REPUBLIKA.CO.ID, JAKARTA -- Indonesia will announce a second package of economic policies on Monday in an attempt to reduce the country's current account deficit, Finance Minister Chatib Basri has said.
"I have signed off on the package last night, but it will only be announced at a press conference on Monday, which will be attended by Coordinating Minister for Economic Affairs Hatta Rajasa and Industry Minister M.S. Hidayat, since the policies will affect the manufacturing sector," he revealed here on Friday.
Chatib noted that the policies would include a hike in the tax on imported goods under Article 22 and a regulation to ease imports for exports (KITE) in order to boost exports.
"The tax under Article 22 is aimed at reducing imports, while the KITE facility is meant to encourage exports. The drafts of the regulations were taken to the ministry of law and human rights today," he added.
The first package of economic policies announced in August, consisted of four sets of policies aimed at protecting the Indonesian economy from negative changes in the global economy.
The first set of policies focused on improving the country's current account deficit, safeguarding the rupiah by boosting exports and extending tax credits to labor-intensive industries that exported a minimum of 30% of their output.
There were also policies that sought to reduce the imports of oil and gas by boosting the use of biodiesel. In addition, the luxury goods import tax was raised from 75 percent to 125-150 percent and mineral ore exports were encouraged by relaxing the quota system.
The second set of policies aimed at maintaining economic growth by ensuring that the budget deficit remained at a safe level of around 2.38 percent of GDP. Tax credits were also provided to labor-intensive industries.
The third sets of policies were focused on maintaining consumer buying power, while controlling inflation. The government changed trade regulations for several commodities whose market prices are vulnerable to global uncertainty, and increased coordination with Bank Indonesia to control inflation.
The fourth set of policies concentrated on accelerating investments by simplifying licensing procedures and improving the effectiveness of services.
The Indonesian government increased the pace of revising the Negative List of Areas for Investment, increased investments in export-oriented industries by providing suitable incentives and renegotiated mining contracts.
The implementation of the first package of policies helped to reduce the current account deficit, especially as the increasing use of biodiesel reduced energy imports and saved up to US$200 billion in foreign exchange until November. The expectation is that lower energy imports will save around US$4 billion in 2014.
In the third quarter, the country's current account deficit stood at 3.8 percent of GDP (US$ 8.4 billion); it is expected to decline to 3.5 percent by the end of this year.
Bank Indonesia has expressed hope that in 2014, the current account deficit will be limited to around 2.5 percent of GDP.
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