Expert urges abolishment of export taxes to boots revenue

JAKARTA (JP): Eliminating the export tax is the only way to boost foreign exchange revenue from exports and allow businesses to optimally benefit from the sharp depreciation of the rupiah, an economist believes.

Djisman Simandjuntak of the Prasetya Mulya school of management said it would be the only feasible way because providing exporters with other incentives, like cheap export credit in the 1980s, was unrealistic given the government's limited budget.

"The best export policy will be a combination of a tight macroeconomic policy and the elimination of export restrictions, including export tax," he said at a seminar last week.

Indonesian exporters have faced various tariff and nontariff export restrictions since 1993, including in the form of cartels and quotas designed to protect domestic industries.

Nontariff restrictions have been abandoned following an agreement with the International Monetary Fund (IMF), but export taxes on many commodities remains.

Although export taxes on leather, cork, ores and waste aluminum have been abolished, those on major export contributors including logs, sawn timber, rattan and minerals have only been reduced to 30 percent. A reduction to 20 percent is expected by year's end.

Djisman said the sharp depreciation of the rupiah against the U.S. dollar failed in boosting export revenue because other currencies in the region were also devaluated. Indonesia's high inflation, which reached more than 60 percent during the first seven months of this year, ate up much of the gains made from the dollar appreciation, he added.

"If the inflation rate in 1998 moves near the 100 percent level, a large part of the benefit from the rupiah depreciation will be eroded," he said, stressing the importance of a tight macroeconomic policy to curb inflation.

He said total export revenues during the first four months of the year were relatively deficient given the 80 percent drop in the rupiah's value.

"The slow export growth may also be caused by the limited investment made in export industries since 1993."

He explained that the expansive monetary policy since 1993 and the economic structure which made local-market orientation more profitable than exports had discouraged businesspeople from entering the export-oriented industry.

Although the previous regime of Soeharto embarked on various deregulatory measures during the 1990s, there was increasing discrimination in policy implementation. It allowed several investors to garner large windfall profits from monopolizing the local market, including the property sector, infrastructure, and import substitution industry.

Local exporters are also experiencing problems in importing raw materials due to the rejection of local letters of credit (L/C) by overseas banks in the wake of low confidence in domestic banks. However, the overseas credit line had started to return following the L/C guarantee by various foreign governments and the country's central bank.

High interest rates have also created cash-flow difficulties for many exporters.

About 21 local banks have been appointed by the government to solve the problem, but exporters said the scheme had yet to work.

The political uncertainty that followed the May 21 resignation of Soeharto has also deterred international buyers who fear local manufacturers will be unable to meet delivery deadlines.

The country's footwear association has forecast exports to decline by 25 percent this year from $1.9 billion last year, and the textile association projects export this year to decline by $1.5 billion from $7.3 billion in 1997. (rei)