AmCham Update Vol. 5 #28

Fitch Maintains Indonesia's 'BBB' Rating, Rp 21.72T Foreign Investment Inflow, Import Restriction Regulation to Be Revised, Industry Concerns Over Expansion of Export Proceeds Requirement

Mar 18, 2024

Fitch Ratings Holds Indonesia’s Rating at 'BBB', With Stable Outlook

Fitch Ratings reaffirmed Indonesia's Sovereign Credit Rating at "BBB" with a stable outlook on March 15, projecting a 4.9 percent GDP growth for 2024. While exports are expected to slow down in the first half of the year due to weakening global demand, resilient domestic investment and consumption are anticipated to drive economic activity.

Fitch also foresees Bank Indonesia (BI) lowering interest rates by 75 basis points from 6 percent to 5.25 percent, following a similar move by the US Federal Reserve. Government debt is forecasted to gradually decrease from 39.1 percent in 2024 to 37.2 percent in 2027, although general government revenue is predicted to fall from 15 percent in 2023 to 14.6 percent in 2024.

Fitch’s rating underscores international investor confidence in Indonesia’s macroeconomic stability, said BI Governor Perry Warjiyo, especially in the midst of the election season. BI will continue to monitor global and domestic economic and fiscal developments, and align its policies to foster inclusive and sustainable growth.

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BI Records Rp 21.72T Foreign Investment Inflow

Indonesia saw an influx of Rp 21.72 trillion in foreign investment, said Bank Indonesia (BI) Assistant Governor Erwin Haryono on March 17, with Rp 12.44 trillion from government securities (SBN), Rp 8.91 trillion from the stock market and Rp 0.37 trillion from Bank Indonesia securities (SRBI), based on BI transaction data from March 13-14.

Up to March 14, BI's data indicates non-residents divested Rp 23.34 trillion in SBN while net purchases were Rp 19.68 trillion on the stock market and Rp 23.84 on SRBI. This coincides with a decrease in premium credit default swaps (CDS) from 68.32 basis points (bps) on March 8 to 67.06 bps on March 14.

Concurrently, the 10-year SBN saw an increase from 6.63 percent to 6.67 percent between March 14 and 15, while the rupiah weakened against the US dollar, shifting from Rp 15.575 to Rp 15.620 per dollar within the same period.

Haryono underscored BI's intention to bolster coordination with the government and relevant ministries to effectively sustain economic growth.

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AmCham Cares: Mars Indonesia

Mars Indonesia joined the global celebration of International Women’s Day with an empowering hybrid session held at Four Points Hotel in Makassar on March 8. This inclusive event brought together associates at Mars Indonesia, including those from remote locations such as Mars Cocoa Research Stations (MCRS) Tarengge and Jakarta, for a day of celebrating achievements, fostering self-acceptance, and advocating for gender equality. Approximately 55 participants joined the session, representing diverse backgrounds and perspectives.

The event began with an insightful online session Celebrating Women's Achievement: Supporting Women into Leadership and Decision Making, led by Nuraini Razak, Director of Corporate Affairs at Tokopedia. Nuraini emphasized the significance of creating an inclusive environment where women are empowered to lead and contribute meaningfully.

Following Nuraini's session, Ananda Zhafira, a career coach from Bermakna_ID, took the stage to share her insights on self-acceptance. Through candid conversations and shared experiences, Ananda encouraged participants to embrace their unique strengths and identities, fostering a culture of self-confidence and resilience.

From the perspective of participants, the event served as an important moment for self-reflection and collective commitment to advancing gender equality, empowering women, and creating a more inclusive and equitable future for all.

For the future, Mars remains steadfast in its commitment to fostering an inclusive and supportive environment for women. Through initiatives which promote inclusion and events such as the International Women’s Day celebration, Mars seeks to create pathways for women to thrive personally and professionally and inspire lasting change within the organization and the broader community.

Gov’t to Revise Import Restriction Regulation

The government is to postpone and revise the implementation of import restriction regulations – Minister of Trade (MoT) Regulation 3/2024 as a revision to MoT Regulation 36/2023 on Import Policies – due to widespread protests from industry associations and the public on social media just days before the regulation comes into effect.

The public outcry mainly revolves around the stringent restrictions on items such as electronics, footwear, textile products, bags, and shoes carried into the country as personal belongings. Industry players also face challenges in obtaining requirements for import permit applications.

The Ministry of Trade has sent a letter to Coordinating Minister of Economic Affairs Airlangga Hartarto to re-evaluate the regulation, trade minister Zulkifli Hasan said. However, there has been no further information released on the specific changes to be considered nor the timeline of the revision.

AmCham Indonesia has been monitoring the issue closely and engaged with relevant stakeholders, including the government and industry associations. On the implementation of the new policy, we continue to encourage the technical ministries to have better preparedness on the new import system and less cumbersome requirements to mitigate potential trade disruptions.

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Industry Concerns Over Expansion of Export Proceeds Requirement

The government’s proposal to extend export proceed requirements to the manufacturing sector has come under criticism from industry stakeholders. Government Regulation 36/2023 mandates natural resources exporters must deposit 30 percent of their foreign exchange export proceeds (DHE) in domestic banks for at least three months, with the intention to broaden this requirement to manufacturing.

Businesses in the manufacturing sector typically procure raw materials or spare parts using US dollars, which yield higher interest rates when deposited in foreign commercial banks, notably places such as Singapore, compared to domestic banks, said Association of Indonesian Export Entrepreneurs (GPEI) Secretary General Toto Dirgantoro. Toto added that manufacturers often find it more lucrative and convenient to maintain their foreign exchange earnings in countries such as Singapore, where they can also access capital loans.

Targeting the manufacturing sector focuses on producing processed natural resource products as part of downstream policies, said Acting Deputy for Macroeconomic and Financial Coordination Ferry Irawan.

AmCham Indonesia believes the DHE policy could restrict companies’ working capital liquidity, compelling some to seek new credit facilities at added cost, and eventually undermining foreign investor confidence.

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Get to Know Our Members: Boeing

Boeing protects, connects and explores our world and beyond, and we continue to do so today. As a leading global aerospace company, Boeing develops, manufactures and services commercial airplanes, defense products and space systems for customers in more than 150 countries.

Boeing has been a strong partner of Indonesia’s aerospace industry for more than 70 years. Its relationship with Indonesia dates back to 1949 when national carrier Garuda Indonesia began operations flying special transport with a Douglas DC-3. Today, Boeing’s airplanes serve as a backbone for Indonesia’s airlines. Boeing maintains a corporate office, Boeing Indonesia in Jakarta and a Commercial Airplanes Field Services office at Soekarno–Hatta International Airport.

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Update is AmCham’s regular newsletter on developments related to investment, the economy, regulations and issues related to doing business in Indonesia. It comes out three times a week. It is edited by AmCham Managing Director Lydia Ruddy and written by the AmCham Staff. Paul L Goddard is the Managing Editor.

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