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.