Timor in South Korea

Timor in South Korea

Trade and Industry Minister Tunky Ariwibowo is to be pitied
for his impossible task of explaining the logic and merit of
Presidential Decree No.42/1996 allowing PT Timor Putra Nasional
to import completely-built-up (CBU) sedans from South Korea's Kia
Motor plant. Whatever argument Tunky employs to defend the new
ruling, it will be the butt of many a cynical joke.

How can the government, which often boasts of international
recognition of its prudent macroeconomic management, treat a
sedan made in Asan bay, southwest of Seoul, as a national car
simply because it will bear the national brand name "Timor" and
some Indonesian labor content? Moreover, South Korea is known to
never have allowed foreign laborers to work in its car plants.

The domestic and international uproar caused by Indonesia's
controversial and discriminative national car program would have
been decreased by Government Regulation No.36/1996 of June 4
which indiscriminately grants luxury sales tax breaks of 20 to 35
percent to any sedan, jeep, van, minibus or pickup truck with a
local content of over 60 percent. The new deregulation package
launched on the same day, would have lent credibility to the
official pronouncements that the national car program was, and
would remain, the only instance of policy inconsistency.

Both these potential advantages, however, may disappear as a
result of the latest Presidential Decree authorizing Timor Putra
to import 45,000 CBU sedans in one year without paying the normal
300-percent import duty and the 35-percent luxury sales tax.

The worried prediction of most automotive industry executives
and analysts last March has turned out to be true. As soon as PT
Timor Putra Nasional's Chairman Hutomo (Tommy) Mandala Putra
committed himself to launching his Timor sedans by September,
without even having an assembly plant, most domestic car
assemblers became worried the national car would be imported from
South Korea's Kia Motor plant in CBU form, minus its tires,
battery and seat belts.

The new privilege simply reflects the government's
determination to push ahead with what it calls the national car
program at almost any cost to duty and tax revenues, and the
credibility of its policymaking mechanism. The government created
dilemma started with its licensing of Timor Putra, a company
without any experience in marketing cars in Indonesia. Commercial
rationale requires Timor Putra to establish its car in the market
before laying out large investments to build an assembling plant.
Importing CBU cars is the fastest way to penetrate the market
before the three-year window on tax breaks shuts but that move
exacts the costs described above.

The success of the scheme depends on the reaction of the
Indonesian consumer. The consumer, who has been prodded by the
government to buy domestic products in order to curb import
growth amid the worrisome rise in the current account deficit,
has enough sense to make a sound judgment.

The privileges granted to Timor Putra through so many
government regulations in the form of Presidential instruction,
Presidential decree and ministerial rulings may damage the
company's image and consequently tarnish its national car.