Welcome to the final edition of the Indonesia Intelligencer newsletter for 2018. We’ll be taking a break next week for the holidays, but first we wanted to give our loyal readers a look back at this year’s top stories and trends to help illuminate where the country is going in 2019. And, in the spirit of the holidays, this edition is free to all, so you are more than welcome to share it with friends and colleagues who might be interested in subscribing to our service (follow the link here for to get a free one-month trial subscription).

We’ll be back with our next regular edition on January 4.  Thanks for reading and Happy Holidays!

Top Business Stories of 2018

• Slow but steady growth: While it likely won’t meet the 5.4% growth rate estimated by the government at the end of last year (nor the lofty 7% yearly target set out by President Joko Widodo at the start of his administration), Indonesia’s GDP once again grew by an average of more than 5% per quarter (5.06% year-on-year in Q1, 5.27% in Q2 and 5.17% in Q3) generally beating market predictions in spite of growing instability in international markets and a weakening rupiah, both of which can be attributed to fallout from the US-China trade war. Looking ahead, Bank Indonesia’s latest midpoint GDP growth projection for 2019 is 5.2%.

• Rupiah’s new normal: Starting 2018 at IDR 13,542 to the dollar, the rupiah fell to its lowest levels since the 1998 economic crisis this year, surpassing the psychological threshold level of IDR 15,000 (it currently sits at about IDR 14,580). Despite that, the government has generally been praised for its measured currency control policy, including five interest rate hikes, in the face of mounting external pressures. After a rally late in the year, Bank Indonesia Governor Perry Warjiyo predicts that the rupiah will continue its stabilizing trend into the new year.

• Freeport handover: After years of wrangling with US mining giant Freeport-McMoRan over ownership rights of Papua’s Grasberg, the world’s second-largest copper mine, the Indonesian government says state-owned miner PT Inalum is set to acquire a majority stake in the operation in the coming weeks, pending environmental clearances from the government that should take place before the end of the year.

• Go-Jek goes regional as ride-hailing war ramps up

  • Indonesian ride-hailing “unicorn” Go-Jek continued its high-speed growth in 2018 (sources put its most recent valuation at about $9-10 billion), becoming a regional player, with operations launching in Vietnam and Singapore as part of a $500 million expansion plan that also includes moves into Thailand and the Philippines in the near future.

  • The expansion ramps up Go-Jek’s rivalry with Singapore-based Grab, which bought out Uber’s Southeast Asian business in March in exchange for a 27.5% stake in their company. Grab has said that much of the billions in fresh funding it has raised this year will be directed at aggressively expanding in Indonesia.

• Buying into e-commerce: Last week’s announcement that Tokopedia had secured $1.1 billion in its latest funding round, led by Chinese e-commerce giant Alibaba Group and Japan’s SoftBank Group, underscored the huge potential for growth investors see in Indonesia’s rapidly expanding e-commerce sector. McKinsey recently forecasted that online sales in Indonesia would reach $65 billion annually by 2022, eight times the $8 billion recorded in 2017.

• Cutting red tape: The government passed a number of regulatory reforms aimed at easing business friction and attracting more foreign direct investment this year, including a new centralized licensing system, new rules on fintech and e-money, and streamlining applications for temporary worker permits.

• FDI still put off: Those reforms seem to have come too late to improve foreign direct investment this year, however, with the country’s investment board projecting FDI to be about $11 billion to $13 billion for 2018, far less than the average in recent years of $20 billion per year. Officials blamed the steep decline on a perception of slow policy reform at the start of 2018, but said FDI picked up later, in part due to a planned revision to the government’s negative investment list.

• Palm oil pause: After years of pressure from environmental activists, the government finally passed a moratorium on the development of new palm oil plantations, which will last for three years, and ordered a full review of existing ones. Producers of the controversial commodity (exports of which reached $22 billion in 2017) have also faced increasingly sluggish global demand due to negative sentiments about it in Europe, as well as numerous allegations of unethical sourcing and bribery scandals.

Top Political Stories of 2018

• Reading the regional elections

  • In June, Indonesians voted in regional elections for candidates in 171 contests across the country. Analysts were divided on whether the results constituted a good sign for Jokowi (his supporters won in several important battlegrounds, especially Ridwan Kamil for the governorship of West Java) or a bad sign for the incumbent (many observers thought the overall result pointed to a strengthening of opposition support in other key regions throughout the country; candidate’s from PDI-P lost in 11 of the 15 governor’s races they were competing in).

  • The National Mandate Party (PAN) performed strongly (with its candidates winning in 10 governor races), which led many to predict that Gerindra Chairman Prabowo Subianto would pick PAN chairman Zulkifli Hasan as his running mate, but that prognostication obviously did not bear out.