Import Rules Could be Changed Again
Indonesia appears heading to a return of an import licensing policy that was abandoned in 2024. Designed to protect local manufacturing, the policy required a license for hundreds of items. If local products were available, the import would be curtailed. Implementation was challenging and led to huge delays at Indonesia’s ports with container vessels waiting weeks to unload. Beginning in 2023 regulations shifted between ones that were more closed and ones that were more open. Some businesses welcomed the revision currently in place as it eased imports of raw material, auxiliary goods and capital goods, but some others slammed the revision, claiming the policy prompted the influx of cheap imports and undermined local manufacturing. Its not clear if policy will revert to a previous regulation but with jobs withering in electronics and garment sectors expectations are there will be changes. Trade Minister Budi Santoso said on Jan. 6 that the government was currently reviewing the import policy but remained tight-lipped about any impending changes. “We’re always evaluating all policies, including the Trade Ministerial Regulation No. 8/2024,” Budi told reporters. “The review process is ongoing. Trade policies need to stay dynamic and regularly reviewed.” Industry Minister Agus Gumiwang said on Jan. 6 that he welcomed the latest import policy review, pledging to provide input in order to protect local manufacturers.
Membership in BRICS
Indonesia’s new membership in BRICS may not necessarily give it the economic benefits it seeks and could add to the cost of diplomatic travel. However, it will have a seat at the table with the largest economic powers outside the US and the EU (Brazil, China, India) that could lead to more trade and investment. The move risks antagonizing existing partners, especially the US and EU nations that already boycott Russia over Ukraine. Indonesian Employers Association (Apindo) chair Shinta Kamdani told the Post on the same day that businesses saw the bloc “as more oriented toward geopolitical issues than the harmonization of concrete economic policies”. She said BRICS did not demand that Indonesia adopt binding international agreements on the economy and said the country’s membership would likely “not give direct benefits to business through new market access”. Muhammad Habib, a researcher from the Jakarta-based Centre for Strategic and International Studies (CSIS), told the Post on Thursday that joining BRICS might instead bring additional expenses, such as attending international meetings or supporting geopolitical causes without clear economic benefits. “So far, I have not seen any special benefit that BRICS could give its members aside from a geopolitical spotlight. Indonesia still has to endeavor through bilateral routes with BRICS member states to earn concrete benefits,” said Habib. Center of Economic and Law Studies (CELIOS) researcher Muhammad Zulfikar Rakhmat said on Wednesday that Trump’s possible moves against the group had to be anticipated “since he is one of the leaders who walks the talk”, especially as the US was Indonesia’s second-largest export destination after China, purchasing 10 percent of its exports in the January-to-November period last year. By joining BRICS, Rakhmat said, Indonesia was at risk of becoming subject to Trump tariffs of up to 100 percent. (Jakarta Post)
Unilever Faces Boycott as Local Brands Rise
A boycott against Unilever for its business presence in Israel has deepened its market share losses in Indonesia, where local brands are gaining ground. In October, Unilever reported its share in Indonesia’s market fell to 34.9% from 38.5% the year before. “The decline in market share occurred in almost all categories due to negative consumer sentiment,” said Unilever Indonesia president Benjie Yap. Competitors like Wings Group and Paragon’s Wardah have surged ahead with cheaper products and aggressive online promotions. Indonesia’s middle class shrinkage has also driven demand for affordable goods, further impacting Unilever. Yap added, “We clearly understand the steps necessary to overcome [these challenges] while adapting to a rapidly evolving market.” (Jakarta Post)
Banking Sector Will Remain Resilient
The banking sector faced several challenges in 2024 as a result of global volatility due to various factors, from geopolitical turbulence to the domestic environment. Last year was really a tough year, with one of the highest swings in the capital market affecting banking sectors, especially through liquidity and asset quality pressures. However, major indicators showed that the banking sector still remained resilient, despite the prolonged global uncertainties. In 2024, loans still grew at above the 10 percent level or 8.9 percent year to date, one of the best performances in the last six years. Loan quality trends have improved since the second quarter of 2024. We saw that micro, small and medium enterprises (MSMEs), corporate and consumer NPLs dropped last year to 4.00 percent, 1.72 percent and 1.85 percent, respectively. Bank Indonesia is expected to maintain liquidity through its macroprudential policies. The main challengers are: competition for global capital and investment, slowdown in key export markets such as China, US and Europe, declining household consumption especially the middle class (currently shrinking due to job loss and higher prices).
Prabowo’s Oil and Gas Plan Faces Hurdles
President Prabowo Subianto has pledged to increase Indonesia’s oil and gas production to achieve energy self-sufficiency. His administration plans to offer new oil and gas blocks to investors and reactivate idle wells to reduce reliance on imports. At the Asia-Pacific Economic Cooperation (APEC) Summit in Lima on Nov. 14, Prabowo stated, “We are pushing for even more oil and gas exploration as well as for other minerals. Ladies and gentlemen, Indonesia is open for business.” However, experts highlight significant challenges, including aging infrastructure, declining production, and the need for substantial investment. Indonesia’s oil production has been decreasing since the 1980s, with current output at approximately 571,700 barrels per day, down from over 1 million barrels per day. (Jakarta Post)
BI Rate Cut
Bank Indonesia (BI) cut its key interest rate by 25 basis points (bps) to 5.75 percent, citing a more “measurable impact” from Donald Trump’s reelection as United States president and the need to bolster a sluggish domestic economy. The rate cut defied the expectations of analysts, including at Moody’s Analytics, which predicted that the central bank would keep its benchmark rate at 6 percent. Following the surprise cut, the rupiah dropped to its lowest level against the US dollar since July last year, trading at around Rp 16,350 per dollar in the late afternoon on Wednesday. Perry acknowledged that the Indonesian economy might face growth challenges this year, citing weaker-than-expected GDP growth of 5-5.1 percent year-on-year in the fourth quarter of 2024. The BI Governor also highlighted risks to the economy, including a decline in exports due to a global economic slowdown and persistently low consumption among low- to middle-income households. He also noted that corporate investment remained subdued. “This is the time to cut the interest rate, so we can create a better growth story,” Perry said. “We decided to lower the rate to boost growth from the demand side.” (Jakarta Post)