New government economic policy

New government economic policy

JAKARTA (JP): The following is the full text of the
government's statement on its new economic policy announced
on Nov. 3, 1997.

1. The government is today announcing a series of economic
policy measures. These measures are a continuation of policies
formulated previously in the State Address delivered by the
President of the Republic of Indonesia to the Parliament on
August 16, 1997, in the Presidential Decision during the Limited
cabinet Meeting for Economy, Finance, Development Supervision,
Production and Distribution on September 3, 1997 and October 8,
1997, and in the Government Statement of October 31, 1997 .

2. In the State Address, the President stated: "we live in a
world that is changing fast, a world that seems to be moving
toward a great economic union. Very often, events in one country
or region immediately influence other countries or regions. The
World Community is entering a new era: an era characterized by an
open world economy and trade."

3. In addition, the State Address set forth the policy
direction to be implemented by the Government in anticipation of
new challenges and opportunities emerging as a result of the rapid
changes taking place throughout the world. To maximize the
potential benefit and minimize the potential negative impact of
these changes on our national development, the Government has
introduced a number of deregulation and debureaucratization
policies.

4. As we are all aware, the monetary crisis that began in July
1997 has led to a drastic depreciation of the Southeast Asian
currencies. This excessive depreciation could result in an
economic crises if not handled in a firm and timely manner.

5. As mentioned in the Government Statement of October 31, 1997,
in order to minimize the impact of the volatility and uncertainty
that has accompanied the monetary crises, the Indonesian
Government has taken a number of steps aimed at improving
national efficiency, economic endurance, and global
competitiveness. Further implementation of these steps will be
carried out through a number of programs in the following area:

5.1. Financial sector reforms;

5.2. Fiscal policy;

5.3. Monetary policy including exchange rate policy;

5.4. Structural adjustment, in the form of an extension and
deepening of the deregulation program.

The structural adjustment in each field is described in greater
detail below:

A. Elimination of regulated imports

1. Import deregulation of wheat and wheat flour, soybeans and
garlic

a. To accelerate the movement of imported goods either in the
form of raw materials and intermediary goods used to further
increase the efficiency of our industry, or in the form of
consumption goods, various import regulations and import
procedures will be simplified.

b. This includes elimination of import regulations for soybeans,
garlic and wheat flour, which previously could be imported only
by BULOG. These products can now be imported by General Importers
(IU), subject to import tariffs that will come into effect on
January 1, 1998. The tariff changes for these products will be as
follows:

1) Dried garlic: the tariff will be raised from 0% to 20%;

2) Dried soybeans: the tariff will be raised from 0% to 20%;

3) Wheat flour: the tariff will be raised from 0% to 10%;

By the year 2003, the tariff on these three products will be
reduced to 5%.

c. During the next 3-5 years, distribution system of wheat flour
will be as follows:

(1) Wheat Flour mills will appoint BULOG as the domestic flour
distributor

(2) BULOG will distribute this wheat flour to the food industry,
to small industries, to groceries, to outlets, and to other
consumers;

(3) In the end consumers will receive Government subsidy at an
amount equal to the difference between factory selling price and
consumers buying price.

d. BULOG is given the responsibility to stabilize the supply and
price of rice and sugar.

2. Elimination of the Administration Retail Price (HPS) for
cement.

a. With the rising output of cement factories leading to a supply
of cement in excess of domestic needs, market mechanisms can now
be relied upon to safeguard the interests of consumers in an
efficient manner.

b. With the improved functioning of market mechanism in the
supply and demand for cement, the Administrative Retail Price
(HPS) for cement is no longer needed. Therefore, the HPS for
cement is eliminated with the Decree of the Minister of Industry
and Trade No.403/MPP/Kep/97.

c. With the elimination of the HPS for cement, the interest of
investors in developing cement factories can be raised in line
with demand and the opening-up of market opportunities.

