<<Back
Economic Updates:
Investment Incentives Announced
Protection for Infrastructure Investment
Tax Breaks to Attract Carmakers
Investment Incentives Announced
Indonesia is to provide guarantees to infrastructure investors, is considering tax breaks for automakers, and a new customs and excise bill will provide duty-free status for special economic zones. The range of incentives emerged last week amid news that Chinese shoemakers are continuing their shift to Indonesia and as Japan's Takeda-Kirin Foods Corporation and South Korean food processing firm Daesang Corp said they will sink $80 million into a food processing plant in Lampung.
In other positive news, imports of capital goods had risen by 11.89% to $2.88 billion in the first four months of 2006, up from $2.57 billion in the same period last year, Antara reported.
Head of the Central Bureau of Statistics (BPS) Choiril Maksum said the contribution of capital goods to the country's imports rose to 16% in the January-April period, up from 13.77% in the same period last year. Imports of capital goods are often seen as an indication of direct investment flows to the country. The guarantee on infrastructure projects will not be a blanket guarantee, but according to a decree released by Finance Minister Sri Mulyani Indrawati on June 2, will be applied on a case-by-case basis. "The government may grant an extension of concession years if there is any delay, a cancellation in tariff adjustment, or if initial tariffs set are lower than what has been agreed," Bloomberg News reported the decree as stating.
According to the decree, a government committee for the acceleration of infrastructure projects will evaluate a development and make proposals to the finance minister, who may decide if the project is covered under the protection arrangement. The government may also compensate investors with money or with extended concession periods if they face a delay in clearing land on which the project is located, the decree said. Land clearance often slows development in Indonesia.
Bloomberg also reported the auto tax break move, citing Muhammad Lutfi, chairman of the Investment Coordinating Board (BKPM) as stating that Indonesia would seek to offer the same range as incentives that other nations offered. "We need to offer tax breaks for eight years, and impose lenient tax on sedans," he said, saying his agency was putting the plan to government. Lutfi spoke as reports stated that Yamaha motorcycles put on gains of 30% in the first five months, and sales of low-cost Suzuki vehicles rose 27.5% in May from the previous month, amid indications that consumers are cautiously returning to the market. Reports also said that as many as 10 Chinese footwear companies and shoemakers from some other countries operating in China will relocate their factories or orders to East Java where their operations are expected to create 20,000 jobs.
Bank Indonesia kept its benchmark one-month rate unchanged at 12.50% Tuesday in a move analysts said was aimed at helping insulate the rupiah from potentially damaging capital outflows. Central bank spokesman Budi Mulya said Bank Indonesia opted to pause in its easing due to a combination of external and internal economic threats, but will "continue rate cuts gradually" when those risks abate, Dow Jones Newswires reported. Market operators welcomed the move, which they said would end jitters over the currency. Bank Indonesia (BI) deputy governor Aslim Tadjuddin said Friday the current decline in the rupiah to the US dollar was in line with global trends.
Vice President Jusuf Kalla also said Friday that the government was unfazed by the drop in the currency's value, because the local unit was heading toward its stable level as assumed in the 2006 state budget, The Jakarta Post reported.
The rupiah faced renewed pressure following remarks last week from US Federal Reserve Chairman Ben S. Bernanke, who suggested that the Fed would raise its key rate again this month. The rupiah ended slightly higher Friday at Rp. 9,405 compared to Rp. 9,430 Thursday, helped by a rally in the stock market as investors purchased bargain price stocks.
back
to top
Protection for Infrastructure Investment
The government will provide protection to investors who will build toll roads and other infrastructure in the country as the government expects these projects to boost economic growth, Bloomberg reported on Monday (5/6/06). The protection, ranging from an extension of concession years to monetary compensation, will be provided on a case-by-case basis, according to a decree by Finance Minister Sri Mulyani Indrawati released on June 2.
"The government may grant an extension of concession years if there is any delay, a cancellation in tariff adjustment, or if initial tariffs set are lower than what has been agreed," the decree said. It said a government committee for the acceleration of Indonesia's infrastructure projects would evaluate a development project and make proposals to the finance minister, who would decide if the project is covered under the protection arrangement. The government may also compensate investors with money or with extended concession years if they face a delay in clearing land on which the project is located, the decree said.
The plan to build a 23-km flood canal, which may help cut Jakarta's flood problem, has been delayed for years because the government has not finished clearing the land for construction. The government may also give investors compensation if the demand for a completed project is lower than what the government had initially guaranteed, the decree said. The government may extend the concession or compensate the developer.
back
to top
Tax Breaks to Attract Carmakers
Indonesia may give tax breaks to help attract overseas investment in the country's auto industry, said chairman of the National Investment Coordinating Board (BKPM), Muhammad Lutfi, according to Bloomberg.
"We need to offer what other competing countries offer them," Lutfi said before meeting Vice President Jusuf Kalla on Thursday (8/6/06). ''We need to offer tax breaks for eight years, and impose lenient tax on sedans." The agency initiated the proposal and will need approval from the government.
The government plans to attract $426 billion in investment by 2009 in a bid to create jobs and lift 40 million people out of poverty. High domestic fuel prices and rising borrowing costs crimped consumption in the country. The tax incentives may attract carmakers to set up plants in Indonesia, Lutfi said. A US-based automaker is looking to invest as much as $1.4 billion to build a plant in the country, he said on May 22. He however declined to give details on the progress of the plan or name the potential investor on Thursday.
Indonesia's foreign direct investment approvals in the four months to April fell 36% to $3.14 billion, compared with the same period last year.
back
to top
<<Back
