INCREASED TAX FOR IMPORTED BEVERAGES MIGHT TRIGGER SMUGGLING OF ALCOHOLIC DRINK

The Association of Indonesia Importers and Distributors of F&B products (APIDIMI) stated that increased taxes on imported beverages products might trigger smuggling of alcoholic drinks. Agus Silabanm Chairman of APIDIMI stated on Friday (24/7) that in the Regulation of the Ministry of Finance No. 132.0.10/2015 on the Stipulation of Goods classification and tax exemption on imported products it was stated that import tariff for beverages with alcohol content of less than 80% was 150% of basic price.

On beverages of fermeted fruits with alcohol content of 15% - 25% tax of 90% of basic price was imposed while for drink while for drinks with alcohol content below 15% tax of 90% was imposed. “If taxes were too high, smuggling practices would be at large and the Government would not get anything” Agus said.

For that matter Agus said, importers objected to the Government’s policy to increase taxes on imported alcoholic drinks. Moreover he said the Government did not involve businesspeople in making the Regulation. Agus admitted he was upset with the Government’s policy to increase import tax. Agus said that the one sided policy would not only kill alcoholic drink business would also enhance smuggling.

Agus said that the circles most advantaged by increase of taxes were corrupted officials who had been protecting smugglers. Meanwhile the Government who was supposed to collect income from imported alcoholic drinks would be disadvantaged because income from import would drop. Agus argued that the Government’s reasoning of protecting domestic industry by imposing high import tax was unwise.

He said that act of hooliganism by drunkard was not because of low import tax of alcoholic drinks but because law enforcers failed to prevent smuggling.

Agus further remarked that the more stringent the regulation to restrict alcohol consumption the higher circulation of illegal drinks would be.

Agus disclosed that selling price of alcoholic drink in Indonesia was the most expensive in the world. The reason was that the tax component included therein made the price sixfold or 600% more expensive than the basic price. Now with tax structure could be 900%.

According to Agus increased import tax would almost certainly drop sales figures. All in all importing process would be disturbed and state’s income would be reduced.

He said that there was anomalous marketing of beverages due to high Government’s income tax which was indicated by import quota which was lessened year after year. He rated that sales of legal alcoholic drink which shrunk was in reserve with smuggling of alcoholic drinks which constantly increased.

Meanwhile the Minister of Trade Rachmat Gobel denied that increase of import tax for alcoholic drinks would kill the business. He said that so far he had not approved the precentage of import tax for alcoholic drinks because he wished to know the underlying formula of the pricing, Minister Gobel stated that had not set up an evaluation team in regard to that matted. The proposal was still at the stage of dissecting and had not become recommendation. (SS)

Business News - July 28, 2015

TO READ BANK INDONESIA’S WARNING

Pursuant to the World Bank and IMF release on the revision of projection of Indonesia’s economic growth this year BI was also making projections but was pessimistic about economic growth in the last two quarters.

Governor of BI Agus Martowardojo stated that economic growth in the second half of this year would only be around 5% - 5.2%. Previously the Monetary Authorities predicted that economic growth in the last two quarters of the year would be around 5.3% - 5.4%.

Lowered growth projections was in parallel with estimated growth of Q – 2. In the beginning BI was optimistic growth would be 4.9%, now it was only 4.7% which was the same as Q-1. So all year through economy was at lower level. In short this year Indonesia’s economy would only grow by 5% instead of 5% - 5.4%.

In BI’s assessment economic growth of Semester 2 depended on budget realization by the central or provincial Government an realization of infra structure projects.

BI had not relaxed their monetary policy as the global situation was not conducive to it. There were some relaxation efforts done by BI to propel growth this year such as the LTV regulation but the result of such would only be seen in Q IV. 2015.

So far budget realization was posted at Rp.820 trillion or 41% of total allocated APBN-P budget 2015. The Government as disclosed by Ministry of Finance Bambang Brodjonegoro was optimistic that by the second half of this year realization could be enhanced.

