MINISTRY OF INDUSTRY PREPARES FISCAL INCENTIVE FOR THE SHIPBUILDING INDUSTRY

In mid-November 2014, Industry Minister Saleh Husin, Finance Minister Bambang Brodjonegoro, and Coordinating Minister for Maritime Affairs Indroyono Susilo held a coordination meeting on the shipbuilding industry. There are four points agreed to be further discussed, among other, 0% import duties for certain imported components, simplification of procedures of import duties borne by the government (BMDTP), value-added tax (VAT) 0% option which will be defined in draft government regulation, and amendment of Government Regulation No. 52/2011

In order to cultivate the national shipbuilding industry, the Ministry of Industry is planning to provide fiscal incentives for the shipbuilding industry is planning to provide fiscal incentives for the shipbuilding industry. Thus, the Ministry of Industry is targeting national shipbuilding utilization to reach 50% in 2015. Hasbi Assiddiq Syamsuddin, Director of Maritime, Aerospace and Defense Equipment Industry of the Ministry of industry, in Jakarta (Friday, December 5), considered that fiscal and non-fiscal incentives triggered  growth of the national shipbuilding industry which production utilities is about 35%.

He said that the government is undertaking harmonization of some polices, ranging from 0% VAT relief for imported components, income tax, and BMDTP incentive. First, 0% VAT relief for imports of ship components and income tax. Second, BMDPT incentives. Third, imposition of import duty for imports of new and used ships. Fourth, draft government regulation non-taxable facilities. Additionally, Indonesia will gradually begin to restrict imports of used vessels so that the local industry could grow.

He is optimistic that the plan of providing fiscal incentives and non-fiscal incentives from the government for the national shipbuilding industry. He added that the industry will absorb more workforce in the shipyard industry. In addition to fiscal incentives, he explained that the Ministry of Industry also prepares non-fiscal incentives, such as land rental rates, especially for the old shipyard which operates on land owned by state-owned enterprises and the navy.

He said that the policy is still under calculation so that it could be well targeted. It is said that relaxation in the form of fiscal and non-fiscal stimulus will cause faster growth of the industry in line with the acceleration of government’s sea toll project. According to him, the shipyard industry has been forced to build ships at higher prices compared to foreign products because cost of imported components is subject to import duties so that are unable to compete.

Meanwhile, industry players doubt the effectiveness of underwriting of import duties by the government for a three-year quota for the shipbuilding industry. Chairman of the Indonesian Shipbuilding and Offshore Industries Association (iperindo), Eddy Kurniawan Logam, considered that the BMDTP incentive option is difficult to be implemented. Moreover, if the government set BMDTP to be applicable for import plan to meet the needs for three years.

The difference between the process of making a new ship and motor vehicle refers to a very specific design. A ship was made highly adjusted to the specifications provided by costumers. Therefore, it is difficult to predict the brand and type of components to be used for three years. BMDTP is one option of fiscal incentives that will be given by the government to the shipbuilding industry. Fiscal and non fiscal relaxation is entirely contained in the specific proposals formulated by the taskforce. However, Eddy still gives appreciation to the government on the incentive plan. He hopes that the government can implement policies that have a real impact and easy to implement so that the shipbuilding industry can rise. (E)

Business News - December 10, 2015

SECURITY FOR INDUSTRIAL ESTATES TO BE PRIORITIZED

Growth industry was governed by safety factor, as well as convenience in investing. Therefore protection of national vital industry became an urgent matter. Data of the Ministry of Industry had it that industry was one of the most strategic propeller of development. Over the past 5 years, contribution of industry to GDP came close to 21% with average growth of 6% per year.

Unfortunately not all of the industrial estates were turned into national vital objects. Security was one of the main issues investors were concerned about. The industry that needed high protection were industrial estate of more than one thousand hectares wide in which there were foreign investors. For that matter the management of industrial estates had asked the Government and Police to step up security effort.

