TESTING BUSINESS CONFIDENCE?
Wijayanto said that the DSI could increase state revenue, but it should be approached with caution.
“If not managed properly, it has the potential to worsen the investment climate,” he said.
“This is certainly a concern for the business world and investors.”
On Tuesday, prior to Prabowo’s address, the Indonesian stock index fell 3.5 per cent amid talks that a new export body would be announced soon.
On Wednesday, the stock exchange dropped by 0.82 per cent after the announcement of the new export body under Danantara, followed by the central bank’s announcement to raise its policy interest rate by 50 basis points.
On Thursday, the stock exchange fell by around 3.5 per cent.
Finance Minister Purbaya Yudhi Sadewa acknowledged on Thursday that the selloffs were likely due to market uncertainty over the new export body, but said that pressure on the stock market would likely not be permanent and that investor sentiment could improve once the policy becomes clearer.
“Usually when there’s uncertainty, people get scared and sell first,” Purbaya said after a coordination meeting at the economic affairs ministry, as quoted by local media.
Mansuetus Darto, chairman of Indonesian Palm Oil Farmers Association, said on Friday that the prices of crude palm oil had fallen from 15,300 rupiah per kilogram to 12,150 per kilogram in the past few days since Prabowo’s announcement.
He attributed the fall to uncertainty, causing businesses to hold back from buying palm oil from external parties.
He urged the government to ensure DSI’s role be limited to documentation and monitoring of export data and giving administrative oversight.
Analysts said that while Indonesia wants to increase its revenue from natural resources, it has to take into consideration businesses’ concerns about policy unpredictability.
Commodity exporters need clarity on contracts, pricing mechanisms, payment flows, foreign-exchange rules, tax treatment and dispute resolution, said economists Andry and Yusuf.
If a new state export body is introduced without clear rules, businesses may delay investment or reduce exposure to affected sectors, said Andry.
He added that the policy could damage investor sentiment if it creates uncertainty over pricing or opens the door to price controls.
“For example, investors could potentially choose products from other countries instead of Indonesia’s,” said Andry.
Palm oil buyers’ attention could now shift to Malaysia until more is known about how the export mechanism in Indonesia will be implemented, said Parmalingam Supramanium, director at Malaysia-based vegetable oil brokerage Penlindung Bestari, as quoted by market intelligence platform S&P Global.
Andry also noted that commodity markets cannot be managed in isolation, as they are connected to global demand, substitute products, domestic producers, workers, and regional economies.
That concern is especially relevant because Indonesia’s natural resource policy already plays a major role in its industrial strategy.
The country has previously used export controls to drive downstream processing, particularly in the minerals sector.
Downstreaming is the government’s attempt to prevent export of Indonesia’s raw materials and instead create higher-value products locally before exporting them.
The new export mechanism could be seen either as a continuation of that strategy or as a sharper turn towards direct state control, experts told CNA.
A centralised export body could give the government better visibility over export volumes, prices and proceeds, help the tax office detect suspicious pricing and ensure that more foreign-exchange earnings return to Indonesia.
But centralisation also creates concentration of power.
If the body lacks transparency, favours certain firms, imposes opaque pricing or delays transactions, it may worsen the problems and could become a new source of inefficiency or rent-seeking, said observers.
Yusuf from CORE Indonesia said the policy deserved appreciation if its purpose was to make export reporting fairer and increase state revenue.
But he stressed that the government must explain how the new body will work: whether it will be a regulator, a commercial intermediary, a price setter or a mandatory export platform.
He said the government must clarify the institution’s mandate and accountability structure.
Read the full article here