If the Government’s optimism was realized it was probable that economic growth this year would be around 4.7% - 5.1% toward mid point at around 4.9%, moreover to think that slowdown was happening in nearly all industrial sectors.

Under the circumstances it would be unwise for the Government to start a policy which suppressed potential growth; it was advisable for the Government to postpone increase of taxes which might suppress growth percentage even lower.

It was noteworthy that low export was one of the reasons why growth was limited, moreover global commodity prices was still low. The Central Statistics Board noted that Indonesia’s export in June 2015 last posted increase of 11,63% to become USD 12.96 billion against USD 11,61 billion in May.

Meanwhile Indonesia’s total import in June 2015 came to USD 12.96 billion, an increase of 11.63% against May 2015; but compared to June 2014 down by 17.42% or USD 15.69 billion. Non oil-gas import in June 2015 came to USD 10.39 billion, an increase of 8.95% against May 2015 or USD 9.53 billion but down by 15.58% against June 2014 at USD 12,30 billion.

The biggest increase in non oil gas import in June 2015 was machineries and mechanic equipments worth USD 410 million or 26.326% while biggest downturn was shipping category around USD 300 million or 82.26%.

Three countries of origin of non oil gas products in January-June 2015 were China USD 14.71 billion or 24.17%; Japan USD 7.18 billion or 11.80%; Singapore USD 4.21 billion or 6.92%.

Import of non oil-gas products from Asean states constituted market share of 21.52% or worth USD 2.21 billion and from Uni Europe 9.33% or USD 983.1 million. Meanwhile import of oil-gas in June 2015 came to USD 2.58 billion, an increase of 23.89% against May 2015 worth USD 2,08 billion, but compared to June 2014 was posting downturn of 24.06% amounting to USD 3,39 billion.

Accumulatively total import of January-June 2015 was posted at USD 73.94 billion or down by 17.81% against same period of 2014 which came to USD 89.95. accumulatively import consisted of import of oil-gas USD 12.10 billion or down by 39.91% and oil-gas USD 60.84 billion or down by 10.74%.

Over the period of January-June 2015 downturn to import was happening to among others consumer goods 13.83% from USD 6.3 billion to become USD 5.4 billion. Auxiliary goods also posted downturn of 18.78% against previous import of USD 68.60 billion to become USD 55.89 billion also down by 15.01% against the previous USD 14,85 to become USD 12,62 billion.

It was noteworthy that less import especially raw materials and auxiliary goods indicated that domestic capacity at home was declining in line with low consumers purchasing power.

Economic slowdown was also indicated by lowered position of Indonesia’s foreign debt (ULN). The position of ULN in May 2015 only grew by 5,9% (y o y) slower than the growth in April 2015 which was 7,7% (y o y). it was mentioned that by that growth rate the position of Indonesia’s ULN by May 2015 was posted at USD 302.3 billion consisting of ULN of the public sector USD 133,5 billion consisting of ULN of the public sector USD 133,5 billion (44,2% of total ULN) and ULN of the private sector USD 168.7 billion (55.8% of total ULN).

Slowdown of ULN growth in May 2015 in May 2015 was influenced by the private and public sectors. ULN of the private sector grew by 10.2% (y o y) lower than growth in the previous month at 13.2% (y o y). This was mainly due to slowdown in growth of bond ownership by foreigners. Meanwhile growth of ULN of the public sector grew by 1,0% (y o y) slowing down compared to the month before at 1,5% (y o y).

Based on tenure the position on Indonesia’s ULN was dominated by long term debt (84% of total ULN). Long term ULN in May 2015 was posted at USD 256.7 billion, growing by 7,5% (y o y) lower than that of April 2015 at b,4% (y o y).

The long term ULN consisted of ULN of the public sector USD 130,3 billion (97.6% of total ULN o of the public sector) while ULN of the private sector was USD 126.4 billion (74.9% of total private ULN) and short term ULN was contracting by 2.3% (y o y).

