Indonesia Update: June 14, 2018

Indonesia Update | June 14, 2018
Authors: Kim Yaeger, Artha Sirait, Ian Saccomanno and Rocky Intan
 
LOOKING AHEAD
 
 

June 26, 2018 - Roundtable with Indonesia's Minister for Energy and Mineral Resources Ignasius Jonan: The Council will host a roundtable discussion with H.E. Ignasius Jonan, Minister of Energy and Mineral Resources of Indonesia, on Tuesday, June 26, from 3:30 PM-4:30 PM EDT during his visit to Washington, DC for the 27th World Gas Conference (WGC). During the roundtable Minister Jonan will provide an update on energy and extractives industry policies and trends in Indonesia. Minister Jonan's official bio can be found here. You can register for the roundtable here

 
THE COUNCIL'S TAKE
 
 

Finance Ministry Lowers Economic Projection

Finance Minister Sri Mulyani Indrawati recently announced that her ministry is lowering Indonesia’s economic growth projection, putting it in a range from 5.17 to 5.4 percent, compared to the 5.4 percent economic growth projected in the 2018 state budget. Meanwhile, Bank Indonesia (BI) is keeping Indonesia’s growth projection at a minimum of 5.2 percent.

Weak domestic consumption continues to keep the growth rate from moving above 5 percent, which it has been for years. In an effort to keep inflation low, the government has announced price control measures on basic necessities such as fuel and rice, aimed at keeping inflation lows and purchasing power high Sri Mulyani remains hopeful that household consumption is expected to grow by more than 5 percent due to the disbursement of holiday bonuses to civil servants, police officers, and military personnel, as well as the Asian Games and the upcoming IMF-World Bank Meeting. Another encouraging sign for growth is high credit growth, reaching 8.9 percent according to estimates by the Financial Services Authority (OJK). This is in addition to consumer confidence edging higher and the manufacturing Purchasing Manager’s Index reaching an over one-year high in April.

Yet, several challenges remain. Indonesia’s central bank has had to raise domestic interest rates in an effort to help stabilize the rupiah. The subdued prices for key commodities continued to weigh on export growth. Exports increased by 6.2 percent while imports accelerated almost twice faster by 12.8 percent from a year earlier, expanding the trade deficit. This continuing trade weakness is another source of downward pressure on the rupiah, already bogged down by U.S. dollar’s strength from the Federal Reserve rate increases.

West Java to Get Single Industrial Area

On June 8, the Government of Indonesia announced that it will establish a national strategic zone in West Java consisting of Bekasi, Karawang, and Purwakarta. Administrative and Bureaucratic Reform Minister Asman Abnur stated that spatial planning, water management, processing of licenses for investment in the three regions, and all services will be integrated. A board to oversee the strategic zone will be established, in which the three regions would be involved in supervising the integrated industrial zone.

This development is in accordance with President Joko Widodo’s Industry 4.0 plan to enhance connectivity and digitize the manufacturing sector. Five industries are expected to be the centerpiece of this plan: manufacturing of food and beverage, textiles, automotive, electronics, and chemicals. During the Indonesia Industrial Summit 2018 in May, Industry Minister Airlangga Hartarto asserted that the plan would improve the competitiveness of Indonesian products in the global market, create more employment, and assist Indonesia in its goal of becoming one of the 10 largest economies in 2030.

Indonesia’s manufacturing sector has recently recovered. The Nikkei-Markit Purchasing Manager’s Index for Indonesia recorded its fastest growth in 22 months in April nearly a point to 51.6, above the 50-point line indicating expansion, the highest level since June 2016. Stronger domestic demand was pointed as the reason behind the third straight month of rising output. However, companies have expressed concerns over weak export demand and rising input costs due to the U.S. dollar’s strength.

Indonesia Wins UN Council Seat

On June 8, Indonesia won the only contested election for a seat on the United Nations Security Council, its most powerful body. It will join the Security Council starting on January 1, 2019 along with Germany, Belgium, South Africa, and the Dominican Republic. Indonesia overwhelmingly defeated the Maldives, a small country in the Indian Ocean that has never served on the council, by a ballot vote of 144-46.

The Security Council has five permanent members—the United States, Russia, China, Britain, and France—and 10 non-permanent members elected by the General Assembly for two-year terms. The five non-permanent members are elected every year. Foreign Minister Retno Marsudi stated that Indonesia would strive to promote peace-keeping and peace-building, conflict prevention, and UN development and environmental protection goals for 2030. The country would also prioritize “combatting terrorism and radicalization through developing a global comprehensive approach that addresses their root causes.”

