News Summary 21 November – 4 December 2015

Summarised by Agnes HT Samosir 

Statistics update: Inflation is back in November due to food prices. After recording deflation in the last two consecutive months, consumer price index (CPI) rose again by 0.21 percent in November due to increasing food prices. Deputy of Head for Distribution and Service Statistics at the Central Statistics Agency (BPS), Sasmito Hadi Wibowo, said the rise in CPI is attributable to increasing prices of rice, vegatables, broiler chicken meat and cigarettes. He added that rice price increase was not too much but it weighed in at 3.93 percent of the CPI, the highest among other foods. Therefore the statistics agency recommended the government to take necessary measures to prevent further rice price hike. Furthermore, BPS reported the year to date inflation rate reached 2.37 percent and brought the year-on-year figure to 4.89 percent. Meanwhile, the core inflation rate stood at 0.16 percent with year-on-year rate of 4.77 percent by November. The year-to-date inflation rate is still within the 5 percent target set by the government and the 3 to 5 percent target range set by Bank Indonesia, the central bank. Coordinating Minister of Economic Affairs, Darmin Nasution said government efforts to control tariffs and food prices also contributed to moderate inflation, implying it is not merely due to lower demand and weak purchasing power. Meanwhile, low inflation rate has triggered further talks about possibility for th central bank to cut policy rate. Currently, the central bank has taken hawkish approach by keeping BI rate at 7.5 percent since February. (Source: The Jakarta Post).

Indonesian government  launches the seventh policy package aimed to lower cost of investment and revive labour-intensive industry. Photo credit: republika.co.id

Indonesian government launches the seventh policy package aimed to lower cost of investment and revive labour-intensive industry.
Photo credit: republika.co.id

 

Seventh policy package announced. This week saw yet another part of the government policy package that is the seventh tranche. The package comprises of two regulations, based on information by Cabinet Secretary Pramono Anung. The first is regulation pertaining labour-intensive industries which deserve tax allowance under Article 21 of the Income Tax Law and the second is related to revision of Government Regulation Number 18/2015 which allows five labour-intensive industries to receive tax allowances. In this phase of policy package, it is also possible to issue nine different kind of permits in a span of three hours of application instead of the four kinds of permit feasible hitherto. The nine includes investment permit, deed endorsement, taxpayer code number, land blocking certificate, corporate registration number, plan to employ foreign workers, producer identification number and customs identification number. A day before the launch of the seventh package, Vice President Jusuf Kalla said that the seventh package is aimed to lower cost of investment and open up labour-intensive industry. As an example of implementation of the seventh package, the government will grant leasehold certificates for free to street vendors operating in 34 state-owned designated areas. With the leasehold, vendors will be able to leverage their capital and earn access to the government’s micro-loan program for small businesses or KUR. (Source: The Jakarta Globe and ANTARA News)

Law on Tax Amnesty likely delayed. The approval of Tax Amnesty Law will be most likely delayed due to time constraint since the last day of parliament session for 2015 is 18 December 2015. Two options available are to extend discussion period beyond 18 December or finish the draft in 2016. Regardless the option taken, the draft includes serious issue since repatriation is not obligatory for tax payers granted of tax amnesty. Officer in charge of Directorate General Tax with the Ministry of Finance, Ken Dwijugiasetiadi, said what matters to his office is a report on the total asset saved abroad and it is not necessary to fly the money home. However, this framework has been criticized by many experts since without repatriation, the economy will not benefit anything from the law. It is expected that once the law is effective, capital will flow the country and boost the economy. To anticipate this, government is advised to prepare investment instruments to receive the funds. One of the recommended instruments is bonds with low interest that will help infrastructure financing. Banks are not recommended to receive such huge capital since the interest burden will be impossible to shoulder. Meanwhile, Minister of Finance, Bambang Brodjonegoro said the discussion on tax amnesty law is timely since transparency on bank account for tax purpose will be implemented as the Automatic Exchange of Information is effective in 2017. He said Indonesia needs to ensure its compliance to AEoI. (Source: KONTAN Newspaper and Bisnis Indonesia).

World Bank approves USD 10 billion to Indonesia. Board of Executive of the World Bank has approved assistance with total amount of USD10 billion to Indonesia through Country Partnership Strategy between the Bank and Indonesia, making Indonesian pipeline is the largest among World Bank members. The CPS is for 2016-2020 and includes cooperation with other agencies under the World Bank group such as the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA). Rodrigo Chavez, the World Bank Country Director for Indonesia, said the Bank will assist Indonesia in poverty alleviation and infrastructure development program. The World Bank and Indonesia have agreed to focus its cooperation by supporting the government’s National Medium Term Development 2015-2019 with six primary themes, which are infrastructure development, energy, maritime, basic service delivery, and environment sustainability. Meanwhile, Deputy Minister for Development Financing with the Ministry of National Development Planning (Bappenas) Wismana Adi Suryabrata said the new CPS is a follow up of series of discussion between government and the Bank from early September to end of October 2015. In the discussion, the government has proposed projects listed in the Blue Book (list of projects for external financing) and the World Bank has translated them into six flagship programs mentioned above. The implementation will take various schemes such as government to government with the World Bank members, direct lending to state-owned enterprises with the state electricity company PLN as the first recipient. (Source: Bisnis Indonesia)

