Economy and Business

Maritime Highway More A One-way Street

Cargo ships returning empty from destination ports is a core challenge for the government’s so-called maritime highway five years after its initiation, officials and experts say. The maritime highway program subsidizes shipping on certain routes for the distribution of basic and important consumer goods as well as steel and cement to remote regions of the archipelago. The Transportation Ministry’s sea transportation director general, Agus Purnomo, said Monday that the government should do more to boost local industries in the program’s destination regions and increase the return cargo volume. “We need to establish a system to increase the return cargo volume. Return cargo is still the maritime highway’s weakness, and we have to create new products in the destinations to be shipped to the ports of origin,” he said during a virtual book launch held by Kompas.

Shrinking Economy

Southeast Asia’s largest economy would likely shrink within a range of 1.7% to 0.6% on an annual basis in 2020, Finance Minister Sri Mulyani Indrawati told a virtual news conference, down from her previous expectation of a range of 1.1% contraction to 0.2% growth. The forecast took into account a new third-quarter GDP outlook of a contraction of 2.9% to 1%, from the previous range of 2.1% to flat growth, and potential negative growth in October-December, the minister said. Indonesia’s GDP shrank for the first time since 1999 in April-June, by 5.32%. “Although we saw improvement in the third quarter and we could see the economy recovering … it was still very early, fragile and must be guarded,” Sri Mulyani said, describing the recovery in some sectors as flattening based on August data. (Reuters)

The New Omnibus Jobs Creation Bill

A Parliamentary committee that has for weeks worked on a flagship “Omnibus Bill” to improve the investment climate and streamline business rules may have finally ended with a compromise on key language on severance payments so the bill can be voted on in October. Reuters printed a summary of the law’s key provisions as currently understood. Changes could still be made before a final version.

Labor Reform
• Lawmakers approved a cut in mandatory severance benefits paid by employers, to 23 times monthly wages from 32 times, with the government funding the shortfall. The original proposal was for a cut to 19 times, and for workers losing employment to receive state insurance and skills training.
• Minimum wage limits at city and district levels stay, with annual rises tied to economic growth and inflation, but some sectors will lose special treatment.
• The committee agreed to drop mandatory paid leave for family weddings, baptism, childbirth, bereavement and menstrual leave for women, so employers and workers could fix their own terms.
• MPs approved relaxing strict rules on outsourcing and scrapped a rule on a three-year maximum term for contractors.

Permits and Regulations
• Businesses considered low-risk now only need to register before they begin operations, while medium-risk ones have to follow a set of standards and only high-risk investments must obtain a permit. Environmental studies are only required for investments considered to be high-risk. The process for investment permits for provinces and local governments will be standardized, with the central government able to take it over in some cases. The central government will take over the procedure for investment permits to projects considered of national strategic importance.

Sovereign Wealth Fund:
• The bill lays the foundation for the formation of a Sovereign Wealth Fund.

Land Bank
• The government can set up a land bank and manage this to acquire land for public interest and redistribute the land.

Negative Investment List
• The bill paves the way for reforms of the so-called “negative investment list” of sectors in which foreign participation is restricted or limited.
• A separate government regulation will detail the sectors to be opened up. Ministers have said that after passage of the bill, only a handful of restricted sectors will remain, such as gambling, arms and narcotics.

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BI Governor Meets Lawmakers

Appearing before Parliament’s financial affairs commission recently Bank Indonesia (BI) Governor Perry Warjiyo said has bought Rp 234.65 trillion (US$15.77 billion) worth of government bonds under the “burden sharing” scheme to fund the widening fiscal deficit, pledging continued support for the sluggish economy. “This is our commitment to support the economy through financing measures and bearing the debt burden so that the government can focus on spending the state budget,” Perry told the lawmakers, stressing that the central bank would continue buying government bonds through the scheme. BI’s debt monetization limit is currently $40 billion. The burden sharing scheme between the fiscal and monetary authorities would lower the government’s debt burden going forward, the Finance Ministry’s financing strategy and portfolio director Riko Amir said, adding that the debt-to-GDP ratio would be slightly lower than 40 percent of GDP, “which will be lower compared to other emerging countries”.