for a benchmark interest rate hike, the decision to raise BI’s benchmark interest rate does not seem to be the ideal step to take at this time,” he added. 


Head Economist of Bank Permata, Josua Pardede, said that if the BI-Rate is raised, the positive impact would be that the pressure from external factors could ease because there is an expansion of the positive spread with the yield of financial instruments from other countries, making Indonesian financial instruments more attractive due to compensation for the increase in risk premiums. 


The negative impact is that the burden of yields on domestic financial instruments will increase and become a burden for instrument enthusiasts. 


“In addition, the increase in the BI-Rate can lead to an increase in lending rates, thus increasing borrowing costs, ultimately potentially hindering Indonesia's economic growth potential,” added Josua. 


Source: Jakarta Globe 



Citroen to produce electric cars in Indonesia


Citroen is eyeing EV incentives that the government has set up for foreign car manufacturers. 


French automaker Citroen will begin to produce electric cars in Indonesia by partnering with an assembling company which owns an assembling plant in Purwakarta, West Java.  


“We will start to produce [completely knocked down or CKD] units at a facility owned by Indomobil in Purwakarta, with an electric type EC3,” said Citroen Indonesia president director Tan Kin Pauw during a car launching event on Tuesday.    


It is hoped that production will begin in June with 20 to 40 percent local components. By producing the electric vehicle (EV) locally, Citroen can be eligible for EV incentives that the government has set up for foreign car manufacturers.  


The company started to market the EC3 in Indonesia in August last year by importing completely built up (CBU) units from India. The locally assembled electric units will substitute the EC3 imports from India. Aside from the EC3, the company also imports the C3 and C3 Aircross for Indonesian distribution.   


The government has issued a regulation to add new incentives for automakers to build EV manufacturing plants in the country. In the new regulation, car manufacturers that agree to build their manufacturing facilities in Indonesia will be allowed to import CBU or CKD EVs without having to pay import duties or luxury goods value-added tax (VAT) until the end of 2025.  


The government has also relaxed local content requirements. The EV carmakers are being given until 2026 to fulfill the minimum 40 percent domestically sourced component requirement.  


The new policies have gained the interest of China’s BYD and Chery as well as Vietnam’s Vinfast. 


Citroen’s move to begin local production came after its owner, Italian American auto conglomerate Stellantis, expressed its interest in the EV production incentives to the government. 


Source: The Jakarta Post