Moreover industrial estates had been designed by the Ministry of Industry as vital objects so they were entitled to good protection by the Police. Chairman of the Real Estate Association Sanny Iskandar stated in Jakarta on Friday [5/12] that investors were highly concerned about security. Sanny remarked that foreign investors might walk away from Indonesia if the place was considered as unsafe.

In principle, industrial estates must be comfortable and be well protected from demonstrators. As known, the Ministry of Industry had designated 49 companies and 14 industrial estates as national vital objects [OVNI]. By Ministrial Decree no 466 2014, the said industrial estates were entitled to sound police protection.

However, Sanny admitted that not all of the industrial estates were willing to be designated as national vital objects for fear of extra expenses due. Not all of the industrial estates management responded positively to the proposition as they had to procure extra facilities as standard procedure set by the Police.

Meanwhile the Director of Industrial Areas Expansion, Ministry of Industry, Imam Haryono projected demand for industrial estate was projected to be 3,353 hectares through 2015 – 2019. Total need for land plus infra structure etc. came to 4,790 hectares. The entire area needed for industrial estates through 2015 – 2035 came to 50,216 hectares.

The Ministry of Industry wished that industrial esates grew evenly and broadly spread to East Indonesia. Development in Western Indonesia was left  years behind Jakarta and in East Indonesia around 10 years behind Jakarta. To build industrial estates, the time needed was wrong 5 to 7 years from planning to management.

Imam believed that if the expansion of industrial estates was left to market mechanism there would be no foreign investors interested in exploring East of Indonesia. Therefore the Government was striving to facilitate by fiscal, non-fiscal or administration. The Ministry believed that incentives be given to foreign investors willing to invest in east of Indonesia instead of those who persisted to invest in Java.

As with OVNI, the Ministry made sure that they would not loosely give away OVNI certificates. There was pre-condition to it, i.e. industry must be categorized as strategic with benefits gor general public and national economic growth. The location must be strategic and of high investment value. (SS)

Business News - December 10, 2015

A CRITICAL LOOK AT TIGHT MONEY POLICY

Policy of the Jokowi Government in increasing oil price had its high consequences; one of them was soaring inflation.

Although inflation data release by BPS in 2014 had not shown any significant increase [1.5%] it was almost certain that the fruits of oil price increase would be seen in 2 or 3 months after oil price increase. A course as this happened before last year when the Government increased oil price on June 22 2013. The result was 8.28% inflation by year end.

In responding to inflation upjump, the general policy adopted by BI was to use bank interest as instrument, i.e. to increase BI rate by 25 basic points from 7.75% to 7.75%. hopefully this was the highest increase and let there be no more increase in national industry.

Many circles rated that this 7.75% BI rate was the highest benchmark rate in the world. Even to compare with other developing countries BI Rate was still the highest. Hopefully banks would not respond to it by increasing credit interest as it would bring negative impact on businessplayers or even the banks themselves.

Today the most important thing was to keep industry running. In short, productivity must be maintained. People’s purchasing power must not be down because it would keep consumption at dafe level.

It was right for President Joko Widodo to attend to the poor people through social aid program since they were the most vulnerable to the effects of oil price increase. The Keep Buying Strategy became important when export was not something to rely on.

In terms of inflation control, BI’s strategy to increase BI rate was in fact only partial solution problem. Some observers even rated that BI had over acted by increasing BI rate in responding to Government’s step to increase oil price to set administered princes. BI should have tried to detect the root of problem and troubleshoot them the effective way.

BI’s step increase BI rate only solved the problem on the demand side, assuming that increased BI rate would force banks to increased BI rate would force banks to increase deposit their money in banks instead of being consumptive. A scenario as such would ease inflation but only on the demand side.

In fact Indonesia’s structural problem was not on the demand side, but supply side. Therefore it was the Government’s job to solve problem on the upstream side; BI could not only rely on bank interest as instrument.

What BI need was in fact long-term remedy to cure inflation. This task could be done by BI as inflation controller by the right approach to problem especially through the real sector. The biggest contributor to inflation on the food category, the biggest contributor to inflation which increased to 2.15% against the previous year. In this case the Government must supply enough food at home and depend less on import.