Winning a seat at the Security Council is a crowning diplomatic feat for many countries as it provides a platform with a strong voice in matters of international peace and security. Research by Kuziemko and Werker (2006) of Harvard University found that non-permanent membership in the Security Council is associated with a 59 percent increase in total aid from the United States and an 8 percent increase in total development aid from the United Nations.

 
 
IN THIS UPDATE
 
 
Regional Affairs
Diesel oil subsidy will rise to Rp 2,000 per liter: Sri Mulyani

National Affairs
Govt. Updates Procedures for Complete Systematic Land Registrations
Jokowi issues single window regulation to boost exports
Gov't Plans to Buy 5 New Hercules Military Transporters: Defense Minister
World Bank projects economy to grow 5.2% this year
H&M, Gap to Probe Violence, Sex Abuse in Indonesian and Other Asian Factories
Government, House revise down growth target for 2019
Parts of trans-Java ready for Idul Fitri exodus

Market Development
Government appoints 5 operators for $292m oil and gas blocks
West Java to get single industrial area
Chevron demands higher split for Rokan block extension
Government hands over oil blocks in gross split scheme
Government removes income tax for sugar
Chevron wishes to extend Rokan block contract: Luhut
Go-Jek backers said to offer $1 billion funding to fuel growth

Customs
Indonesian Government revokes controversial cabotage legislation
Indonesia making preparations to join TPP
Indonesia to impose excise tax on liquids for e-cigarettes

Defense & Security
Indonesia’s New Attack Helicopters Put Spotlight on US-Indonesia Defense Ties

Economics
Foreign exchange reserves slide to US$122.9b
Demographic trends favour economic growth: IMF - ANTARA News

Energy
Cisokan hydropower plant project needs $800m in investment
Gov't to Foot Rising Fuel and Electricity Subsidy Bills
Indonesia plans to raise diesel subsidies four-fold
Inflation Bogeyman Prompts Fuel Subsidies Across Southeast Asia
Indonesia’s Looming Energy Challenges

Financial Services
Licensing, Approvals and Reporting for Conventional and Sharia Insurance Companies via Electronic Means
Tax Treatment for Capital Participation by Venture-Capital Companies Updated
Indonesia won’t impose tax for foreign funds anytime soon: BI
Indonesia Tries to Get Companies to Hold More Rupiah to Stem Weakness
$1b Loans From ADB to Support Indonesia's Fiscal, Investment Reforms
BI Updates Provisions on Licensing for Participants in Monetary Operations
Business Risk in Indonesia Amidst Upcoming Uncertainty
Deposit insurance firm increases rates
Southeast Asian Country Will Now Consider Cryptocurrencies As Commodities
OJK Asserts Cryptocurrencies, Bitcoins Barred for Trade
Import restrictions ripple across Southeast Asia
Bank Indonesia to relax loan-to-value ratio

Health & Life Sciences
A Long Way to the Psychiatrist's Couch: Mental Illness Treatments in Indonesia
Aiming for a malaria-free region by 2030
Tobacco consumption at emergency level: Commission
‘Mudik’ should be safe, healthy: Minister
Top US Health Scientist In Aging Research And Healthcare innovation Visits Jakarta

Market Regulation
New Environmental Provisions for Ocean Waste Dumping
Darmin’s office request additional funds to implement OSS
Provisions Relating to SKK Migas Redefined
Government revokes requirement to use local ships for commodity export-import
 
ARTICLE CLIPS
 
 
Regional Affairs

Diesel oil subsidy will rise to Rp 2,000 per liter: Sri Mulyani The Jakarta Post 5th Jun 2018
Finance Minister Sri Mulyani Indrawati has said her ministry has agreed to increase subsidies for Solar-branded diesel to Rp 2,000 (14 US cents) per liter, from the initial Rp 1,000 per liter subsidy.

National Affairs

Govt. Updates Procedures for Complete Systematic Land Registrations Hukum Online 13th Jun 2018
In a bid to offer greater legal certainty and protections relating to the issue of land rights, the Minister of Agrarian and Spatial Affairs/Head of National Land Agency (“Minister”) has issued Regulation No. 6 of 2018 on Complete Systematic Land Registrations (“Regulation 6/2018”).

Jokowi issues single window regulation to boost exports The Jakarta Post 12th Jun 2018
President Joko “Jokowi” Widodo has signed Presidential Regulation No. 44/2018 on the Indonesia National Single Window (INSW), which is tasked with integrating export and import services, to boost exports. 

