Economy and Business

Rubber Subsidies

President Joko “Jokowi” Widodo ordered the public works ministry to buy rubber directly from farmers and cooperatives to help prop up local prices, a statement from the Cabinet Secretariat said on Monday. Jokowi said the ministry will start buying rubber from farmers in December, and the commodity will be used as mixing material for asphalt, according to the statement. The move aims to help the local price of rubber, which is currently around Rp 6,000 (41 US cents) per kilogram. The president has proposed that the ministry buy from farmers at between Rp 7,500 and Rp 8,000 per kilogram. “Soon, especially in South Sumatra, rubber will be bought by the Ministry of Public Works and Housing. If there’s an opportunity to raise prices [higher than what has been proposed], we will announce that,” Jokowi said in the statement. (Jakarta Globe)

Gasoline Subsidies

The government will compensate Pertamina up to $1.3 billion for fuel sales costs in 2017, in addition to subsidies, for keeping domestic prices steady, a senior official at the state energy firm said on Wednesday. President Joko “Jokowi” Widodo has promised to freeze some consumer fuel and electricity prices ahead of the next year’s presidential and legislative elections, despite climbing global oil prices and the rupiah’s depreciation. Jokowi raised subsidies for diesel fuel fourfold to Rp 2,000 (13 US cents) a liter this year to keep prices unchanged, but made Pertamina shoulder the losses of keeping prices of RON 88 gasoline steady.

Under the president’s order, Pertamina must also sell fuel at the same prices across the country, which meant more costs for the company. These state policies have dented Pertamina’s finances and cut its means of spending on much-needed infrastructure. The estimated costs Pertamina can claim from the government reached $1.2 billion to $1.3 billion from sales in 2017, on top of subsidies, Pahala said at a news conference. “Our costs are temporary, there will be repayment,” he said, adding that he is expecting the government to also cover Pertamina’s 2018 costs. (Jakarta Globe)

Growth Falls Short

Bank Indonesia deputy governor Dody Budi Waluyo announced on Wednesday that this year’s economic growth would likely be 5.1 percent, lower than the 2018 state budget estimate of 5.4 percent. “BI’s estimate is 5.1 percent this year,” said Dody as quoted by kontan.co.id when speaking as a keynote speaker at the Core Economic Outlook in Jakarta on Wednesday, adding that growth in the fourth quarter would be 5.17 percent, similar to growth in the previous quarter. The Finance Ministry revised the 2018 economic growth estimate in July to 5.2 percent. Dody stressed that the figure was only an estimate and the official figure would be announced late November after the BI board of governors’ meeting. (The Jakarta Post)

Change to Negative Investment List- Not So Fast

In the face of a widening current account deficit, reduced foreign direct investment, and slumping currency, Coordinating Economic Affairs Minister Darmin Nasution announced a plan last week to revise the country’s so-called negative investment list as part of the current administration’s 16th economic policy package. Under the plan, the government will permit full foreign ownership in 25 industries to attract more overseas investment and prop up a weakening rupiah. President Jokowi has not signed off on the implementing regulations, and it looks like it will revised in light of sharp criticism from Indonesia’s private sector.

The country’s current-account deficit widened to $8.8 billion, or 3.7 percent of gross domestic product in the third quarter this year – its biggest since the second quarter of 2014 – from $8 billion, or 3.02 percent of GDP, in the second quarter. The government currently sets different maximum limits on foreign direct investment in the 25 industries, which include oil and gas construction, power plants with a capacity of more than 10 megawatts, fixed and mobile telecommunication networks and content services, internet service providers, internet telephony services for public purposes and internet interconnection services. Foreigners are not allowed to have 100 percent ownership of companies in these industries to protect local players.

Besides removing foreign ownership caps on the 25 industries, the government also plans to fully open several sectors, including surveying services, leasing of construction machinery and leasing of other machinery, such as for power plants and textile, metalwork or woodwork processing, which are off limits to foreigners. There are also sectors currently restricted to small and medium enterprises, such as fabric printing services, and stripping and cleaning of tubers, which will be fully opened. Meanwhile, internet- or postal-based retail trade services will not require partnerships with local entities anymore. Sectors that will no longer require special recommendations are the cigarette industry, including clove cigarettes, wood processing operations such as wood-pellet, paper, pulp, plywood, veneer and wood-chip factories, and medical equipment, including producers of surgical masks, syringes and high-tech equipment such as CT scanners and MRI machines. This applies to both domestic and foreign investment. To take advantage of the new rules, foreigners must invest the equivalent of Rp 10 billion ($690,000), which the government feels is reasonable to protect small businesses against overseas rivals.

The government apparently did not consult with the main business associations and they raised many objections. Hariyadi Sukamdani, chairman of the Indonesian Employers Association (Apindo) – an influential business lobby – said the government had done little to inform its members about the plan and that the organization was not asked for any input. “Overall, it is also not really urgent” to revise the negative investment list for foreigners, said the businessman, who also leads the Sahid Group, a local hospitality chain. He added that tax incentives are more likely to lure foreign investors.

Minister Nasution appeared sympathetic but reiterated the reasons behind the policy: “Because there are many [sectors] on the list, we have to explain it one by one. This is not about winning or losing, it is about sharing. If you have ideas, give it to us and let’s discuss it, so we can review it,” he said. “At present, the current-account deficit has not yet improved. Under the current conditions, it is unlikely to get any narrower,” the minister said. On 11/28 President Jokowi, who has been criticized for “bowing” to foreign interests, promised to keep micro, small and medium enterprises (MSMEs) on new negative investment list (DNI) that will be finalized soon.

Jokowi Presses for Less Regulations

President Joko “Jokowi” Widodo once again warned ministers and local government leaders on Tuesday not to excessively issue regulations. “With global changes happening so rapidly, we need policies that allow us to make quick decisions, not issue more regulations,” Jokowi said in Jakarta during Bank Indonesia’s (BI) annual gathering. Jokowi expressed his desire to have a government that can swiftly tackle challenges like startup companies, which have been able to experience accelerated growth despite a lack of clear regulations. “There are a lot of what they would call companies without rules. I also want [a] government without many rules,” Jokowi said. He went on to say that too many regulations would hinder the government’s response to the latest developments.