News Summary: 5-11 April 2014

News from Indonesia - Indonesia Project

Summarised by Agnes Samosir 

Election year: Indonesia held legislative election. Last Wednesday (09/04), Indonesia held the first election in its election year to choose future legislative members who will sit in the House of Representatives. A party must win at least 25 percent of votes (or 20 percent of seats in the house) to be able to nominate presidential ticket or else, it will have to form coalition with other party (-ies). Presidential election will be held on July 9. Based on the quick count results, there appeared that no single party would be able to nominate its own presidential candidate without having to form alliance. The top three results were Indonesian Democratic Party of Struggle (PDI-P) with 19.1 percent votes, Golkar 14.3 percent, and Gerindra 11.8 percent. The three were followed by Democratic Party (9.6 percent) and Nation Revival Party/ PKB (9.3 percent). Once the result is confirmed, PDI-P who is putting Jakarta’s governor Joko Widodo (Jokowi) as its candidate, must build coalition and Jokowi, if he gets elected, must be ready to face a House of Representatives that will be sharply fragmented. Speaking on behalf of his party, Jokowi said that he welcomed any parties that are interested to form coalition, yet avoided to give away ministerial posts and other concessions in exchange for support. On the business side, according to Standard & Poor’s (S&P), Indonesian companies, including banks, would be able to endure the lingering policy risk later this year as the country fixes its new government. S&P argues that credit profiles of rated Indonesian companies and banks would be able to withstand the risks without having significant rating impact, given the politic factor has been factored in. (Source: Jakarta Post, Jakarta Globe, Tempo)

Government to impose luxury goods tax on cellular phones. The government of Indonesia is currently fixing up a luxury goods tax imposition on cellular phones, in an effort to develop the country’s domestic cellular phone production. It aims to introduce a 20 percent tax on every imported cellular phone category without exemption. The government expects that the policy would reduce imports by at least 50 percent. Based on the calculation by Ministry of Industry, the tax imposition would save foreign reserve of USD 1.8 billion (or equal to IDR 20.6 trillion). It will also increase potential state revenue to at least IDR 4.1 trillion. Cellular phone manufacturers as well as imported phone representative offices in Indonesia urge the government to review and if possible, scrap its plans over concerns that such a policy may cause surging illegal imports. Stakeholders in the cellular phone industry argues that instead of tax introduction, the government must eradicate cellular phone black market in order to boost domestic production. They view that domestically-produced phones cannot compete with black market phones in terms of price and technology. This is the second time Indonesian government attempts to increase value added in the economy through regulation. It implemented the coal and mineral law in January this year to boost downstream mineral industry. (Source: Bisnis Indonesia and Jakarta Post)

BI maintains benchmark rate, banking remains vigilant over liquidity risk. Tuesday (08/04), as Bank Indonesia’s meeting of board of governors concluded, it was announced that BI rate was maintained at its current rate of 7.5 percent. In addition to the reference rate, BI also sustained its rate on lending facility and deposit facility at 7.5 percent and 5.75 percent, respectively. The central bank’s executive director for communication Tirta Segara explained that BI’s policy is consistent with its efforts to direct inflation to the 4.5 percent target plus minus one percent in 2014 and 4 percent plus minus one percent in 2015. Although BI rate was not increased, banking industry would remain watchful of the risk posed by liquidity shortage. Since the rate touched and remained at 7.5 percent last year, banks have been in competition to attract liquidity from market. Tirta provided that in this regard, BI and Financial Services Authority (FSA) would arrange coordination to direct credit growth to be able to sustain economic growth. (Source: Bank Indonesia and ANTARA)

Low cost cars will only consume non-subsidized gasoline. The policy to issue low cost green cars (LCGC) has sparked problems since the cars are also consuming subsidized gasoline. At the outset, the cars are intended for non-subsidized gasoline. However, in practice, low cost car owners are also enjoying subsidized gasoline and as a result, such gasoline consumption increases. Minister of Finance, Chatib Basri, has refused to impose sanction to car owners using subsidized gasoline. He prefers technical solution such as modification to ensure the cars will be fit only for non-subsidized gasoline nozzle. Minister Chatib admitted LCGC has developed local component industry for cars and the government has enjoyed increasing value added tax as LCGC sales rise up. Still, his main concern is on ballooning oil subsidy. Meanwhile, Minister of Industry, Jero Wacik, confirmed that low cost cars should not consume subsidized gasoline. He promised to issue necessary regulations to ensure the implementation of such policy. (Source: KOMPAS)


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.