New government economic policy<\/p>\n
JAKARTA (JP): The following is the full text of the
\ngovernment's statement on its new economic policy announced
\non Nov. 3, 1997.<\/p>\n
1. The government is today announcing a series of economic
\npolicy measures. These measures are a continuation of policies
\nformulated previously in the State Address delivered by the
\nPresident of the Republic of Indonesia to the Parliament on
\nAugust 16, 1997, in the Presidential Decision during the Limited
\ncabinet Meeting for Economy, Finance, Development Supervision,
\nProduction and Distribution on September 3, 1997 and October 8,
\n1997, and in the Government Statement of October 31, 1997 .<\/p>\n
2. In the State Address, the President stated: \"we live in a
\nworld that is changing fast, a world that seems to be moving
\ntoward a great economic union. Very often, events in one country
\nor region immediately influence other countries or regions. The
\nWorld Community is entering a new era: an era characterized by an
\nopen world economy and trade.\"<\/p>\n
3. In addition, the State Address set forth the policy
\ndirection to be implemented by the Government in anticipation of
\nnew challenges and opportunities emerging as a result of the rapid
\nchanges taking place throughout the world. To maximize the
\npotential benefit and minimize the potential negative impact of
\nthese changes on our national development, the Government has
\nintroduced a number of deregulation and debureaucratization
\npolicies.<\/p>\n
4. As we are all aware, the monetary crisis that began in July
\n1997 has led to a drastic depreciation of the Southeast Asian
\ncurrencies. This excessive depreciation could result in an
\neconomic crises if not handled in a firm and timely manner.<\/p>\n
5. As mentioned in the Government Statement of October 31, 1997,
\nin order to minimize the impact of the volatility and uncertainty
\nthat has accompanied the monetary crises, the Indonesian
\nGovernment has taken a number of steps aimed at improving
\nnational efficiency, economic endurance, and global
\ncompetitiveness. Further implementation of these steps will be
\ncarried out through a number of programs in the following area:<\/p>\n
5.1. Financial sector reforms;<\/p>\n
5.2. Fiscal policy;<\/p>\n
5.3. Monetary policy including exchange rate policy;<\/p>\n
5.4. Structural adjustment, in the form of an extension and
\ndeepening of the deregulation program.<\/p>\n
The structural adjustment in each field is described in greater
\ndetail below:<\/p>\n
A. Elimination of regulated imports<\/p>\n
1. Import deregulation of wheat and wheat flour, soybeans and
\ngarlic<\/p>\n
a. To accelerate the movement of imported goods either in the
\nform of raw materials and intermediary goods used to further
\nincrease the efficiency of our industry, or in the form of
\nconsumption goods, various import regulations and import
\nprocedures will be simplified.<\/p>\n
b. This includes elimination of import regulations for soybeans,
\ngarlic and wheat flour, which previously could be imported only
\nby BULOG. These products can now be imported by General Importers
\n(IU), subject to import tariffs that will come into effect on
\nJanuary 1, 1998. The tariff changes for these products will be as
\nfollows:<\/p>\n
1) Dried garlic: the tariff will be raised from 0% to 20%;<\/p>\n
2) Dried soybeans: the tariff will be raised from 0% to 20%;<\/p>\n
3) Wheat flour: the tariff will be raised from 0% to 10%;<\/p>\n
By the year 2003, the tariff on these three products will be
\nreduced to 5%.<\/p>\n
c. During the next 3-5 years, distribution system of wheat flour
\nwill be as follows:<\/p>\n
(1) Wheat Flour mills will appoint BULOG as the domestic flour
\ndistributor<\/p>\n
(2) BULOG will distribute this wheat flour to the food industry,
\nto small industries, to groceries, to outlets, and to other
\nconsumers;<\/p>\n
(3) In the end consumers will receive Government subsidy at an
\namount equal to the difference between factory selling price and
\nconsumers buying price.<\/p>\n
d. BULOG is given the responsibility to stabilize the supply and
\nprice of rice and sugar.<\/p>\n
2. Elimination of the Administration Retail Price (HPS) for
\ncement.<\/p>\n
a. With the rising output of cement factories leading to a supply
\nof cement in excess of domestic needs, market mechanisms can now
\nbe relied upon to safeguard the interests of consumers in an
\nefficient manner.<\/p>\n
b. With the improved functioning of market mechanism in the
\nsupply and demand for cement, the Administrative Retail Price
\n(HPS) for cement is no longer needed. Therefore, the HPS for
\ncement is eliminated with the Decree of the Minister of Industry
\nand Trade No.403\/MPP\/Kep\/97.<\/p>\n
c. With the elimination of the HPS for cement, the interest of
\ninvestors in developing cement factories can be raised in line
