Indonesia set to tax imports

Indonesian finance minister Sri Mulyani Indrawati says she is prepared to increase taxes on imports to keep the rising trade deficit under control and boost exports amid the potential global slowdown.

The authorities raised tariffs on about 1,100 products last year after the rupiah sunk to 1997-98 Asian financial crash levels.

Overall agricultural exports from Indonesia rose by 11.9 per cent, up to US$355.7 million, last year.

The Jakarta Post said fresh fruit rose sharply to 26.2 per cent higher in value from last year.

Mangosteen saw the most dramatic growth at 500 per cent as it was now sold to Singapore, Thailand, Saudi Arabia, China, Australia and elsewhere.

The government also reportedly revoked 291 regulations which prevented the smooth flow of licensing.

The central bank increased interest rates six times in half a year from 4.25 per cent to 6 per cent to bolster the rupiah. “We are going to make sure that we are going to use fiscal tools in order to support our exports”, Indrawati told the media. “If necessary, when exports cannot catch up that fast . . . then you have to have the willingness to accept that the current account deficit can only be narrowed by cutting the imports,” she added.

Indrawati has been mentioned as a possible replacement for Jim Yong Kim as World Bank president.

Indonesia, the world’s fourth most populous country, announced a record trade deficit of US$8.57 billion for last week as exports fell amid falling demand from China.

Last year consumer goods amounted to more than 9 per cent of total imports, from 7 per cent in 2009. Oil and gas accounted for 15.8 per cent of imports, down from 19 per cent. Popular online items, such as clothing, footwear and cosmetics, have all grown at double-digit rates, according to Malayan Banking.

Capital flowed out of Indonesia last year, reportedly attracted rising rates in the US.

The rupiah’s fall has recently reversed, reclaiming about 7 per cent of its value from last year’s low of Rp15,200 to per dollar in October.

Indrawati said a repeat of the late 1990s financial crisis was “definitely” impossible as Indonesia now had a flexible exchange rate, an independent central bank, fiscal strength and more room for policy flexibility to avoids crises.

Indonesia’s nascent e-commerce sector is also poised to more than quadruple to US$53 billion by 2025, from US$12.2 billion in 2018.

Indonesia’s financial sector is examining ways to cope with a US-China trade war. Picture credit: PXHere