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Indonesia Under Review


Indonesia Under Review

June 2013

Economics and Politics

Bank Indonesia has raised the benchmark rate by 25 basis points to 6%, after a long stretch of maintaining a record low rate of 5.75%.

M. Chatib Basri, the former chief of the Investment Coordinating Board (BKPM) has been appointed as the new Minister of Finance, replacing Coordinating Economic Minister Hatta Rajasa, who is temporarily serving as the acting Minister of Finance after Agus Martowardojo left the role to become the governor of Bank Indonesia.

The planned fuel price increase, as included in the 2013 budget by the House of Representatives, has attracted public opposition as expected, and according to analysts will cause an increase in inflation and decrease in economic growth. More practically, an increase in fuel prices will increase the price of consumables, particularly the staples relied on for daily life by the public, which should be expected to cause further calls for higher minimum wages, through the increasingly powerful labour movements.

 

Policy

The Indonesian Ministry of Trade lifted the restrictions on agricultural imports that have been challenged by the United States through the World Trade Organization (WTO). Nonetheless, Minister of Industry Mohamad Suleman Hidayat has suggested that other non-tariff regulations will be issued with an aim to achieve identical goals of protecting domestic products.

Similarly, the government appears to be backing down on certain requirements in the draft Banking Law (the requirement for branch offices to operate as an Indonesian limited liability company), and most notably in relation to the mining processing requirements, although, so far, not any of the domestic ownership-targeted policies.

The Fraser Institute has ranked Indonesia as the least attractive place for mining, citing opaque regulations and nationalist policies. Nonetheless, there is certain progress with the Ministry of Energy and Mineral Resources currently in the process of re-regulating the mining licensing framework and completing mining maps. Concession overlaps and overwhelming local government authority to issue and revoke mining permits being the two main sources of regulatory uncertainties.

 

Legislation

The REDD+ forestry moratorium has been extended for two years, as approved by President Susilo Bambang Yudhoyono, and confirmed by Minister of Forestry Zulkifli Hasan. A major issue that remains is whether the REDD+ Task Force, which is a temporary entity, will be transitioned into a REDD+ Agency, which is intended to be a permanent establishment – able to survive a change in administrations.

Indonesia’s Investment Coordination Board (BKPM) issued a new principal regulation that governs the procedure on investing in Indonesia and obtaining tax and other facilities. Under the regulation a listed corporation is classified as PT PMA if one of its “controllers” is a foreign investor. “Control” is defined as ownership of more than 50% of the corporation’s paid up shares or the ability to directly/ indirectly control its management/policy. Under this provision, beneficial ownership through corporate structure may trigger the “control” threshold, although it is currently unclear how BKPM will determine this. Being classified as PT PMA is significant as it subjects a corporation, listed or not, to the Investment Law (Law No. 25/2007). This means that it would become subject to an array of licensing regimes and other controls. Equally, foreign ownership may be restricted under the Negative Investment List. While the regulation does not immediately require foreign-controlled listed corporations to adjust their shareholding, it creates unsettling vagueness.

Commission for the Supervision of Business Competition (KPPU) has issued a new regulation, requiring the additional inclusion of a three-year business plan and data on the target market in the M&A notification documents.

A Minister of Forestry regulation amended the guidelines on borrow to use permit issuance, most notably creating additional obligations and making the validity period follow the duration of the principal mining license.

 

Courts

The Chevron case continues, with three employees due to stand trial for an allegedly improper environmental clean-up program. It is of note that although the type of prosecution present in the case can be largely expected, the government’s refusal to step in, as expressed by Minister of Energy and Mineral Resources Jero Wacik, indicates that there is little recourse during such proceedings. With the state apparatus expressing its condolences but refusing to prevent the such prosecutions.

The Constitutional Court ruled that customary forests are not owned by the state and are therefore not subject to the control of the Ministry of Forestry. The decision reads, in part, that “members of customary societies have the right to clear forests belonging to them and use the land to fulfil their personal and family needs.” Although this may appear to be major advancement for indigenous rights, in practice it should be expected that this will raise the risk of varied outcomes that include local fiefdoms and even more uncontrolled forest clearance.

Akil Mochtar, a former Golkar Party politician, replaced the often outspoken Mahfud MD as the Chief Justice of the Constitutional Court.

[Last update: 2013-06-19 11:25:14]

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