Indonesia May Push ‘Buy Local’ Rule For State Companies
The government is considering issuing a regulation requiring state-owned enterprises to allocate 30 percent to 50 percent of their spending on locally made goods to help push the country’s economic growth. The announcement was made on Tuesday by MS Hidayat, the new industry minister.
Key industry players immediately questioned the move, saying this could endanger trade negotiations with other countries.
Speaking at his office in Jakarta, Hidayat said the ministry would discuss the issuance of the regulation with Mustafa Abubakar, the state minister for state enterprises, as part of a government program to increase the consumption of local goods.
“We have the authority to do this under this year’s presidential instruction on the government’s use of local goods and services,” Hidayat said.
“Therefore, I will talk to Mustafa Abubakar as soon as possible.”
Hidayat said the local goods requirement was pegged at 30 percent to as much as 50 percent of the capital expenditure of state-owned enterprises, depending on the product and the company in question.
The presidential instruction, issued on Feb. 9, is a base strategy for the government to maximize local production in the country. By pushing state enterprises to spend more domestically, the government is hoping to encourage the revitalization of local industry and drive economic growth.
In 2009, the total capital expenditure of 135 state-owned companies is expected to total Rp 152.1 trillion ($16.1 billion).
If all state enterprises spent at least 30 percent of their capital expenditure on domestic goods and services, an estimated Rp 45.6 trillion could flow into the domestic economy.
But not everyone is in favor of the plan. A representative from a state-owned enterprise and an analyst were critical, saying the local industry was not ready to meet requirements, especially in high-tech industries like telecommunications and the energy sector.
“The oil and gas industry is a high-technology business and not many local industries can provide our needs,” said Basuki Trikora Putra, the vice president of corporate communications state-owned oil and gas company PT Pertamina.
“Most of our goods and equipment are from foreign countries because the domestic industry cannot provide them. We would need to see evidence of new production of these goods if we were to agree to such an initiative.” The same was true for telecommunications, he said.
Purbaya Yudi Sadewa, a senior economist from the state-owned Danareksa Research Institute, said the scheme could be seen internationally as a form of “soft protectionism” by the state.
He said that “it would effectively be a non-tariff barrier to support domestic manufacturing industries.”
Purbaya said this could lead to trouble in international trade negotiations with the World Trade Organization, adding that he is hopeful that such a buy local scheme would be instituted gradually in small increments. Otherwise it could hinder rather than help SOE production, he said.
In a similar plan, former Industry Minister Fahmi Idris late last year ordered all government ministries and departments to spend 30 percent of their allocations from the national budget on local products. However, the plan was dropped earlier this year after it was met with opposition from the trade and finance ministries.
Key industry players immediately questioned the move, saying this could endanger trade negotiations with other countries.
Speaking at his office in Jakarta, Hidayat said the ministry would discuss the issuance of the regulation with Mustafa Abubakar, the state minister for state enterprises, as part of a government program to increase the consumption of local goods.
“We have the authority to do this under this year’s presidential instruction on the government’s use of local goods and services,” Hidayat said.
“Therefore, I will talk to Mustafa Abubakar as soon as possible.”
Hidayat said the local goods requirement was pegged at 30 percent to as much as 50 percent of the capital expenditure of state-owned enterprises, depending on the product and the company in question.
The presidential instruction, issued on Feb. 9, is a base strategy for the government to maximize local production in the country. By pushing state enterprises to spend more domestically, the government is hoping to encourage the revitalization of local industry and drive economic growth.
In 2009, the total capital expenditure of 135 state-owned companies is expected to total Rp 152.1 trillion ($16.1 billion).
If all state enterprises spent at least 30 percent of their capital expenditure on domestic goods and services, an estimated Rp 45.6 trillion could flow into the domestic economy.
But not everyone is in favor of the plan. A representative from a state-owned enterprise and an analyst were critical, saying the local industry was not ready to meet requirements, especially in high-tech industries like telecommunications and the energy sector.
“The oil and gas industry is a high-technology business and not many local industries can provide our needs,” said Basuki Trikora Putra, the vice president of corporate communications state-owned oil and gas company PT Pertamina.
“Most of our goods and equipment are from foreign countries because the domestic industry cannot provide them. We would need to see evidence of new production of these goods if we were to agree to such an initiative.” The same was true for telecommunications, he said.
Purbaya Yudi Sadewa, a senior economist from the state-owned Danareksa Research Institute, said the scheme could be seen internationally as a form of “soft protectionism” by the state.
He said that “it would effectively be a non-tariff barrier to support domestic manufacturing industries.”
Purbaya said this could lead to trouble in international trade negotiations with the World Trade Organization, adding that he is hopeful that such a buy local scheme would be instituted gradually in small increments. Otherwise it could hinder rather than help SOE production, he said.
In a similar plan, former Industry Minister Fahmi Idris late last year ordered all government ministries and departments to spend 30 percent of their allocations from the national budget on local products. However, the plan was dropped earlier this year after it was met with opposition from the trade and finance ministries.