Indonesia moves to shore up economy

Indonesian exporters which do not keep their export earnings domestically may be barred from moving their goods overseas.
Indonesian exporters which do not keep their export earnings domestically may be barred from moving their goods overseas.PHOTO: REUTERS

Stimulus package unveiled to support rupiah, spur growth ahead of presidential election

Indonesia announced yesterday a new economic stimulus package to support the rupiah and spur growth in the lead-up to the presidential election in April, which has seen the country's ailing economy emerging as a critical issue for President Joko Widodo's administration two months into campaigning.

The stimulus package includes tax cuts from next year for exporters in the mining, plantation, forestry and fishery sectors which keep their export revenues in the domestic banking system.

Finance Minister Sri Mulyani Indrawati, one of several ministers fronting a press conference at the presidential palace yesterday, said that a reduction of income tax will apply to the interest of time deposits both in local and foreign currencies deriving from export revenues.

However, exporters which do not keep their export earnings domestically may be barred from moving their goods overseas.

"Regarding the export revenues, we will impose an administrative sanction by way of banning exports," Ms Sri Mulyani added.

Experts say it is a move to stem capital outflows, which have seen the embattled rupiah plunge to its lowest levels since the 1998 Asian financial crisis.

Mr Joko had in July met executives from about 40 exporters in Indonesia to also make the case for earnings currently kept offshore to be brought home.

 
 
 
 

Mr Satria Sambijantoro, an economist at Bahana Securities, said that by keeping export revenues in the country, the foreign exchange reserves can grow, which will help mitigate capital outflows from Indonesia in the future.

"In the end, foreign exchange liquidity in domestic banks will remain ample at times of external shocks," he told The Straits Times.

To attract foreign investments, the stimulus package will allow for a relaxation of the country's Negative Investment List for some priority sectors, such as textile printing and weaving, said Industry Minister Airlangga Hartarto.

The list specifies sectors which are either entirely closed or conditionally open to foreign investment, including oil and gas, trading, pharmaceuticals and transportation.

Finance Minister Sri Mulyani Indrawati, one of several ministers fronting a press conference at the presidential palace yesterday, said a reduction of income tax will apply to the interest of time deposits both in local and foreign currencies deriving from export revenues.

With the change, foreign ownership in 54 business sectors, including the steel, chemical and petrochemical industries, can now be 100 per cent, up from the present 30 per cent to 67 per cent.

Coordinating Economic Minister Darmin Nasution said: "We cannot address the current account (deficit) issue only. We must formulate policies to give investors confidence and allow capital inflows."

The rupiah has been on an upward trend since early this month.

It traded at 14,611 per US dollar on the foreign exchange spot market at yesterday's closing session versus 14,665 a day earlier, according to data compiled by Bloomberg.

But analysts warn that risks remain, particularly with imports traditionally spiking during the year-end holidays, which might contribute to a higher current account deficit and a weaker rupiah.

Mr Mohammad Faisal, executive director of the Centre of Reform on Economics Indonesia, said that with the US intensifying efforts to boost its economy, including adopting a hawkish monetary stance, capital has been sucked out of emerging economies like Indonesia.

A version of this article appeared in the print edition of The Straits Times on November 17, 2018, with the headline 'Indonesia moves to shore up economy'. Print Edition | Subscribe