|Indonesia Update | August 29, 2018
Authors: Kim Yaeger, Artha Sirait, Ian Saccomanno and Bryan Yeoh
|THE COUNCIL'S TAKE|
OJK Issued New Fintech Regulation
On August 15, the Indonesian Financial Services Authority (OJK) issued Regulation No.13/POJK/2018 on Digital Financial Innovations within the Financial Services Sector (full text of the regulation here in Bahasa Indonesia). Regulation 13/2018 is a new regulation that came into effect on August 16. This regulation provides a comprehensive framework for OJK to monitor and regulate the burgeoning fintech industry in Indonesia as the previous fintech regulations only covered peer-to-peer (P2P) lending.
The regulation covers many issues, including transaction settlement, investment management, fund collection and distribution, insurance, market support, and digital financing, and dives into key areas of innovation such as artificial intelligence, big data, blockchain, cloud computing, open-source information technology, virtual technology, and the sharing economy.
Under Regulation 13/2018, fintech companies are required to register with OJK unless an exemption has been given. This requirement will make it easier for OJK to monitor fintech companies considering last month’s discovery that there are 227 unlicensed P2P companies. Similar with Bank of Indonesia’s regulation earlier this year, OJK has also set up a regulatory sandbox for the testing of new products and services. Companies can be in the regulatory sandbox for at most 1 year with the possibility of a six-month extension. Registered fintech companies are required to send monthly self-assessed risk reports while those that are in the regulatory sandbox need to send quarterly performance reports.
The regulation also sets out provisions for protecting consumers and data confidentiality. Fintech companies are required to establish onshore data centers and disaster recovery centers under the new regulation. While this OJK regulation does not make any reference to GR82, the data localization requirement is consistent with GR82’s Article 17. However, OJK may amend the data localization requirement in the near future as the Government of Indonesia is in the process of softening GR82’s data localization requirement.
OJK hopes this regulatory framework will further improve the domestic startup ecosystem to better enable fintech’s growth to be a new source of growth in Indonesia’s economy. The fintech industry is expected to contribute up to IDR 25.97 trillion (US$ 1.7 billion) to the economy. Besides policy changes, OJK recently inaugurated the OJK Innovation Center for Digital Financial Technology (OJK Infinity) to support the integration of the fintech sector into the national financial system. Additionally, OJK is interested in establishing fintech courses in universities as part of their efforts to cultivate the Indonesian fintech industry.
Indonesia Planning New Tariffs on Imported Goods in Effort to Lower Current Account Deficit
Indonesia is developing plans to apply new import tariffs to 900 commodities following the tariff guidelines of PMK 34/2017 on Income Tax for Imported Goods (PPh 22). The announcement came following Indonesia’s initial plan to apply new import tariffs to a list of 500 classes of goods earlier in August. The regulation’s rates are divided into several layers based on the good’s classification and the importer’s status: 2.5 percent, 5 percent, 7.5 percent, and 10 percent. Soybeans, wheat, and wheat flour, when importers use import identification numbers (API) would be charged a tariff of 2.5 percent while those without APIs would pay 7.5 percent, for example. The draft of the full regulation is currently with the Fiscal Policy Agency (BKF), headed by Suahasil Nazara and is expected to be issued in September.
Goods covered would include consumer goods, including B2C e-commerce purchases, and capital goods for state-led projects. The government is hoping the tariffs will encourage local substitution of the products and reduce the country’s trade deficit. The capital goods tariffs are part of a plan to increase local content in infrastructure projects led by the government and State-Owned Enterprises. This policy also includes a 6-month suspension in imports of capital goods for some projects, likely significantly delaying their completion. The consumer goods tariffs will focus on products where local companies could use the increased market power to expand their production. It would likely include vegetable oils, paper, rubber, and plastics according to the Central Bureau of Statistics (BPS). The list is under review by the Ministries of Industry, Trade, and Finance.
Responses to the plan from the local business community were cautious or even negative.
The decision was motivated by the latest foreign sell-off of Indonesian assets that followed reports showing the current account deficit had widened in the second quarter, putting further pressure on interest rates and the Rupiah. The current account deficit was US$8 billion in the second quarter, twice the total value of consumer goods imported in the same period. Because the tariffs are so small and on such a narrow range of products, mostly in the relatively small consumer sector, it is unlikely they will have a significant short-term effect on the deficit. Ordinarily, Indonesia’s current account deficit and reliance on foreign portfolio investment to finance it is not a significant challenge. However, it did leave the country particularly exposed to last quarter’s instability in developing markets, which the government fears will continue. At the same time, foreign direct investment, which is much steadier during periods of turbulence, has been falling as election season begins.
|IN THIS UPDATE|
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Time to Restrict GSP Benefits to Fight Trade Mercantilism Information Technology & Innovation Foundation 20th Aug 2018
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OJK issues regulation on financial technology The Jakarta Post 24th Aug 2018
Association launches code of conduct for fintech The Jakarta Post 23rd Aug 2018
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No new infrastructure project other than dams: Minister Antara News 17th Aug 2018
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