Indonesia has recently been lumped into a group of troubled countries dubbed the “Fragile Five” along with Brazil, India, South Africa and Turkey, thanks to large deficits, slow growth and volatile currencies.

Given the negative outlook such a moniker implies, most analysts were caught off guard when Southeast Asia’s largest economy grew by a better-than-expected 5.7 percent in the fourth quarter; the average 2013 growth forecast was just 5.3 percent.

It’s important to note that full-year gross domestic product (GDP) growth of 5.8 percent was the slowest annual rate since 2009. It’s also not a good sign that much of that growth was driven by a sudden jump in exports.

As we’ve frequently pointed out, Indonesia is keen to develop its own domestic capacity. For example, to foster the growth of a processing industry, the country banned the export of unprocessed metal ores. Much of the country’s 7 percent increase in fourth quarter exports was likely due to miners rushing to ship as much ore as possible before the ban took effect on January 12.

Unfortunately, given the surprisingly strong fourth quarter economic performance, the government probably has been emboldened and will cling to the export ban more tenaciously. That would prove a huge drag on the economy, because commodities account for about half of all exports with manufactured goods accounting for only about a third.

It also doesn’t appear that the government has considered the huge incentives it will have to offer to convince mining companies to develop a domestic ore processing industry. That will require the investment of hundreds of millions of dollars at a time when ore prices are relatively weak.

Investment growth and capital goods imports both slowed substantially in the fourth quarter, indicating a weaker growth outlook on the part of businesses and pessimism among foreign miners.

Credit growth is also likely to tighten in the coming months, because Indonesia’s central bank has boosted its benchmark interest rate by 1.75 percent since June. While the move has helped slow capital outflows as the US Federal Reserve continues its tapering program, it will also drive an increase in the cost of credit in coming months.

Despite the fact that Indonesia is still very much a resource-driven economy, it is similar to the developed world in that domestic consumption accounts for about two-thirds of GDP. Higher credit costs will further slow business investment, hampering job growth and dinging consumer spending.

So while the Indonesian government has taken positive steps to ease the fears of international investors, those very same steps are bound to weigh on future economic growth.

Upcoming elections in the country will further undermine investor confidence, because the economy is bound to be the cornerstone of the campaign. Indonesia’s ruling Democratic Party will push for maintaining the current status quo while opposition parties will certainly take a more populist stance, calling for more subsidies and a nationalistic approach to government. That will be especially true if the unexpectedly strong economic growth of the fourth quarter isn’t repeated.

The opposition is also likely to call attention to the fact that the Democratic Party has been the target of numerous corruption investigations over the past few years that prompted the resignations of the party’s chairman and treasurer.

Given these lingering uncertainties, we look for GDP growth in Indonesia of between 5 percent and 5.5 percent in 2014, though it will likely come in closer to the bottom of that range.

Portfolio Updates

Our Japanese real estate company Mitsubishi Estate (Tokyo: 8802, OTC: MITEY) reported that net income rose by 72.6 percent in its fiscal third quarter to JPY58.5 billion.

Total revenue from operations rose 10 percent in the quarter on a year-over-year basis to JPY720.3 billion, translating into a 23 percent jump in operating income. Much of the net income gain was driven by property sales in its building, commercial property development and investment and international businesses.

Vacancy rates also declined across the company’s business lines. Vacancies in all-purpose buildings fell by 1.06 percent year-over-year to an estimated 6 percent, while office building vacancies declined by 0.76 percent. Average rents were also up by JPY385 per month.

One of the biggest contributors to the higher income was international business, where the weakened yen drove a 295 percent increase in net income, up from JPY5.7 billion in the same period last year to JPY22.7 billion. The sale of a large property also played a role.

Benefiting from the weak yen and growing office demand, Mitsubishi Estate remains a buy up to JPY2,700.

Credicorp (NYSE: BAP) reported that net earnings were down 15.5 percent quarter-over-quarter to USD150.4 million as a result of several one-off expenses, including an impairment against asset values because of a regulatory dispute and accounting changes. On a year-over-year basis, net earnings were down 24.3 percent largely due to exchange rate fluctuations.

Despite those one-offs, there were a number of positives in the bank’s report. Net interest income expanded 3.2 percent quarter-over-quarter and 9.8 percent versus last year to USD437.1 million. Net interest margin rose from 4.96 percent in the same period last year to 5.2 percent.

Total loans grew 2.6 percent in the fourth quarter, ending the year at USD23 billion, 7.1 percent higher than last year. Deposits were also up 1.9 percent sequentially and 1.8 percent year-over-year to USD24.5 billion.

Due to the relatively weak operating environment across much of Latin America right now, the bank’s past due loan (PDL) ratio rose slightly from 2.18 percent in the third quarter to 2.24 percent in the fourth. However, most of the weaker borrowers appear to have been shaken out already, with the PDL over 90 ratios ticking up from just 1.52 percent in the last quarter to 1.53 percent. Coverage of those PDLs remains strong at 157.5 percent.

Overall, the Peruvian bank’s performance is in line with expectations and should turn up in the coming quarters as Latin America stabilizes.

Credicorp continues to rate a buy up to 45.