Gov't Plans to Buy 5 New Hercules Military Transporters: Defense Minister Jakarta Globe 6th Jun 2018
Defense Minister Ryamizard Ryacudu said on Tuesday (05/06) that the government plans to buy five new Lockheed C-130 Hercules military transportation aircraft to modernize its aging fleet.

World Bank projects economy to grow 5.2% this year The Jakarta Post 6th Jun 2018
The World Bank has projected the economy to grow 5.2 percent this year, higher than the government’s projection of 5.18 percent.

H&M, Gap to Probe Violence, Sex Abuse in Indonesian and Other Asian Factories Jakarta Globe 6th Jun 2018
Fashion giants H&M and Gap vowed on Tuesday (05/06) to investigate reports that Asian garment workers who supply their high-street stores routinely face sex abuse, harassment and violence. 

Government, House revise down growth target for 2019 The Jakarta Post 5th Jun 2018
The government and the House of Representatives agreed on Tuesday to revise the growth target stated in the 2019 draft state budget to the range 5.2 to 5.6 percent from the 5.4 to 5.6 percent stated in the initial draft prepared by the government.

Parts of trans-Java ready for Idul Fitri exodus The Jakarta Post 1st Jun 2018
The government has ensured that although construction of the trans-Java toll road is not yet fully complete, parts of the highway will be able to accommodate those traveling during this year's Idul Fitri exodus. 

Market Development

Government appoints 5 operators for $292m oil and gas blocks The Jakarta Post 11th Jun 2018
The government has appointed operators to manage five of six oil and gas blocks, the contracts on which expire in 2020. The blocks will be operated using the gross split production sharing scheme.

West Java to get single industrial area The Jakarta Post 11th Jun 2018
The government has announced that it will establish a national strategic zone in West Java consisting of Bekasi, Karawang and Purwakarta.

Chevron demands higher split for Rokan block extension The Jakarta Post 8th Jun 2018
Energy and Mineral Resources Ministry oil and gas Director General Djoko Siswanto has said PT Chevron Pacific Indonesia has proposed a higher split from the oil extracted in Rokan Block if the company gets a contract extension.

Government hands over oil blocks in gross split scheme The Jakarta Post 8th Jun 2018
The government has officially signed contracts for two oil and gas exploration blocks under the gross split scheme. 

Government removes income tax for sugar The Jakarta Post 8th Jun 2018
The government removed on Friday income tax on sugar as part of its attempt to maintain the government’s purchasing price at Rp 9,700 (69 US cents) per kilogram. 

Chevron wishes to extend Rokan block contract: Luhut The Jakarta Post 7th Jun 2018
Coordinating Maritime Affairs Minister Luhut Pandjaitan says PT Chevron Pacific Indonesia (CPI), the local unit of the United States-based oil and gas giant Chevron Corp., has expressed interest in continuing its operation of the Rokan block in Riau, one of the most productive oil blocks in the country.

Go-Jek backers said to offer $1 billion funding to fuel growth The Jakarta Post 7th Jun 2018
Go-Jek, the Indonesian ride-hailing provider, has been offered at least $1 billion of new funding from existing investors eager to accelerate its overseas expansion, people with knowledge of the matter said. 

Customs

Indonesian Government revokes controversial cabotage legislation CMS Law-Now 13th Jun 2018
Following pressure from various stakeholders, the Indonesian government has revoked Ministry of Trade Regulation No. 82/2017 on the Utilisation of Indonesian Sea Carriage and Insurance for Export of Certain Goods (“Regulation 82”), which was approved in October 2017. 

Indonesia making preparations to join TPP Nikkei Asian Review 12th Jun 2018
Indonesia is studying the revised Trans-Pacific Partnership agreement reached by 11 nations after the U.S. exited, with a view to joining the trade pact, Jusuf Kalla, the country's vice president, said on Tuesday. 

Indonesia to impose excise tax on liquids for e-cigarettes U.S. 5th Jun 2018
Indonesia will impose an excise tax of 57 percent on tobacco essences used for electronic cigarettes starting July 1 as part of efforts to curb consumption of tobacco products, a senior official said late on Monday.

Defense & Security

Indonesia’s New Attack Helicopters Put Spotlight on US-Indonesia Defense Ties The Diplomat 4th Jun 2018
Last week, the United States and Indonesia held a ceremony to commemorate the completed delivery of Apache Guardian helicopters to the Southeast Asian state. 

Economics

Foreign exchange reserves slide to US$122.9b The Jakarta Post 10th Jun 2018
Bank Indonesia (BI) has reported that the country’s foreign exchange reserves fell to US$122.9 billion as of late May, down from $124.9 billion in the previous month. The decrease was attributed to measures to stabilize the rupiah against the US dollar and foreign debt payments by the government.

