Indonesia presents new economic stimulus package

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Indonesia on November 16 announced a new economic stimulus package to support the rupiah and spur growth in the lead-up to the upcoming presidential election set for April 2019.

The country’s ailing economy has emerged as a critical issue for President Joko Widodo’s administration two months into campaigning. Challenger Prabowo Subianto, a former army lieutenant general and businessman turned politician, announced he will slash corporate and personal income taxes if he comes to power as part of a plan to lure more investment to Southeast Asia’s biggest economy.

The new stimulus package now includes tax cuts starting next year for exporters in the mining, plantation, forestry and fishery sectors which keep their export revenues in the domestic banking system. Exporters who do not keep their export earnings domestically may be barred from moving their goods overseas. This is designed to prevent more capital outflows from the country.

Finance Minister Mulyani Indrawati said that a reduction of income tax will apply to the interest of time deposits both in local and foreign currencies deriving from export revenues.

Strong capital outflows in the recent past have caused the embattled rupiah plunge to its lowest levels since the 1998 Asian financial crisis. Widodo had in July met executives from about 40 exporters in Indonesia to also make the case for earnings currently kept offshore to be brought home to help the rupiah.

To attract foreign investments, the stimulus package will also provide for a tax holiday for two industrial sectors – agriculture-based manufacturing and digital industry – as well as allow for a relaxation of the country’s “negative investment list” for some priority sectors, such as textile printing and weaving. The list otherwise specifies sectors which are either entirely closed or conditionally open to foreign investment, including oil and gas, trading, pharmaceuticals and transportation.

With the change, foreign ownership in 54 business sectors, including the steel, chemical and petrochemical industries can now be 100 per cent, up from the present 30 to 67 per cent caps.

The economic stimulus package follows similar steps introduced since 2015 to make it easier for investors to do business in the country and spur growth. It also complements the last stimulus package introduced in August last year with a goal to encourage more foreign investment.

Among other things, the measures introduced in 2017 provided for an integrated business permit system that enables investors to submit online all necessary documents for an investment license, instead of having to do it through multiple government departments.

Indonesia’s central bank anticipates the economy will expand by 5.1 per cent this year, compared to last year’s 5.07 per cent. The government said in August economic growth will be 5.18 per cent this year, numbers way behind Widodo’s originally announced target of seven per cent.

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Reading Time: 2 minutes

Indonesia on November 16 announced a new economic stimulus package to support the rupiah and spur growth in the lead-up to the upcoming presidential election set for April 2019.

Reading Time: 2 minutes

Indonesia on November 16 announced a new economic stimulus package to support the rupiah and spur growth in the lead-up to the upcoming presidential election set for April 2019.

The country’s ailing economy has emerged as a critical issue for President Joko Widodo’s administration two months into campaigning. Challenger Prabowo Subianto, a former army lieutenant general and businessman turned politician, announced he will slash corporate and personal income taxes if he comes to power as part of a plan to lure more investment to Southeast Asia’s biggest economy.

The new stimulus package now includes tax cuts starting next year for exporters in the mining, plantation, forestry and fishery sectors which keep their export revenues in the domestic banking system. Exporters who do not keep their export earnings domestically may be barred from moving their goods overseas. This is designed to prevent more capital outflows from the country.

Finance Minister Mulyani Indrawati said that a reduction of income tax will apply to the interest of time deposits both in local and foreign currencies deriving from export revenues.

Strong capital outflows in the recent past have caused the embattled rupiah plunge to its lowest levels since the 1998 Asian financial crisis. Widodo had in July met executives from about 40 exporters in Indonesia to also make the case for earnings currently kept offshore to be brought home to help the rupiah.

To attract foreign investments, the stimulus package will also provide for a tax holiday for two industrial sectors – agriculture-based manufacturing and digital industry – as well as allow for a relaxation of the country’s “negative investment list” for some priority sectors, such as textile printing and weaving. The list otherwise specifies sectors which are either entirely closed or conditionally open to foreign investment, including oil and gas, trading, pharmaceuticals and transportation.

With the change, foreign ownership in 54 business sectors, including the steel, chemical and petrochemical industries can now be 100 per cent, up from the present 30 to 67 per cent caps.

The economic stimulus package follows similar steps introduced since 2015 to make it easier for investors to do business in the country and spur growth. It also complements the last stimulus package introduced in August last year with a goal to encourage more foreign investment.

Among other things, the measures introduced in 2017 provided for an integrated business permit system that enables investors to submit online all necessary documents for an investment license, instead of having to do it through multiple government departments.

Indonesia’s central bank anticipates the economy will expand by 5.1 per cent this year, compared to last year’s 5.07 per cent. The government said in August economic growth will be 5.18 per cent this year, numbers way behind Widodo’s originally announced target of seven per cent.

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