\nwith demand and the opening-up of market opportunities.<\/p>\n
B. Export facilitation<\/p>\n
1. Expansion of the groups and types of products eligible for
\ncoverage under the Special Export Firm (PET) facility.<\/p>\n
a. In order to increase non-oil\/gas exports, the range of
\nproducts covered under the PET facility is extended and enlarged
\nto a total of 18 product groups. This is regulated through the
\nDecree of the Minister of Industry.<\/p>\n
b. Previously, the PET facility was limited to 10 commodity
\ngroups, namely: textiles and textile products, finished leather\/
\nfootwear\/leather products, electronics, wood and processed
\nrattan, pulp\/paper\/paper products, process food, vegetable oil,
\nprocessed natural rubber, dolls and toys, and frozen fish shrimp.<\/p>\n
c. With the above decree, coverage is broadened to include 8
\nadditional commodity groups, namely: iron and steel, automotive
\ncomponents, machinery and machinery components, jewelry,
\nchemicals, rubber, mineral products and plastic sheets.<\/p>\n
d. In additional, when exporting under PET facilities, non-
\nproducer exporting companies with PET status are no longer
\nlimited to longer limited to the export of those products
\nincluded in the PET coverage list. However, this provision does
\nnot apply if the export of the product is prohibited.<\/p>\n
2. Standard conversion factors for utilization of raw materials
\nand intermediary goods.<\/p>\n
a. Efforts to increase production efficiency and export
\nactivities for products such as textiles, sport shoes, leather
\nshoes and tanned shoes, will be facilitated by implementing
\nStandard Conversion Factors for raw materials and intermediary
\ngoods.<\/p>\n
b. This is regulated through the Decree of the Minister of
\nIndustry and Trade No. 404\/MPP\/Kep\/11\/97.<\/p>\n
3. Import tariffs and export taxes.<\/p>\n
In order to improve business conditions, efficiency and national
\neconomic endurance, while increasing the competitiveness of
\ndomestic products in the international market, the Minister of
\nFinance issues the following decrees:<\/p>\n
a. The Decree of the Minister of Finance No 542\/KMK.01\/1997
\nregarding a schedule for reducing import tariffs on certain fish
\nproducts, chemical products and metal products, which stipulates
\nthat:<\/p>\n
1) The import tariff for certain fresh, cold or frozen fish
\n(salmon, trout, skip jack, etc.), currently subject to 10% and
\n20% tariffs, is scheduled to be reduced to 5% in 1998 and 0% in
\n2003;<\/p>\n
2) Tariffs on certain chemical products (ethylene, propylene,
\nstyrene, polyethylene, polypropylene, polystyrene) currently
\nsubject to tariffs of 25% 30% and 40%, are scheduled to be
\nreduced to 20% in the year 2000 and 10% in 2003. In 1998, tariffs
\non styrene and polystyrene will be reduced from 30% to 25%, while
\ntariffs on polypropylene and polyethylene will be reduced from
\n40% to 35%;<\/p>\n
3) Tariffs on certain metal products are scheduled to be reduced,
\nincluding:<\/p>\n
a) Coated Steel, from the current tariff rate of 15% to 10% in
\n2003;<\/p>\n
b) Other steel products (billet and profile):<\/p>\n
(1) Products with tariffs currently at 30% will experience no
\nchange in their tariff in 1998. Tariffs on these products are
\nscheduled to be reduced to 20% in 2000 and to 10% in 2003.<\/p>\n
(2) Tariffs on products currently subject to a 25% in 1998, and
\nare scheduled to be reduced to 15% to 20% in 2000, and to 10% in
\n2003.<\/p>\n
b. With the elimination of regulated imports for certain
\nproducts, the decree of the Minister of Finance concerning the
\nAdjustment and Scheduling of import tariffs on certain products
\nis stipulated as follows:<\/p>\n
1) In 1998 the import tariff on dried garlic is raised from 0%
\nto 20%. The import tariff of dried garlic will be lowered to 15%
\nin the year 2000 and to 5% in 2003.<\/p>\n
2) In 1998 the import tariff on soybeans is raised from 0% to
\n20%. The import tariff of dried garlic will remain at 20% in the
\nyear 2000 and will be lowered to 5% in 2003.<\/p>\n
3) In 1998 the import tariff on wheat flour is raised from 0% to
\n10%. It will be lowered to 5% in 2003.<\/p>\n
c. In addition, in order to spur export growth and to increase
\nforeign exchange earnings, export taxes on certain commodities
\nwith high export potential are scheduled to be reduced, namely:
\nrattan, raw hide leather, iron ores, tin ores, copper ores,
\nsilver ores and various other mineral ores, processed and raw
\nnatural cork, and aluminum scrap.<\/p>\n
4. Elimination of income tax on gold bars<\/p>\n
To increase non-oil\/gas exports, and in particular exports of
\ngold jewelry, the article 22 income tax (withholding tax) on
\nimported gold bars used to produce gold jewelry for export is
\neliminated.<\/p>\n
5. Elimination of Value Added Tax (PPN) for Indirect Exports.<\/p>\n
