INDONESIA ECONOMY AND ITS IMPROVED COMPETITIVENESS

1. INDONESIA ECONOMY AND ITS IMPROVED COMPETITIVENESS Mahendra Siregar Vice Minister of Trade Republic of Indonesia Business Forum Taipei, July 9, 2010

2. Asia Leads the World Economy Out of Recession

3. World Output Source: World Economic Outlook, IMF

4. Asia GDP Growth Indonesia GDP growth forecast remain increase for the next five years …. Note : green column is estimated

5. Some are member of the 20 largest economies in the world East Asia (excluding Japan) exported US$3.5 trillion of goods, more than one-fifth of the World’s exports East Asia region itself is a market of approaching 2 billion people; The “Factory East Asia” Source: Gill, Kharas (2006)

6. Trade Integration in Asia Differs with Europe • Trade integration in Asia is unique; • More than 70% of East Asia exports growth are manufacturing products in which machineries, electronics and transport equipment contribute more than 3/5; Source: staff calculation from UN-COMTRADE

7. The Asian noodle bowl* FTAs under negotiation Jagdish Bhagwati invented “spaghetti bowl” to illustrate the complexity web and rules of free trade agreements which is proliferating Source: Haddad (2007)

8. Almost all have trade deficits with China Source: ASEAN Secretariat

9. But increasing surplus with all other trade partners Trade surplus (billion $) Source:UN-COMTRADE

10. Updates on Indonesia Economy

11. IndonesiaGDP Growth 2005 – 2010 Consumption and Government Expenditure Replace by Trade and Investment 11

12. Indonesia has Diversified Exports Destination 2009 (annualized) 2000 Japan 16% Japan 23% USA Others Others 9% 41% 49% Singapore USA 9% 14% Korea Singapore China Korea China 7% 11% 4% 7% 10% Share of Exports by Country in 2000 Share of Exports by Country in 2009 Source: Indonesia’s Central Board of Statistics • Indonesia has succeeded in export market diversification. In 2000 the contribution of the top five countries of destination was amounting to 59%. The figure fell to 51% in 2009. • Diversification of export destination countries has to be continued in order to reduce too much dependence on a small number of countries.

13. Indonesia Export Products Diversified Source: BPS (processed by TREDA)

14. Importsreflect investment picking up Source: BPS (processed by TREDA)

15. Effective Policy Responses in 2010

16. Fiscal Incentive to Support Real Sector 2010 • Trade and Industry • NSW enactment, 24/7 services in major terminals, and import early warning • Import duties -DTP special industry • Import duties 0% for capital goods • Revitalization fund for plantation and sugar refinery industry • 5. Other Sector – Local • Incentive for local government (Unqualified Opinion and Local budget submission) • Bureaucracy Reformation Fund for 11 ministries/institution (laws, finance and national security) • Capital injection for Indonesia Exim Bank and Indonesia Credit Insurance Company • Incentive on Taxation • Income tax rate decrease 3% and 5% further and for listed companies in ISX • Non-taxable primary agriculture product • Abolishment part of Luxury Tax • Income tax facilities for special industry and location. • Energy • Geothermal: Income Tax, VAT and Financing • Oil and Gas: VAT exploration • Bio-energy: Subsidy and VAT • Govt. guarantee: Electricity 10.000 MW (phase I and II) • Infrastructure • Funding for land acquisition and land capping • Operational funding for Infrastructure Fund and Guarantee Fund • Guarantee for State Water Company and clean water subsidy • Housing Finance

17. Fiscal Policy to Promote Economic Recovery Fiscal policy aims to promote economic recovery by providing tax incentives to various sectors and businesses which further promotes private consumption and investment spending Fiscal Policy for 2010 to Promote Economic Recovery • Reduce income tax rate for corporations from 28% to 25% • Reduce income tax rate by 5% for listed companies with 40% public ownership • Provide income tax facilities for businesses in specific industries or areas • Free VAT for primary agriculture products • Eliminate many luxury tax items • Provide tax and custom incentive for special areas in accordance with law on tax and customs • Eliminate non tax revenue for export and import documentation Incentives on General Taxation • Provide incentive for geothermal energy through income tax and VAT • Provide tax incentive on imports (both income tax and VAT on imports) for the oil and gas exploration sector • Provide incentive for green energy through VAT and subsidy EnergyIncentives Incentives for Industry • Provide custom incentives for selected industries • Provide custom incentives for imported capital goods and capex

18. Fiscal Policy to Enhance Indonesia’s Competitiveness The Indonesia government continues to support the development of infrastructure and enhance social welfare through effective fiscal policy and incentives for specific sectors Fiscal Policy for 2010 to Enhance Indonesia’s Competitiveness Infrastructure Development and Social Welfare • Guarantee for 10,000 MW electricity program and IPP • Additional funds for land clearing for toll road building • Guarantee obligation for State Water Company; subsidy on interest for clean water, and interest credit for State Water Company • Subsidy and VAT for people’s housing (low income housing) • Credit for green fuel development • Credit for farming and cow growers • Subsidy for fertilizers, seeds and inventory • Direct assistance for seeds at competitive price in order to revitalize plantation for cocoa and sugar industry • Additional capital for Indonesia Exim Bank to finance export related activities, including for SMEs • Provide incentives for high performance regions (e.g. performance on financial, economic and social welfare) • Resolution for troubled asset at SOEs, and SMEs loans Assistance to Support Specific Sectors

19. Bilateral Trade Relations

20. Balance of Trade Between Indonesia - Taiwan

26. Maintaining Indonesia’s Economic Reform Agenda

27. 27

28. Improved Competitiveness 28

29. Improving Efficiency in Import Procedures Improve efficiency in import procedures Create better tracking system of products with potential health and safety hazards Key points: Establish new registration system as part of National Single Window program, which will ultimately be part of ASEAN Single Window program – Registration requires 7 working days with completed requirements Technical verification and investigation to be conducted as part of creating tracking system Registered importers who have undertaken verification can go to the green lane

30. Opportunities for Trade and Investment Indonesia and Taiwan can serve as production base: Indonesia is member of AFTA and other FTAs: ASEAN-China and ASEAN-Korea, ASEAN-Japan, ASEAN- India, ASEAN-ANZ; Come and join the 25th Indonesia Trade Expo (largest trade expo in Indonesia) 13 – 17 October 2010, Jakarta International Expo http://www.nafed.go.id/ (National Agency for Export Development)

31. Several Competitive Advantages for Investors: • Large domestic market • Indonesia is a large and growing market (retail sales are growing fast) and part of Asian market • Major expansions expected in infrastructure and resource based sectors, as well as increasing the competitiveness and value added of manufacturing industries • Market-based macroeconomic policy • Potential outsourcing partners • Abundance of diversified natural resources • Strategic location

32. Summary Government is committed to progressive reforms Policies to support trade and investment Maintaining macroeconomic stability Strong and sustainable economic growth Enhance economic coordination and development cooperation with other main global economies

33. THANK YOU www.depdag.go.id