Demographic trends favour economic growth: IMF - ANTARA News Antara News 6th Jun 2018
The International Monetary Fund's (IMF) mission chief for Indonesia, Luis E Breuer, has said favorable demographic trends provide a unique window of opportunity for economic growth. He said the demographic trends were expected to increase Indonesia`s annual real GDP growth by close to 1 percentage point during 2020-2050.

Energy

Cisokan hydropower plant project needs $800m in investment The Jakarta Post 13th Jun 2018
State-owned electricity company PLN needs to invest US$800 million for a hydropower plant project located in Upper Cisokan, West Bandung, West Java.

Gov't to Foot Rising Fuel and Electricity Subsidy Bills Jakarta Globe 5th Jun 2018
The government has reiterated its commitment to keep fuel and electricity prices steady this year, amid rising global oil prices and the recent strengthening of the US dollar. 

Indonesia plans to raise diesel subsidies four-fold The Business Times 6th Jun 2018
Indonesia plans to quadruple its diesel subsidies to keep prices for the fuel unchanged through 2018 in spite of high global oil prices and a weak rupiah, the finance minister said on Tuesday. In March, the government said it would keep power tariffs for poor households and some fuel prices flat until 2019.

Inflation Bogeyman Prompts Fuel Subsidies Across Southeast Asia Bloomberg.com 5th Jun 2018
Oil-fired inflation that threatens to shoot ever higher is prompting governments across Southeast Asia to give some relief to pinched consumers. From fuel subsidies to tax incentives, governments are exploring ways to put a lid on rising prices -- for fear that consumers will revolt at the ballot box, or pull back on spending. 

Indonesia’s Looming Energy Challenges The Diplomat 1st Jun 2018
In less than a year, Indonesians will head to the polls for presidential and legislative elections. In public discussions, the energy sector is seen as one of the most influential sectors in determining the present government’s performance, due to the country’s tremendous potentials in fossil fuels and renewable resources. 

Financial Services

Licensing, Approvals and Reporting for Conventional and Sharia Insurance Companies via Electronic Means Hukum Online 13th Jun 2018
The Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) has issued Circular No. 10/SEOJK.05/2018 on Applications for Licenses, Approvals and Reporting for Insurance Companies, Sharia Insurance Companies, Reinsurance Companies and Sharia Reinsurance Companies via Electronic Means (“Circular 10/2018”), which serves as an implementation of Regulation of the OJK No. 67/POJK.05/2016 on Business Licenses and Institutions for Insurance Companies, Sharia Insurance Companies, Reinsurance Companies and Sharia Reinsurance Companies (“Regulation 67/2016”).

Tax Treatment for Capital Participation by Venture-Capital Companies Updated Hukum Online 11th Jun 2018
The Minister of Finance (“Minister”) has issued Regulation No. 48/PMK.010/2018 on Tax Treatments for Capital Participation in Micro-, Small- and Medium-Scale Enterprises by Venture-Capital Companies (“Regulation 48/2018”), which adjusts the threshold for the types of micro-, small- and medium-scale enterprises which are eligible to become the business partners of venture-capital companies (“Investee Companies”).

Indonesia won’t impose tax for foreign funds anytime soon: BI The Jakarta Post 11th Jun 2018
The central bank has said the country will not impose a tax on foreign funds anytime soon, stressing that the issue is only being discussed and is an option to control both capital inflows and outflows. 

Indonesia Tries to Get Companies to Hold More Rupiah to Stem Weakness Jakarta Globe 11th Jun 2018
Bank Indonesia (BI), the nation’s central bank, has taken various measures to try to boost rupiah use and it is once again prodding firms to sell dollars, but companies surveyed by Reuters are maintaining US currency holdings and only meeting minimum hedging requirements. 

$1b Loans From ADB to Support Indonesia's Fiscal, Investment Reforms Jakarta Globe 9th Jun 2018
Jakarta. The Asian Development Bank has approved $1 billion in policy-based loans to support Indonesia's reforms in public expenditure, and to improve the country's investment climate. 

BI Updates Provisions on Licensing for Participants in Monetary Operations Hukum Online 7th Jun 2018
Bank Indonesia (“BI”) has just issued a new technical regulation on monetary operations, specifically Regulation of the Board of Governors of Bank Indonesia No. 20/7/PADG/2018 on Participation in Monetary Operations (“Regulation 7/2018”).[1] Regulation 7/2018 is expected to improve the governance, standardization and compliance aspects of monetary operations.

