Jakarta cuts taxes, relaxes quotas to shore up economy

JAKARTA - Indonesian Government on Friday announced measures to cut taxes for labour-intensive and export-oriented sectors like textiles and shoe manufacturing, and relax quotas on beef and horticulture imports, in a bid to save jobs and keep inflation in check.

These moves are aimed at moderating the impact of the current turmoil in financial and currency markets to Southeast Asia's largest economy, where the value of the rupiah has gone from 10,300 rupiah to the United States dollar to almost 11,000 rupiah to the dollar over the past week.

The central bank, Bank Indonesia, and the Financial Services Authority (OJK) are also releasing their response to stabilise the financial sector and exchange rate this afternoon.

Coordinating Economic Minister Hatta Rajasa outlined four policy packages with targeted aims:

- To address the current account deficit and safeguard the exchange rate, tax deductions will be introduced for export-oriented sectors, and a higher percentage of biodiesel will be used in diesel fuel to reduce reliance on imports.

- To maintain growth and consumer spending, tax incentives and allowances will be introduced for labour-intensive companies, among others. Increments in the minimum wage will also be differentiated across sectors.

- To keep inflation in check, quotas on the imports of beef and horticulture will not be based on volume but on price.

- And to improve the investment climate, the government will revise the list of negative investments - sectors where only partial or no foreign investment is allowed, like education and healthcare, as well as speed up the renegotiation of mining contracts, among others.

Details are also expected to be announced by the relevant agencies on Friday.

Opening a Cabinet meeting on the measures earlier this morning, President Susilo Bambang Yudhoyono said the pressures on Indonesia's economy were similar to those in 2008, and caused by a combination of global and regional as well as domestic factors. He urged businesses to support these moves.

"Remember, we were successful in saving the economy from the global crisis of 2008," he said in a Twitter message later.

"The recipe: businesses support and work together with the government."

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