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NEWS UPDATES 23 August 2009

Indonesia may raise export duties likely in October

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The Indonesian Chamber of Commerce and Industry (Kadin) expects the government to raise export duties on 10 commodities when the new administration takes office in late October, to promote local processing, reported the Jakarta Post.

Kadin chairman Mohammad S Hidayat told reporters Wednesday that the move was proposed by Kadin as part of an initiative to increase the competitiveness of local industries through the development of domestic processing industries.

The proposal, he said, was also in line with the government’s commitment to reduce the country’s economic dependency on exporting raw natural resources.

Hidayat said the government had given a “green light” to the proposal in a meeting between Kadin and Finance Minister Sri Mulyani Indrawati recently.

“I have talked to [the] Finance Minister. It seems that the government supports the idea of having a fiscal policy that protects the processing industry,” Hidayat said.

The 10 commodities, he said, include cocoa, rubber, palm oil, coffee and sugar.

“Raw commodities should be used to support the domestic processing industry, which is labor intensive, instead of being exported. Indonesia will also earn added value from processed commodities when they are sold here.”

Indonesia is currently the biggest producer of crude palm oil (CPO). Combined with Malaysia they control around 88 percent of world CPO exports. Indonesia is also the world’s second biggest rubber producer after Thailand; the fourth largest producer of coffee after Vietnam, Colombia and Brazil; and the world’s third largest cacao producer, after Ivory Coast and Ghana, which come first and second, respectively.

While refusing to disclose the proposed amounts of export duties on raw commodities, Hidayat said Kadin expected that the relevant policy would be issued by late October under the new administration.

Currently the government has imposed a disincentive scheme on CPO exports in a bid to secure domestic supplies. A 1.5 percent export tax is slapped on CPO exports when the price rises above $700 up to $750 per ton, with a 3 percent export tax when the price reaches between $750 and $800 per ton. There is no export tax below $700 per ton.

Bayu Krisnamurthi, Deputy to Coordinating Minister for the Economy on agriculture and maritime affairs, told The Jakarta Post that a similar scheme was already  planned for cacao exports.

In response to Kadin’s proposal, Bayu said he was aware of it, but his office had yet to receive an order from President Susilo Bambang Yudhoyono to study it. Nevertheless, he said the government always took into account “export duties on raw material” in determining its international trade policies.

“(We) want our country to benefit from the additional values (generated from processed commodities),” Bayu said.

The government, he said, was even considering issuing a policy in response to other countries’ policies that impose lower import duties on raw materials”.

Whatever the final decision would be, he said, the policy would be made on a “commodity-by-commodity basis”. Bayu said the government would also determine an equilibrium level of domestic demand and supply for each commodity, and determine the right time to impose the policy.

The country’s total exports in 2008 soared by almost 20 percent last year to $136.76 billion on the back of commodity prices increases, as reported by the Central Statistics Agency. The value of exports was equal to around 20 percent of Indonesia’s economy last year.



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