ULN of the private sector in May 2015 was concentrated in the sectors of finance, processing industry, mining, electricity, gas and clean water. The ULN market share in the four sectors against total ULN was 75.9%. But annual growth of ULN of the finance sector and electricity was slowing down compared to growth of the previous month whild annual ULN growth ULN growth of the ULN of the processing sector was posting increase.

On the other hand, annual mining sector posted severe contraction compared to the contraction last September. BI saw that the development of ULN per May 2015 was still healthy but must be watched on of the risk on economy. It was right for BI to constantly monitor the development of ULN especially of the private sector.

All the disheartening fact generated pressures on Rupiah. Rupiah hardly ever moved at Rp13.300 which means Rupiah was undervalued at around Rp.12,750 – Rp.13,000 per USD.

It was understandable that BI regarded Rupiah weakening being caused external sentiment. However there were some facts worthy of the Government’s attention, such as data of Trade Balance and absorption of Government budget.

BI’s assessment was right that one thing to watch on was downturn of export and import. Although surplus, it was more caused by low import. If this were let to go on it would generate negative market perception although resulting in lowered current transaction.

Previously Chairman of the Association of Indonesian Economic Scholars (ISEI) Darmin Nasution disclosed that hard pressures on Rupiah caused degradation of trust among economic stakeholders.

It was mentioned that weakening of Rupiah might cause premium risk, costly hedging and expensive return of bonds. Weakening of Rupiah and also increased prices of imported goods which would further jack up inflation.

Therefore to ease Rupiah weakening process. Strengthening of fundamental economy and efforts to enhance reformation was a pressing necessity among others to jack up export in spite on low commodity price sat the global market. (SS)

Business News - July 28, 2015

SOLUTION TO GREECE CRISIS COMFORTS THE MARKET

The drama of Greece had entered a new phase which relieved the whole world. The threat that Greece had to exit from the Eurozone had gone as Greece came to terms to receive bailout fund from Troika and other creditors. This would open a niche for the global moneymarket including the emerging economies to revitalize.

           

Again Greece had made in important decision to secure bailout from creditor countries as the Greek Parliament agreed on a second Reformation. By this policy, the negotiation for bailout worth €uro 86 billion was over. The Reformation brought change in Greece’s banking and legal system.

Previously there was growing anxiety of Parliament’s rejection of the policy, but Prime Minister Alexis Tspiras had managed to gather enough support he needed. In the referendum 230 votes supported the proposal, 63 were against it and 5 were abstain.

Among those who rejected, 31 of them were from the Syriza Government Party. Somehow the figure was less than the previous voting. Ex Greek Finance Minister Yanis Varoufakis who previously refused the deal, now preferred to support the Government.

Tsipiras stated that he was not happy with the condition set by the creditors, but he had to compromise to avoid an extreme circumstance. Meanwhile representatives of institutions in Europe who provided the bailout fund were negotiating in Athens.

The deal approved by the Parliament of Greece were more of a structural policy aimed at accelerating court cases and adoption of Uni Europe regulations to jack up the banking sector and to protect customer’s fixed deposit account worth less than € 100,000.

PM Tsipiras was also consolidating the Syriza Party before voting was run in Parliament in regard to the second package demanded by international creditors. Tsipiras had to face hard critic from the left wing party that he led.

Greece received a package deal theough Parliament’s approval supported by some pro-Europe parties whereby Greece was entitled to a new loan worth € 86 million. besides Greece was also allowed not to exit from Euro exchange rate value if they signed the package deal.

In Indonesia, marketplayers were also observing the latest macro economy development, especially economic growth projections. BI was pessimistic economic growth by year end would be as high as past predictions.

Indonesia’s growth rate in the second half on this year was around 5% - 5.2%; the monetary authority estimated economic growth in the second half of this year at around 5.3% - 5.4%.

Lowering of growth projection was in line with that of Q-2. Initially BI was optimistic to score 4.9%. now must be content with 4.7%, the same level as in Q1.

In short, this year Indonesia’s economic growth would only grow by around 5% - 5.4% depending realization of budget realization and realization of infra structure projects.