B. Export facilitation

1. Expansion of the groups and types of products eligible for
coverage under the Special Export Firm (PET) facility.

a. In order to increase non-oil/gas exports, the range of
products covered under the PET facility is extended and enlarged
to a total of 18 product groups. This is regulated through the
Decree of the Minister of Industry.

b. Previously, the PET facility was limited to 10 commodity
groups, namely: textiles and textile products, finished leather/
footwear/leather products, electronics, wood and processed
rattan, pulp/paper/paper products, process food, vegetable oil,
processed natural rubber, dolls and toys, and frozen fish shrimp.

c. With the above decree, coverage is broadened to include 8
additional commodity groups, namely: iron and steel, automotive
components, machinery and machinery components, jewelry,
chemicals, rubber, mineral products and plastic sheets.

d. In additional, when exporting under PET facilities, non-
producer exporting companies with PET status are no longer
limited to longer limited to the export of those products
included in the PET coverage list. However, this provision does
not apply if the export of the product is prohibited.

2. Standard conversion factors for utilization of raw materials
and intermediary goods.

a. Efforts to increase production efficiency and export
activities for products such as textiles, sport shoes, leather
shoes and tanned shoes, will be facilitated by implementing
Standard Conversion Factors for raw materials and intermediary
goods.

b. This is regulated through the Decree of the Minister of
Industry and Trade No. 404/MPP/Kep/11/97.

3. Import tariffs and export taxes.

In order to improve business conditions, efficiency and national
economic endurance, while increasing the competitiveness of
domestic products in the international market, the Minister of
Finance issues the following decrees:

a. The Decree of the Minister of Finance No 542/KMK.01/1997
regarding a schedule for reducing import tariffs on certain fish
products, chemical products and metal products, which stipulates
that:

1) The import tariff for certain fresh, cold or frozen fish
(salmon, trout, skip jack, etc.), currently subject to 10% and
20% tariffs, is scheduled to be reduced to 5% in 1998 and 0% in
2003;

2) Tariffs on certain chemical products (ethylene, propylene,
styrene, polyethylene, polypropylene, polystyrene) currently
subject to tariffs of 25% 30% and 40%, are scheduled to be
reduced to 20% in the year 2000 and 10% in 2003. In 1998, tariffs
on styrene and polystyrene will be reduced from 30% to 25%, while
tariffs on polypropylene and polyethylene will be reduced from
40% to 35%;

3) Tariffs on certain metal products are scheduled to be reduced,
including:

a) Coated Steel, from the current tariff rate of 15% to 10% in
2003;

b) Other steel products (billet and profile):

(1) Products with tariffs currently at 30% will experience no
change in their tariff in 1998. Tariffs on these products are
scheduled to be reduced to 20% in 2000 and to 10% in 2003.

(2) Tariffs on products currently subject to a 25% in 1998, and
are scheduled to be reduced to 15% to 20% in 2000, and to 10% in
2003.

b. With the elimination of regulated imports for certain
products, the decree of the Minister of Finance concerning the
Adjustment and Scheduling of import tariffs on certain products
is stipulated as follows:

1) In 1998 the import tariff on dried garlic is raised from 0%
to 20%. The import tariff of dried garlic will be lowered to 15%
in the year 2000 and to 5% in 2003.

2) In 1998 the import tariff on soybeans is raised from 0% to
20%. The import tariff of dried garlic will remain at 20% in the
year 2000 and will be lowered to 5% in 2003.

3) In 1998 the import tariff on wheat flour is raised from 0% to
10%. It will be lowered to 5% in 2003.

c. In addition, in order to spur export growth and to increase
foreign exchange earnings, export taxes on certain commodities
with high export potential are scheduled to be reduced, namely:
rattan, raw hide leather, iron ores, tin ores, copper ores,
silver ores and various other mineral ores, processed and raw
natural cork, and aluminum scrap.