To facilitate exports from companies with Special Export Firm
\n(PET) status, the provision of raw materials and services by
\ndomestic suppliers to firms with PET status will not be subject
\nto value added tax (PPN). Rebates of taxes and fees to these
\nsuppliers will be expedited.<\/p>\n
6. Loosening the sale of components produced by companies in
\nbonded zones (PDKB) and other Indonesian customs areas (DPIL).<\/p>\n
To Improve the investment climate and to increase the growth of
\ndomestic industries, companies located in Bonded Zones will be
\nallowed to sell their products on the domestic market, in the
\nform of components, but with domestic sales not exceeding 50% of
\nrealized export values.<\/p>\n
B. Simplification of import permits and procedures.<\/p>\n
1. Quarantine of leather used as raw material
\nPresidential decree No. 46\/1997 stipulates:<\/p>\n
a. raw leather and wet pickle leather may be imported only from
\ncountries free of major contagious animal diseases.<\/p>\n
b. Only preserved raw leather will be subject to quarantine. Wet
\nPickle leather from countries free of major contagious animal
\ndiseases, wet blue leather, crust leather and finished leather,
\nwill not be subject to quarantine.<\/p>\n
c. Import approval from the Director General f Livestock is only
\nneeded for the import of preserved raw leather.<\/p>\n
2. Bonded zone import procedures.<\/p>\n
a. Permission to establish Bonded Zones, which play a very
\nimportant role in raising exports, will no longer be issued by
\nthe President, but instead will be granted by the Minister of
\nFinance as stipulated in the Presidential Regulation (PP) No.
\n43\/1997<\/p>\n
b. Investors with business activities in Bonded Zones are
\npermitted to engage in storage and warehousing activities in the
\nBonded Zones.<\/p>\n
C. Business climate<\/p>\n
1. Improvement of decrees regulating Distributors and Retail
\nOutlets<\/p>\n
a. In line with the growing openness and integration of the world
\neconomy, the role of licensed foreign investment companies (PMA)
\nin increasing their dual roles in national business should be
\nencouraged.<\/p>\n
b. For this reason, the Government (through Government
\nStipulation No. 41 and 42\/1997) stipulates and improvement of the
\ndecrees for distributors and retail outlets, as follows:<\/p>\n
1) Foreign investment companies (PMA) engaged in production will
\nbe permitted to be distributors or wholesalers for their own
\nproducts throughout Indonesia.<\/p>\n
2) Foreign investment companies (PMA) engaged in production can
\nappoint other foreign investment companies established for this
\npurpose as their distributor or wholesaler throughout Indonesia.<\/p>\n
3) Foreign investment companies (PMA) engaged in production can
\nappoint any Indonesian Company which has no foreign investment
\nparticipation as their distributor or wholesaler and\/or retailer
\nthroughout Indonesia.<\/p>\n
4) Starting on January 1, 2003, foreign investment can sell their
\nproducts throughout Indonesia directly to final consumers through
\nforeign companies specially established for this purpose.<\/p>\n
4. This regulation is expected to have a positive impact and to
\nproduce benefits by:<\/p>\n
1). Attracting foreign investors to invest their capital in
\nIndonesia.<\/p>\n
2). Encouraging the transfer of technology and management skills
\nto the distribution system.<\/p>\n
3). Expanding trade business activities.<\/p>\n
2. Foreign representatives<\/p>\n
a. To raise the awareness of foreign consumers concerning the
\npotential of Indonesia's regional products, foreign trade
\nrepresentatives will be allowed to open Foreign Trade
\nRepresentatives offices in each provincial capital city, as set
\nforth in the Decree of the Minister of Trade and Industry No.
\n402\/MPP\/Kep\/11\/97.<\/p>\n
b. It is expected that this regulation will have a beneficial
\nimpact by:<\/p>\n
1. Providing a greater opportunity for parties outside the
\ncountry to become further acquainted with the characteristics of
\nnational products available for export, so as to raise non-oil
\ngas exports.<\/p>\n
2. Broadening employment opportunities for Indonesians.<\/p>\n
3. Increasing the use of Indonesian companies in conducting
\nmarket surveys needed by these trade representatives.<\/p>\n
4. Import tariff facilities for machinery and raw materials for
\ndeveloping and expanding industry and services.<\/p>\n
To support the expansion and development of industry, it is
\nreaffirmed that industry is granted import facilities allowing
\ntwo years of duty-free imports of machinery, equipment, and
\nsupporting goods and materials. Similarly, service industries are
\ngranted import facilities allowing two years of duty-free imports
\nof machinery and equipment.<\/p>",
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