Realization of Government’s budget could increase investment and domestic consumption while BI had not relaxed their monetary policy as the global condition was not as yet to recovery. BI also realized the LTV value but the result could not seen until Q IV/2015.

As with Government’s budget absorption, the amount realized was Rp.820 trillion or 41% of total allocation in APBN-P 2015.

The Moneymarket

Regional currencies including Rupiah weakened as US economy turned better. The market tend to wait and see as Janet Yellen made her statement at FOMC this week. At the spot market last Thursday (23/78) Rupiah was seen to weaken by 0,34% to Rp.13,420 per USD. Accordingly BI’s mid rate inched down by 0.19% tp Rp.13,394 per USD.

Rupiah weakened as there would be FOMC statement this Thursday (30/7), moreover the Greece crisis was over. The market would be governed by Janet Yellen’s policy as Governor of the Fed. On Wednesday (22/7) there was positive data on sales of second hand homes.

Besides, expectation of unemployment data in the USA dropped to 279,000 from 281,000 which caused some regional currencies to weaken including Rupiah. At home Rupiah ran short of positive sentiment and over the week Rupiah value had been governed by falling international commodity prices.

Last week end (24/7) Rupiah stabilized but tend to weaken and moved in the range of Rp.13,375 – Rp.13,425 per USD.

Ironically Rupiah weakened when USD weakened against €uro last Thursday (23/7) as Greek Parliament passed the Bill of Reformation. €uro inched up by 0.65% against USD. All in all index of USD which measured USD value against 6 leading currencies dropped by 0,50% to 97.109.

During transactions in New York, €uro rose to USD 1.002 from USD 1,0908 while Poundsterling rose to USD 1.5515 from USD 1.5602. Australian Dollar dropped to A$ 0.7361 from A$ 0.7373; while USD was ¥123.81 against the previous ¥124.07. Against Swiss Franc, USD dropped to 0.9575 against the previous 0.9611 but inched up to Canadian Dollar 1.3038 against the previous 1.3032.

Over the week, rupiah was predicted to be under pressure and move in the range of Rp.13.375 – Rp.13,425 per USD. At home, BI’s policy to axe economic growth from 5.4%-5.8% to 5% -5,4% posed as negative sentiment to Rupiah.

Other causes that made Rupiah weaken was low transaction of foreign currency after Lebaran which made liquidation tight. At home, investors were waiting for better macro economic to Rupiah.

Indonesia was still under the influence of factor Greek factor and increase of Fed Fund Rate by the Fed in the USA. There were high expectations Rupiah might strengthen to Rp.12,750 – Rp.13,000 this year end.

At home, Government’s commitment to enhance budget realization posed as positive catalyst to Rupiah. By Q 2 this year, budget realization would still be below 50%, which means economic growth would be at 4.7% - 4.9%, buoyed by people’s consumption and improved export.

Budget absorption would be higher by Q 3 probably above 50%. By the time budget absorption was maximized, market players would have growing confidence in the Government which would uplift economic growth to 4.9% - 5.2% in Q 3 this year. Economic growth would  reach 4.8% - 5.1% in Q 3 this year which would strengthen Rupiah provided that Government budget absorption was around 95% - 98%.

BI admitted that Rupiah was being undervalued; the position was expected to free Indonesia’s export from pressures. Unfortunately the momentum could not be grabbed by exporters for 3 reasons:

Firstly, dependency on primary commodities like mining and plantation for export. Secondly, price of primary commodities that fell in the global market. Thirdly economic slowdown among Indonesia’s trading partners causing export to stagnate.

In fact Rupiah being undervalued had been going on for long. Indonesia was being under the pressures to Tappering off in the USA in 2013; so BI would always be in the market to protect Rupiah with Rupiah being undervalued, Indonesia had to struggle hard to strengthen competitiveness.