Business Risk in Indonesia Amidst Upcoming Uncertainty AJOT Insights 7th Jun 2018
The forthcoming local and national elections in Indonesia will see the end of a period of relative calm. Political risk, institutional weakness and market volatility will almost certainly increase. However, investors should not over-react to such turbulence. A nuanced response is necessary to ensure long-term businesses continuity.

Deposit insurance firm increases rates The Jakarta Post 7th Jun 2018
The Deposit Insurance Corporation (LPS) has increased deposit insurance rates both in rupiah and foreign exchange. For savings in rupiah, the rate increased by 25 basis points (bps) to 6 percent, while for savings in foreign exchange the rate increased by 50 bps to 1.25 percent.

Southeast Asian Country Will Now Consider Cryptocurrencies As Commodities HiBusiness 6th Jun 2018
The Southeast Asian country of Indonesia will now consider cryptocurrencies as commodities. 

OJK Asserts Cryptocurrencies, Bitcoins Barred for Trade Tempo 5th Jun 2018
Indonesia's Financial Service Authority (OJK) board of commissioner chairman Wimboh Santoso asserted that the financial industry is barred from actively participating in cryptocurrency transactions such as Bitcoin.

Import restrictions ripple across Southeast Asia Resource Recycling News 5th Jun 2018
Months after China ramped up restrictions on scrap imports, countries such as Indonesia, Malaysia and Vietnam are initiating similar, if less extensive, policies as officials try to get a handle on massive increases in shipments and improper use of permits.

Bank Indonesia to relax loan-to-value ratio The Jakarta Post 4th Jun 2018
Bank Indonesia (BI) will soon announce a relaxation on the loan-to-value (LTV) ratio in trying to boost sales in properties through a mortgage program.

Health & Life Sciences

A Long Way to the Psychiatrist's Couch: Mental Illness Treatments in Indonesia Jakarta Globe 1st Jun 2018
Many people suffering from mental health problems in Indonesia are reluctant to seek help from professionals because they don't want to be seen as "crazy." 

Aiming for a malaria-free region by 2030 The Jakarta Post 13th Jun 2018
Melbourne will be hosting the First World Malaria Conference in July, 2018. Rita Widiadana spoke for The Jakarta Post with Stephen Rogerson, a professor at the Centre for Research Excellence (CRE) in Malaria Elimination. 

Tobacco consumption at emergency level: Commission The Jakarta Post 10th Jun 2018
Tobacco consumption in Indonesia is said to have reached emergency levels, says Laksmiati A. Hanafiah, the chairperson III of the Indonesian Heart Foundation and executive chairperson of the National Commission on Tobacco Control. 

‘Mudik’ should be safe, healthy: Minister The Jakarta Post 6th Jun 2018
Health Minister Nila F. Moeloek has said Idul Fitri holiday travelers need to prepare so that their mudik (homebound trips) are fun, safe and smooth.

Top US Health Scientist In Aging Research And Healthcare innovation Visits Jakarta Jakarta Globe 1st Jun 2018
Indonesia hosted a short visit by Dr. Victor Dzau, President of the United States National Academy of Medicine of the US National Academy of Sciences, to promote greater global engagement and exchange in medicine and healthcare on Thursday (31/05). 


Market Regulation

New Environmental Provisions for Ocean Waste Dumping Hukum Online 11th Jun 2018
Provisions which address the issue of ocean waste dumping (“Dumping”) have finally been regulated by the Minister of Environmental Affairs and Forestry (“Minister”) through the issuance of Regulation No. P.12/MENLHK/SETJEN/KUM.1/4/2018 on Requirements and Procedures for Ocean Waste Dumping (“Regulation 12/2018”).

Darmin’s office request additional funds to implement OSS The Jakarta Post 7th Jun 2018
The Office of the Coordinating Economic Minister has requested the House of Representatives budget committee to allocate it additional funds in the 2019 state budget to implement the Online Single Submission (OSS) system.

Provisions Relating to SKK Migas Redefined Hukum Online 7th Jun 2018
The government has issued Regulation of the President No. 36 of 2018 (“Amendment”) which amends Regulation of the President No. 9 of 2013 on the Management of Upstream Oil-and-Gas Activities (“Regulation 9/2013”).

Government revokes requirement to use local ships for commodity export-import The Jakarta Post 6th Jun 2018
Trade Minister Enggartiasto Lukita said his ministry has revoked a regulation that requires the use of Indonesian ships to export and import three commodities – coal, crude palm oil and rice.