4. Elimination of income tax on gold bars

To increase non-oil/gas exports, and in particular exports of
gold jewelry, the article 22 income tax (withholding tax) on
imported gold bars used to produce gold jewelry for export is
eliminated.

5. Elimination of Value Added Tax (PPN) for Indirect Exports.

To facilitate exports from companies with Special Export Firm
(PET) status, the provision of raw materials and services by
domestic suppliers to firms with PET status will not be subject
to value added tax (PPN). Rebates of taxes and fees to these
suppliers will be expedited.

6. Loosening the sale of components produced by companies in
bonded zones (PDKB) and other Indonesian customs areas (DPIL).

To Improve the investment climate and to increase the growth of
domestic industries, companies located in Bonded Zones will be
allowed to sell their products on the domestic market, in the
form of components, but with domestic sales not exceeding 50% of
realized export values.

B. Simplification of import permits and procedures.

1. Quarantine of leather used as raw material
Presidential decree No. 46/1997 stipulates:

a. raw leather and wet pickle leather may be imported only from
countries free of major contagious animal diseases.

b. Only preserved raw leather will be subject to quarantine. Wet
Pickle leather from countries free of major contagious animal
diseases, wet blue leather, crust leather and finished leather,
will not be subject to quarantine.

c. Import approval from the Director General f Livestock is only
needed for the import of preserved raw leather.

2. Bonded zone import procedures.

a. Permission to establish Bonded Zones, which play a very
important role in raising exports, will no longer be issued by
the President, but instead will be granted by the Minister of
Finance as stipulated in the Presidential Regulation (PP) No.
43/1997

b. Investors with business activities in Bonded Zones are
permitted to engage in storage and warehousing activities in the
Bonded Zones.

C. Business climate

1. Improvement of decrees regulating Distributors and Retail
Outlets

a. In line with the growing openness and integration of the world
economy, the role of licensed foreign investment companies (PMA)
in increasing their dual roles in national business should be
encouraged.

b. For this reason, the Government (through Government
Stipulation No. 41 and 42/1997) stipulates and improvement of the
decrees for distributors and retail outlets, as follows:

1) Foreign investment companies (PMA) engaged in production will
be permitted to be distributors or wholesalers for their own
products throughout Indonesia.

2) Foreign investment companies (PMA) engaged in production can
appoint other foreign investment companies established for this
purpose as their distributor or wholesaler throughout Indonesia.

3) Foreign investment companies (PMA) engaged in production can
appoint any Indonesian Company which has no foreign investment
participation as their distributor or wholesaler and/or retailer
throughout Indonesia.

4) Starting on January 1, 2003, foreign investment can sell their
products throughout Indonesia directly to final consumers through
foreign companies specially established for this purpose.

4. This regulation is expected to have a positive impact and to
produce benefits by:

1). Attracting foreign investors to invest their capital in
Indonesia.

2). Encouraging the transfer of technology and management skills
to the distribution system.

3). Expanding trade business activities.

2. Foreign representatives

a. To raise the awareness of foreign consumers concerning the
potential of Indonesia's regional products, foreign trade
representatives will be allowed to open Foreign Trade
Representatives offices in each provincial capital city, as set
forth in the Decree of the Minister of Trade and Industry No.
402/MPP/Kep/11/97.

b. It is expected that this regulation will have a beneficial
impact by:

1. Providing a greater opportunity for parties outside the
country to become further acquainted with the characteristics of
national products available for export, so as to raise non-oil
gas exports.

2. Broadening employment opportunities for Indonesians.

3. Increasing the use of Indonesian companies in conducting
market surveys needed by these trade representatives.

4. Import tariff facilities for machinery and raw materials for
developing and expanding industry and services.

To support the expansion and development of industry, it is
reaffirmed that industry is granted import facilities allowing
two years of duty-free imports of machinery, equipment, and
supporting goods and materials. Similarly, service industries are
granted import facilities allowing two years of duty-free imports
of machinery and equipment.