Even if some survey unveiled that food-based inflation was not always related to law of supply-demand but rather commerce that needed Government intervention, it still had to be managed by the Government, not BI.

The formation of Regional Inflation Controling Team [TPO] was the right solution to tackle inflation threat in the regions. BI’s Representative Office in every province, together with all Provincial officials could be mobilized to scure stock of food so inflation could be controlled. This was in line with the latest inflation data which showed that cities with highest inflation like Padang [3.44%] and Tual [2.86%] were outside Java.

Therefore the Government with BI must maintain price stability especially in certain times like Idul Fitri or Christmas and students holiday season. BI was most concerned about controlling inflation in accordance with the anchor set, i.e. 4.5% + 1%. With additional inflation of 2.4% - 2.8% after oil price increase, BI must be optimistic inflation could be kept around 6.9% - 7.3%.

One of BI’s efforts to control inflation till end of 2014 was to make sure inflation of volatile food and core inflation was not affected significantly. BI was also coordinating with the inflation controlling team at center and provincial level, as well as the Provincial Governments to prevent Second Round Effect after oil price increase.

In 2015, inflation was predicted to be in the range of 4% + 1%. In 2016 inflation could reach the level of 3.5% + 1%. Low inflation as in 2011 [3.8%] and 2014 [4.3%] resembles the condition in the Philippines, Malaysia and Thailand. If inflation could be kept lower, there was chance that BI rate could be gradually lowered to around 6% - 6.5%.

By the above picture, it was expected that BI did not just rely on bank interest as instrument to control inflation but to use non interest instrument instead, for example with policy mix which had been proclaimed. It was noteworthy that to keep high interest for the long run would have its negative effect on economic growth.

High interest restricted expenditure for investment and consumption which held back economic growth, even economy might stagnate causing problems in time to come. The dilemma was not due to tight money policy itself but in the step to increase benchmark rate. Even if it was effective it was only for the short term.

In the ling run high interest directly affected economic growth negatively. No matter how strong, economy could not withstand extremely high benchmark rate. Businesspeople screamed for help since BI increased benchmark rate.

It was right for BI to hold coordinative meeting to discuss for strategic step related to inflation stabilization in the Jakarta Province. Firstly to develop Information Center for Strategic Food Price [PIHS], secondly to foster trade collaboration with regions supplying strategic food commodity. Thirdly to build infra structure which supported trading and logistics. Fourthly to support development of UMKM small business sector.

Dour strategic steps being discussed in the Coordinative Meeting were needed to ease inflation pressures in Jakarta. As known, high inflation pressures in Jakarta today originated mainly from inflation in food. The price stabilization effort by TPID of the Jakarta Province was constantly strengthened, among others by developing PIHPS as priority program 2013.

PIHPS would ease information access for all people, enhance prices transparence and efficiency in setting price at consumer and product level. Besides, there would be Regional Business Board who had the authority to stabilize prices – such was to support food reserve program and price affordability of strategic food in Jakarta. (SS)

Business News - December 10, 2015

TIME FOR RUPIAH AND IHSG AND TO IMPROVE

External factor brought pressures on Rupiah and IHSG. Sound economic recovery in the USA brought appreciation to USD and all of the global currencies, which was also triggered by economic weakening in Japan, Europe and China.

Negative sentiment also came from the Central Board of Statistics [BPS] who announced November inflation 2014 at 1.50% highest inflation was posted in the category of transportation, communication posted at 4.2% - which was above the average of economic consensus of 1.2% - 1.3% only.

BPS also released trade balance of October 2014 at surplus of USD 23.3 million. Indonesia’s export was posted at USD 15.35 billion while import was posted at USD 15.33 billion. As footnote, last September trade balance posted deficit of USD 270.3 million which was deficit of the 5^th months over the year.

             

Trade volume also posted surplus of 30.7 tons of which export was posted at 43.84 million tons while import was posted at 13.18 million tons. Surplus of non oil-gas trading which was USD 1.13 billion was higher than deficit in oil-gas trading at USD 1.11 billion. Deficit in oil-gas trading was still high, as high as USD 2.109 billion.