The Capital Market

IHSG index inched down by 3,844 points (0.38%) to the level of 4,902.84 during closing session of BEI last Thursday (23/7) Index of LQ45 was also axed by 2,803 points (0.33%) to the level of 839.788. IHSG inched down amidst low transaction. Foreign investors were seen to make foreign net sell worth Rp.142.979 billion in all markets.

When transaction were quite, there were transactions of 173,429 times including 4.12 billion lots worth Rp.4.016 trillion. 136 shares went up, 112 shares went down and 105 shares stagnated. Unlike BEI stockmarket in Asia last Thursday (213/7) ended in green zone in spite of negative sentiment from the global market.

Index of Nikkei 225 strengthened by 90.25 points (0.44%) to the level of 20,683.95; index of Hang Seng rose by 116.23 points (0.46%) to the level of 25,398.85 while index of Composite Shanghai soared up by 97.88 points (2.43%) to the level of 4,123.92 and index of Straits times inched up by 4.07 points (0,21%) to the level of 3,363.24.

Europe stockmarket weakened on the third day of transaction, this time was the turn for energy share. In three days of transaction on 21 – 23 July last index of Stoxx was already erorded by 8.7 points. Shares of Suisse rose by 6.4%, Unilever rose by 1.8% while index of Stox 600 weakened by 2.18 points or 0.54% to 3981.1. Marketpalyers were expecting better growth in Europe.

In Wall Street, index was in low mood during transaction last Thursday (23/7) after being driven by disappointing company’s performance report. It drove Dow Jones shares to the red zone when calculated per early year. Report of emitent’s performance report diminished since strengthening of USD had given negative signals.

Shares of Catepillar dropped by USD 76.88 per share and touched the lowest level in four years. the fourth largest producer of minery equipments in the world reported lessened income as global economy slow down. Furthermore shares of American Express also dropped by 2.5% to USD 77.01 per lot since their income was below market expectation.

Finally index of Dow Jones shares inched down by 119.09 points (0.67%) to the level of 17,731.95. Index of S&P 500 dropped by 12 points (0.57%) to 2,102.15. Nasdaq index inched down by 25.36 points (0.49%) to 5,146.41 it was noteworthy that fall of Dow Jones index happened when US corporate were showing force amidst world’s economic uncertainty.

An example was Google Inc. over Q2 this year Google’s income increased by 11% to become USD 17,73 billion. Their net profit grew by 12% t become USD 3.93 billion. This Google achievement exceeded market estimation for the first time since last quarter. Google was not alone. An American e-commerce Titan, e-Bay reported income increase of 7%.

The banking sector which were most troubled since the crisis of 2008 were now making their marks. The bank with third biggest asset in America, Citigroup Inc made profit of USD 4.85 billion, the biggest profit they made since 2008.

The illustrate, in Q 2 last year Citigroup only made profit net profit of USD 181 million which was because Citigroup had to pay court fine of USD 3.8 billion. Meanwhile bt profit made by Morgan Stanley for 3 months which ended in June 2015 was posted at USD 1.8 billion or 0.85 dollar per share which was 4.8% less than Q 2 last year amounting to USD 1.9 billion.

Still shareholders could smile because Morgan Stanley’s profit was the highest compared to other titanic banks. Price of Morgan Stanley at the New York stockmarket was posted at USD 40.18 per share. Since early year price of Morgan Stanley shares increased by 3.6% shares of Goldman Sachs stagnated because their profit was cut by fine of USD 1.45 billion.

How about the prospect of the banking sector at Indonesia Security Exchange (BEI) : It’s still attractive. The Deposit Insurance Agency (LPS) rated performance of national banks today as positive and could be contributive to national economic growth.

Bank’s resistance was relatively strong and fundamental economy was notably good as evident in CAR of 20.5%. NPL ratio was also low at 2.45% (gross) while net NPL was only 1.42%. meanwhile LDR was safe at 87.9%.

From the external-internal combination, IHSG last week end (24/7) was in the range of 4,900 – 4,920. Meanwhile through the week IHSG was projected to be in the range of 4,910 – 4,930 with tendency to strengthen. (SS)

Business News - July 28, 2015