BMI View: The size of the Indonesian market and its great potential, coupled with a government eager to push ahead with economic development, is fuelling foreign investor interest. However, hurdles include high gas, electricity and logistics costs and the concentration of manufacturing on the island of Java. The manufacturing sector has failed to keep up with the pace of GDP growth, which indicates the country is facing de-industrialisation. The overhaul of Indonesian petrochemicals producer Chandra Asri Petrochemicals cracker in ---- has boosted the firm s revenues and enabled Indonesia to leverage the competitive advantages it enjoys in naphtha feedstock as well as the falling value of the rupiah. However, the market remains dependent on imports, and expansion is not happening at a pace fast enough to fulfil local demand. ...It sits behind Australia and ahead of the Philippines, and its ranking is unlikely to change in the short term. Plans for capacity expansion, coupled with improved risk, could raise the country s rating, but BMI considers it highly unlikely that it will close the gap with other Asian states in the next few quarters.
...Indonesia s domestic political scene is characterised by a proliferation of minority parties and formal and informal coalitions are necessary to govern and legislate. Moreover, the efficiency of state institutions is encumbered by bureaucracy and corruption. ...Moreover, the efficiency of state institutions is encumbered by bureaucracy and corruption. Prospects for reform are beset with numerous challenges, such as the long-running practice of politicians promising government positions to campaign supporters. The country was impacted by separatist rebellion and ethnic violence in the late ----s and early ----s, which took great efforts to bring to heel. ...The country was impacted by separatist rebellion and ethnic violence in the late ----s and early ----s, which took great efforts to bring to heel. In the event of a new economic crisis, calls for regional secession could re-emerge.
...The petrochemicals industry is poorly integrated with the oil and gas sector. Actual output of olefins is well below the country s total production capacity. ...