Government to revamp family planning program. The government is ready to revitalise its family planning program (Keluarga Berencana/ KB) after being inactive for more than a decade, which will be started with the launch of KB villages in January 2016. The program is considered highly necessary since Indonesia is experiencing baby boom with 4.5 births per year. Head of Secretary at the National Population and Family Planning Board (BKKBN) Ambar Rahayu explained the program will be launched by President Joko Widodo and serves as a pilot project to see how a region can be transformed after having poor performance in demographic development and family planning. BKKBN will educate people in the selected region, i.e. Cirebon and Pangandaran, on the use of contraception and early marriage. In addition, the BKKBN will also introduce smart-phone apps aimed at providing education on family planning. The apps, available on Android devices, have been launched in North Sumatera, Central Java, and South Sulawesi. Indonesia started KB program in 1970 with a great success as number of people under 15 years decreased in the 1980s. The decrease, coupled with the high birth rates in the 1960s-1970s, which led to a rise in younger age groups (15 years and above) in the 1990s, has changed the age structure with decreasing non-productive population and increasing productive ones, known as demographic bonus. Indonesia has the opportunity to benefit the demographic bonus until the year 2030. However, currently the country is struggling with a baby boom that could lead to demographic burden. (Source: The Jakarta Post)

Lower reserve ratio to stimulate growth. Bank Indonesia expects its policy to lower the primary reserve requirement ratio will spur the economic growth although its policy rate remains unchanged. The board of governors of the central bank has agreed to lower the reserve requirement ratio from 8 to 7.5 percent while BI rate is kept at 7.5 percent, the same level since February 2015. Director of Monetary Policy at Bank Indonesia Solikin M. Juhro said the policy is the central bank effort to support the economy since lowering reserve ratio and policy rate serve similar goal. The central bank currently is reluctant to cut is policy rate as it will make Indonesia less attractive amid current declining net inflows. He added that the central bank is ready to lower BI rate if macroeconomic data has shown improvements in terms of inflation rate and current account deficit. The monetary authority is convinced that in 2015 inflation rate could reach 3 percent or within the range of 3-5 percent as initially targeted. Moreover, the central bank is also very cautious on the global economy marked by a possible rise in the Federal Reserve’s rate, which may spark massive capital outflows from emerging economies including Indonesia. In fact, latest data from BI has shown declining foreign funds since early 2015. In another occasion, Vice President Jusuf Kalla expressed his strong criticism toward BI’s tight monetary policy that is against government’s program on economic policy to promote growth. Despite Jusuf’s comment, public appears to agree that the central bank is guaranteed of its independence according to the law and therefore it could determine its own policy. (Source: The Jakarta Post and Bisnis Indonesia)

Infrastructure projects are open for private companies. In 2016, Ministry of Public Works and Public Housing (MPWH) will introduce new strategies to ensure infrastructure projects are not solely in the hands of state owned companies. Minister of MPWH Basuki Hadimuljono said state owned companies should also work together with private companies and dam construction is one example of project for such cooperation. Currently, infrastructure projects are mainly under state-owned companies or a joint cooperation among them such as Trans Sumatera Toll Roads which is constructed by PT. Hutama Karya and other SOEs. The policy has been supported by Government Regulation No. 79/2015 that highlighted any SOE assigned a government project can only appoint other SOE for partnership. The second strategy is to boost regional economy by introducing new rule that says any project below IDR 50 billion is closed for big companies. Minister Basuki explained the strategy would support small companies in the regions to work the project and develop the region at the same time. The last policy is to disburse ministry budget in infrastructure for labour intensive projects. Currently, around 10 percent of the IDR 104 trillion budget has been allocated for labor-intensive projects. Minister said the policies are expected will boost regional economy in tandem with increasing regional transunfer and villages funds in 2016.  (Source : Kontan Newspaper)

Government may revise 2016 tax revenue target. Following the resignation of Director General of Tax, government might revise the 2016 tax revenue target to be more realistic. Bobby Hamzar Rafinus, an official at Coordinating Ministry of Economic Affairs, said the revision would be discussed after actual figure of tax revenue for 2015 is available. The government usually revises the state budget in the middle of the year to adjust for any changes in budget spending and revenues. The 2016 state budget highlights a total tax revenue target of IDR 1.36 quadrillion (USD 98.76 billion) that consists of non-oil and gas tax revenue worth IDR 1.32 quadrillion and the remaining IDR 41.4 trillion is from oil and gas tax revenue. For 2015, data from Ministry of Finance shows as of November 27 only IDR 806.02 trillion tax revenue has been secured or 65 percent of the target with only one month left. The slow realisation of 2015 tax revenue target has forced Sigit Priadi Pramudito, Director General of Tax, to resign. Minister of Finance, Bambang Brodjonegoro, has in response appointed an expert on law enforcement at tax office, Ken Dwijugiasteadi, as the acting official until the permanent one is available. Minister of Finance also said the shortfall in tax revenue has deepened the state budget deficit from 2.59 to 2.7 percent to GDP or close enough to maximum level of 3 percent as suggested by the law. However, Head of Fiscal Policy Agency, Suahasil Nazara, confirmed government’s cash flow would be secure and enough cash is there to finance routine spending despite the deficit. (Source: The Jakarta Post)

 

Disclaimer: The summary series aim to capture the economic and political issues that make the headlines in the Indonesian media. They do not necessarily reflect the views of The Indonesia Project and its members.