Accumulatively through January – October 2015 Trade Balance was posting deficit of USD 1.64 billion while trade surplus in non oil-gas came to USD 9.08 billion. BPS data served as guidance to marketplayers to consolidate when good news never came.

The Moneymarket

Rupiah value against USD weakened by end of session last Thursday [4/12]. Rupiah was depreciated by Rp.12,309 per USD [0.07%]. Over the week Rupiah fluctuated around Rp.12,300 – Rp.12,330 per USD. By opening session Rupiah already weakened by 0.07% to Rp.12,310 per USD never stepping out of the red zone.

During opening session last Friday [5/12] Rupiah was still continuing to weaken, after touching its lowest level in the past 5 years. Rupiah was open to weaken Rp.12,310 per USD and was predicted to move in the range or Rp.12,275 – Rp.12,325 per USD by last weekend [5/12].

For this week, Rupiah was projected to be in the range of Rp.12,265 – Rp.12,300 per USD. the sentiment came from share price reversal and expectation of US Economy recovery.

Looks like marketplayers were still fond of USD and it leads to recovery of US fundamental economy. So for the short term negative sentiment would affect Rupiah. Moreover by year end need for USD normally soared high for paying overseas debt.

BI believed that weakening of Rupiah had its positive side, it might strengthen Indonesia’s export. However, the weakening must not exceed certain limit. So it was right for BI coordinate with the Government to manage the case.

Now the Government’s biggest homework was to jack up export of manufacturing, so the advantage of Rupiah weakening for increasing export could be proven. As known, Rupiah was depreciated to lowest level against USD in the last 11 months. Rupiah was now at Rp.12,300 per USD, close to the condition of crisis in 2008.

Many economist urged BI to create new instruments to uplift Rupiah, this was necessary for short term solution and secure forex supply at home.

Five factors accounted for Rupiah weakening in the past few days due to external sentiment. Firstly the prospect of US economic recovery. Secondly, economic slowdown in China and Japan, and lately also in Europe, all caused USD and Japan, and lately also in Europe, all caused USD to strengthen against all currencies of the world. Hence it was not only BI who should take action, bit also the Government who should strive to strengthen fundamental economy.

Step one, fiscal restoration. Step Two: infra structure development. Step Three, corruption eradication. Step Four political and economical stabilization Step Five to continue Government Reformation for maximum efficiency.

Admittedly the effort of economic recovery would take time; but it was better to take action now instead of holding meetings and discussions the way it happened in the past Government. Considering that pressures on Rupiah would continue this week, BI’s intervention was still needed to prevent Rupiah from sinking any deeper. Moreover USD index kept strengthening as ECB launched new stimulus package.

Toward ECB Meeting, Euro was suppressed as investors were expecting extra stimulus in view of Euro zone data which was still bad, moreover initial job claims in the USA was predicted to to lessen.

So the plan of the Indonesian Government to release once again promissory notes of Yen domination called Samurai Bond in 2015 was worthy of appreciation because if offered muti currencies, expand investor’s base and diversify currencies, expand investor’s base and diversify currencies.

This time issuance of Samurai Bond was different because it was unguaranteed to seek for new investors base in Japan who had faith in Indonesian bonds. For safety sake there would be two portions taken guaranteed and unguaranteed.

The way it had been, the Government had been issuing guaranteed Samurai Bond in collaboration with JBIC because in spite of Indonesia being rated Investment Grade, risk was still there. Issuance of Samurai Bond, guaranteed or not guaranteed would be executed simultaneously but the instrument with JBIG guarantee would be more numerous than the unguaranteed to avoid risk.

The Capital Market

Index of IHSG by end of session at BEI last Thursday [4/12] was closed to inch up by 0.22% [11/12 points] to 5,177.16 while index of LQ45 inched up by 0.2%. as recorded 182 shares strengthened, 140 shares descended 86 shares strengthened, 140 shares not for sale. Foreign investors were seen to make net sell amounting to regular market to the amount of Rp.203 billion.

