Corrected Commodity Prices Weaken Indonesia’s Export Performance
Indonesia's export performance is expected to weaken until the second quarter of this year, in line with the correction in commodity prices such as crude palm oil and coal.
The correction is a normalization process after experiencing spikes during 2021-2022, although prices are still higher than pre-Covid-19 levels. Weakening exports will have an impact on this year's current account balance, which could return to a deficit of -1.1 percent of gross domestic product.
A Bank Mandiri economist said although the exports will decline this year, this will occur gradually, and the price fall has been gradual since last year. Indonesia's economy will also continue to grow 5.07 percent year-on-year (YoY) in the second quarter of this year, higher than 5.03 percent (YoY) in Q1.
Related links:
- https://wartaekonomi.co.id/read497901/waduh-gegara-anjloknya-harga-komoditas-ekonomi-ri-bisa-ngos-ngosan-tahun-ini
- https://insight.kontan.co.id/news/koreksi-komoditas-menekan-kinerja-ekspor
- https://nasional.kontan.co.id/news/harga-komoditas-mulai-menurun-kinerja-ekspor-indonesia-diperkirakan-melemah
Luhut Seeks Clarity on JETP Funds
Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan asked for clarity on the financing commitment of the US, Japan, and other countries under the Just Energy Transition Partnership (JETP), during a visit to the US last month.
The countries committed to mobilizing $20 billion to support Indonesia’s energy transition during the G20 Summit in Bali in November last year. State electricity company PLN is finalizing the JETP scheme with Japan to accelerate energy transition projects and is teaming up with the International Energy Agency (IEA).
However, aside from the above progress, there have been no follow-ups on when Indonesia can use the promised funds. Uncertainty on this will hinder Indonesia’s energy transition efforts, and if the countries offer commercial interest rates for the loans, the scheme will not provide any benefit to Indonesia, Luhut said.
Related links:
- https://dinsights.katadata.co.id/read/2023/05/10/indonesia-seeks-clarity-on-jetp-funds
- https://www.cnbcindonesia.com/news/20230512084901-4-436755/keras-luhut-sampai-bilang-as-omdo-ada-apa
Luhut Seeks Clarity on JETP Funds
Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan asked for clarity on the financing commitment of the US, Japan, and other countries under the Just Energy Transition Partnership (JETP), during a visit to the US last month.
The countries committed to mobilizing $20 billion to support Indonesia’s energy transition during the G20 Summit in Bali in November last year. State electricity company PLN is finalizing the JETP scheme with Japan to accelerate energy transition projects and is teaming up with the International Energy Agency (IEA).
However, aside from the above progress, there have been no follow-ups on when Indonesia can use the promised funds. Uncertainty on this will hinder Indonesia’s energy transition efforts, and if the countries offer commercial interest rates for the loans, the scheme will not provide any benefit to Indonesia, Luhut said.
Related links:
- https://dinsights.katadata.co.id/read/2023/05/10/indonesia-seeks-clarity-on-jetp-funds
- https://www.cnbcindonesia.com/news/20230512084901-4-436755/keras-luhut-sampai-bilang-as-omdo-ada-apa
Remove VAT Exemption Facilities: World Bank
The World Bank has called on the Indonesian government to remove exemptions and rates for Value Added Tax (VAT), in its report “Pathways Towards Economic Security: Indonesia Poverty Assessment.”
The World Bank said one third of potential VAT revenue (0.7 percent of GDP) in Indonesia is lost through current VAT exemption, which could fund the equivalent of the entire expanded social assistance budget in 2019.
These recommendations are not new and were discussed during the formation of the Tax Harmonization Law (UU HPP). The government agrees with the recommendations, and Minister of Finance Sri Mulyani Indrawati has plans to apply VAT on education of top schools (private education outside of public education which is dominated by the lower middle class) and daily staples (sembako).
However, the government also believes there are still areas that need VAT exemption and differentiated tax treatment. In addition to the high political risk of the plan, the government also needs to consider the partisanship aspect and examples of its implementation in other countries.
Related links:
- https://nasional.kontan.co.id/news/world-bank-sarankan-pemerintah-hapus-fasilitas-pembebasan-ppn-ini-kata-ditjen-pajak
- https://www.cnnindonesia.com/ekonomi/20230509164529-532-947333/sri-mulyani-dukung-saran-bank-dunia-kenakan-ppn-sembako-pendidikan
ASEAN Leaders to Strengthen Regional Integration
ASEAN member state leaders have agreed to strengthen institutional capacity and integration in the region. A statement released on May 11 during the 42nd ASEAN Summit in Labuan Bajo, East Nusa Tenggara, said leaders wish ASEAN to be a more swift and effective organization to better respond to emergency regional issues.
The statement outlined five declarations to realize regional integration: achieving the ASEAN Charter’s aim to consolidate ASEAN community development, reaffirming ASEAN centrality, strengthening its institutional capacity, developing its mechanism for dealing with external stakeholders, and reaffirming support of the ASEAN Coordinating Council.
During a foreign ministers dinner before the Summit, Minister of Foreign Affairs Retno Marsudi said ASEAN community building would be one of the main topics discussed in the Summit, along with ratification of the Treaty of Amity and Cooperation in Southeast Asia (TAC); implementation of the 5 Point Consensus (5PC), and implementation of the ASEAN Outlook on the Indo-Pacific (AOIP).
Related links:
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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
