Indonesia Wants Critical Minerals Agreement with US
President Jokowi of Indonesia has asked the US to start talks on a critical minerals agreement (CMA) to boost its electric vehicle (EV) manufacturing competitiveness. Despite being the world’s top nickel producer, Indonesia lacks a free trade agreement (FTA) with the US, a requirement for EV tax credits. The country seeks FTA benefits through the Indo-Pacific Economic Framework for Prosperity (IPEF), but experts doubt its effectiveness. The US aims to reduce supply chain reliance on China with the Inflation Reduction Act (IRA) and “friendshoring” strategy. Indonesia’s ties with Chinese nickel companies could hinder FTA negotiations with the US. The outcome of US-Indonesia friendshoring remains uncertain. (Jakarta Post)
De-Dollarization
Indonesia’s central bank, Bank Indonesia, has established a National Task Force to expand the use of local currencies in transactions with partner countries, aiming to reduce reliance on the U.S. dollar. The task force involves multiple Indonesian government bodies and has already seen cooperation agreements for local currency transactions signed with countries like Singapore and South Korea, in addition to existing partnerships with Malaysia, Thailand, Japan, and China. The initiative aligns with broader global trends, including efforts by the BRICS nations and the ASEAN community to encourage using national currencies in international trade and financial transactions. Indonesia is following the lead of the BRICS nations—Brazil, Russia, India, China, and South Africa—in its de-dollarization efforts. Bank Indonesia Governor Perry Warjiyo emphasized this alignment, stating that the country is keen to adopt similar strategies to diversify its financial landscape. The BRICS nations recently concluded their summit in Johannesburg, where they agreed to encourage the use of national currencies in international transactions.
Fuel Subsidy Maintained
JAKARTA, Aug 20 (Reuters) – Indonesia will not increase subsidized fuel prices this quarter, a senior minister said on Saturday, according to CNBC Indonesia, hosing down expectations the government may announce a price hike next week. Chief economic minister Airlangga Hartarto said the government is still reviewing several scenarios related to fuel subsidies, without giving more details. “Please wait (for the decision) from the meeting with the president,” he said, adding the government is still formulating a digital scheme to limit distribution of subsidized fuel. As such, fuel prices hikes would not be introduced in the third quarter of this year, he said. Previously, another senior minister said President Joko Widodo may announce a fuel price hike next week to reduce spending on energy subsidies, which, at 502 trillion rupiah ($33.84 billion) this year, the president has described as “too large”. Indonesians currently pay 7,650 rupiah per liter for subsidized gasoline, which authorities say is about 40% below estimated market price. Subsidized diesel is sold at 5,150 rupiah per litter, less than a third of the market price.
VinFast Announces Indonesia Entry
Vietnamese electric vehicle maker VinFast plans to expand in seven more markets in Asia, including Indonesia, where it aims to start deliveries from next year and establish a plant in 2026. VinFast, formed and almost entirely controlled by Pham Nhat Vuong, Vietnam’s richest man and founder of parent conglomerate Vingroup, aims to invest around $1.2 billion in the Indonesian market in the long-term, according to its latest filing to the to US Securities and Exchange Commission. Of that, up to $200 million would be for its Indonesian plant, targeting production in 2026 with an output of 30,000 to 50,000 units each year. Indonesia, a country of 270 million people and Southeast Asia’s biggest economy, is on a drive to attract global EV makers, touting its abundant supplies of nickel, a key component of EV batteries. However, EVs currently account for less than 1 percent of cars on its roads. (Jakarta Post) (Editor’s Note: US EV maker Tesla, although heavily courted by Indonesia, has yet to announce any investment or distribution plans)
OJK Expects Indonesian Banks to Achieve Double-Digit Loan Growth
Indonesian banks disbursed Rp 6.69 quadrillion in loans in the first seven months of this year, marking an 8.54 percent annual rise, with state-owned banks leading in loan growth at 9.81 percent. Credit for investment saw the fastest growth, at around 11.5 percent. Although loan growth was below last year’s levels, the Financial Services Authority (OJK) remains optimistic, expecting growth to reach 10 percent or 11 percent by the year-end. OJK attributes the slower growth in the middle of the year to a base effect, with loan disbursement comparisons to the period following the pandemic. Economic stability, manageable interest and inflation rates, and a surplus in the trade balance contribute to optimism. (Jakarta Post)
Indonesia’s First High Speed Rail Operational
Jakarta (ANTARA) – The Transportation Ministry has confirmed that the Jakarta-Bandung High-Speed Railway (KCJB) service will become operational on October 1, 2023. “Right now, we are still conducting some trials, because safety is important,” said Novie Riyanto, the ministry’s Secretary General, after a meeting with Commission V of the House of Representatives (DPR) on Tuesday.He said that the trials are being carried out to test the safety aspects, both in terms of facilities and infrastructure, and that his ministry ensured that the certification or operational permit process went smoothly. President Joko Widodo rode the train on September 13, remarking: “This was my first time riding the train today. It was comfortable even when it reaches a maximum speed of 350 kph,” Widodo said afterward, adding that the ride felt smooth while sitting and even walking in the car. According to the Jakarta Post Chinese staff from China Railway Group will be responsible for the operation and maintenance of the Jakarta-Bandung high-speed railway in its early years.
PLN Denied Funding
Lawmakers have rejected state-owned electricity firm PLN’s request for Rp 10 trillion (US$651.4 million) in public funds for the improvement of the country’s energy infrastructure, pointing to a lack of clarity on the utility’s priorities and use of funds. House of Representatives Commission XI overseeing financial affairs vetoed the infusion, which had been provided for in this year’s state budget. “We don’t get the full picture. It’s unclear. But [PLN] suddenly asked for Rp 10 trillion which it said will reduce its financial burdens. But we don’t see PLN’s efforts on other fronts – in efficiency, for instance,” said Commission XI deputy chair Dolfie Othniel Frederic Palit on Wednesday. PLN president director Darmawan Prasodjo told lawmakers on Wednesday that Rp 3.78 trillion of the proposed injection would fund the construction of transmission and power grids. The remaining Rp 6.22 trillion would be earmarked for renewable power generation for villages. Even after pleas of support from the Finance Ministry. However, lawmakers maintained their position and denied PLN the funds. (Jakarta Post)