The agricultural sector rose by 1.89%, basic industry rose by 0,33%, consumption inched up by 0.15% and property up by 0,35%. The infra structure sector inched up by 0.3%, trading up by 0.11%, manufacturing up by 0.36% and mix industry up by 0.83%. some security agencies believed IHSG would be closed in the range of 5,150 – 5,200; strengthening potential would continue this week in the range of 5,200 – 5,250 being supported by prima donna sectors.

On the external side, strengthening of the US stockmarket generated positive effect on Asian stockmarkets which tend to be positive. During closing session last Thursday [4/12] index of Dow Jones weakened by 12.52 points [0.07%] to the level of 17,900. Furthermore index of S&P lost 2.41 points [0.12%] to the level of 2,071.92 and index of Composite Nasdaq was reduced by 5.04 points [0.11%] to the level of 4,769.44.

Previously Wall Street shares strengthened on Wednesday [3/12] where Dow Jones index soared high to the highest level as the Fed’s report showed US economy was growing positively. Index of Dow Jones Industrial Average rose by 33.07 points [0.18%] to 17.912,162 a record of consecutive closing; while S&P increased by 7.78 points [0,38%] at 2,074.33 the highest record.

Index of Nasdaq Technology Composite inched up by 18.66 points [0,239%] to 4,774.47. The Fed’s Beige Book Report stated that some regions of Central Bank District signaled optimistic message about the future’s economic prospect. The Fed saw many positive things in many different fields.

Some investors might buy shares in anticipating ECB meeting which had signaled possible extra stimulus Shared of Citigroup and members of Dow JP Morgan Chase increased by 1.6% and 0.8% respectively. Bank of America increased by 1.1%, Some oil-related shares were also seen to strengthen. ExxonMobile inched up by 0.8%, Schlumburger increased by 1.8% and ConocoPhillips increased by 2.3%. Abercrombie & Fitch, a teenage-orientated wear retailer increased by 3.5% as the 42 cent QW-3 profit exceeded analyst’s expectation by one cent.

As some commodities bounched up they brought positive impact. Not just that, expectations of upturn of China’s stockmarket, continued weakening of Yen, Australia’s bettered trade balance, and released Korea’s GDP contributed positive sentiments.

On the other hand Europe’s stockmarket which strengthened reversed to the red zone toward closing session. Marketplayers responded negatively statement of ECB President Mario Dragi sho said that he was making calculations and further discussions over the need for stimulus next year.

Naturally the statement was responded negatively as ECB was still hesitant to inject stimulus. All the positive sentiment from Halifax House Price England, lowering of yield of 10 year bond Spain, the unchanging stimulus policy of the BoE and persistent ECB rate at 0.5% was balanced by Mario’s statement.

Still from the USA, downturn of commodity prices made marketplayers do act of selling to bring US stockmarket down again. Not just that, marketplayers also responded Mario Dragi statement. Release of low initial jobless claims was overpowered by the negative response.

So wall Street was willow as Mario Draghy decided to inject monetary stimulus next year. Corrections in US stockmarket was not too deep, but evenly spread in all sectors. Seven out of ten in S&P fell into the red zone. Dragi admitted ECB stimulus would start in early 2015. It was not unlikely there would be extra stimulus, but Dragi did not mention specifically the time and place.

At home, BEI set target to enlist 32 companies making IPO in 2015. This was to compensate on failure to net 30 new emitents in 2014. So far there were only 20 companies playing in the stockhall. So there was still room for 10 companies to do IPO, The 10 companies planning to do IPO year might do it in 2015.

BEI would work rated Government’s determination to make Indonesia a world maritime axis would have positive impact on emitents specializing in shipping.

Oil-gas transporters from upstream to downstream could continue to step up their performance as emitents so their shares would be sought after by investors. Sea transportation was regarded as more efficient and suitable for Indonesia being an archipelago. (SS)

Business News - December 10, 2015