US Treasury Visit, Airfare Hike, FDI Falls, Positive Economic Recovery
Aug 08, 2022
Senior US Treasury Official to Visit Indonesia
US Treasury Department Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg will visit Indonesia and Singapore this week to discuss a price cap on Russian oil, which acts as a major funder of President Vladimir Putin's war on Ukraine. Rosenberg will also meet with business leaders in the energy and financial sectors.
On a recent Asian tour, US Treasury Secretary Janet Yellen advocated limiting the number of oil refiners and traders who can pay for Russian crude oil, to help lower global oil prices without jeopardizing supply. Indonesia's state-owned oil and gas company Pertamina had considered purchasing crude oil from Russia in March, but decided to reconsider in May.
The Ministry of Transportation has issued an airline permit to increase airfares up to 15 percent of the upper limit for jet aircraft and 25 percent for propeller aircraft, in response to the soaring price of aircraft fuel. It comes under Ministerial Decree 142/2022 concerning the Amount of Surcharge Caused by Fluctuations in Fuel (Fuel Surcharge) Passenger Fares for Economy Class Services Domestic Scheduled Commercial Air Transportation, which became effective August 4.
Acting Director General of Civil Aviation Nur Isnin said the regulation has guidelines for applying passenger fares, but additional fees are not mandatory for airlines, and the application of additional fees will be evaluated every three months. Nur Isnin urged all domestic airlines to offer affordable fares to passengers to maintain connectivity between Indonesian regions and the continuity of air transportation services, particularly during the Covid-19 recovery period. The Indonesia National Carriers Association said it expects airlines to be able to adjust airfares based on traffic flow.
Previously, the provisions for aircraft surcharges were regulated in Ministerial Decree 68/2022 concerning the Amount of Additional Costs (Fuel Surcharge) Passenger Fares for Economy Class Services of Domestic Scheduled Commercial Air Transport, with a maximum of 10 percent of the upper limit tariff for jet aircraft and 20 percent for propeller aircraft.
Indonesia's realization of foreign direct investment (FDI) for 2021 fell five places to 20th, from 15th the previous year, the United Nations Conference on Trade and Development (UNCTAD) reported in its World Investment Report 2022. Although Indonesia is undertaking various structural reforms to improve the investment ecosystem, other countries recorded more rapid increases in attracting foreign investment over the last year.
The government faces three major challenges: land issues, overlapping regulations between district/city and provincial governments, and high sectoral problems between ministries/agencies, Minister of Investment/Head of the Investment Coordinating Board (BKPM) Bahlil Lahadalia said. Bahlil said Indonesia's investment bureaucracy is quite complex, and the online system implemented through the Online Single Submission (OSS) Risk Based Approach (RBA) has not been properly implemented.
Economist at the Institute for Development of Economics and Finance (Indef) Esther Sri Astuti said the government should do two things to improve the investment ecosystem: improvement in bureaucracy and government regulations, along with compiling a list of priority sectors with the potential to be strategically entered by foreign investors.
Indonesia saw economic growth of 5.44 percent year-on-year (YoY) in the second quarter of this year, despite the challenge of high inflation, the nation's most consistent economic growth since Q3 of 2021. The rise was influenced by indicators including high commodity prices in the global market and rising commodity prices in the domestic market, and the improvement of public demand due to Idul Fitri momentum. The improving Covid-19 situation was also a contributing factor.
Despite being lower than Vietnam (7.7 percent), Indonesia’s economic growth is higher than other major trading partners, including China (0.4 percent), the United States (1.6 percent), Taiwan (3.1 percent), the European Union (4 percent), South Korea (2.9 percent), and Singapore (4.8 percent).
State electricity company PLN has issued letters to private renewable energy producers on Renewable Energy Certificates (REC), saying these producers, often regarded as independent power producers (IPP), are not allowed to sell the renewable energy they generate directly to consumers. Instead, PLN will be the offtaker of all renewable energy generated by the IPPs and thus all of their projects are guaranteed by PLN. This is to provide certainty for all renewable energy investors, as stipulated in government regulations.
The letters were sent to 20 IPPs, including Pertamina Geothermal Energy, Star Energy, and Wampu Electric Power.
A team of 11 Crown Worldwide staff, including one from the Indonesia team, has climbed Kilimanjaro mountain to raise over $200,000 for Movember, a men’s health charity that focuses on mental health and suicide prevention, and prostate and testicular cancer.
The hike took eight days to complete, with the final climb to the summit lasting 16 hours. Crown said it was physically and mentally demanding, but the team made it successfully to what is known as the peak of Africa and then safely back down again.
Industrial Confidence Index (IKI) Starts in September
The Indonesian government will begin releasing a report on the country’s Industrial Confidence Index (IKI) in September. The IKI will be based on calculations conducted by the Ministry of Industry using the National Industrial Information System (SIINas).
Minister of Industry Agus Gumiwang said the essence of IKI is similar to the manufacturing Purchasing Managers’ Index (PMI), and companies will be asked similar questions to the S&P Global Ratings and Bank Indonesia (BI) surveys. However, the IKI will be more detailed about how industry players are perceived and survey more of them at 16,000 compared to 400 by S&P. Agus said that by having more precise data via the IKI, the government can mitigate and better prepare policies that are in accordance with industry needs.
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AmCham Update is AmCham's regular newsletter on developments related to the pandemic crisis and other issues in Indonesia. It is edited by AmCham Managing Director A Lin Neumann and written by the AmCham Staff. Paul L Goddard is the Managing Editor.