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

2. Asia Leads the World Economy Out of Recession2

3. World Output
Source: World Economic Outlook, IMF 3

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

5. The “Factory East Asia”
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;
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 Economy10

11. Indonesia GDP Growth 2005 – 2010
Consumption and Government Expenditure Replace by Trade and Investment
Expenditure
2005
2006
2007
2008
2009
Q-I
Household Consumption
3,9
3,2
5,0
5,3
4,9
Government Consumption
8,1
9,6
10,4
15,7
-8,8
Gross Fixed Capital Formation
9,9
2,9
9,2
11,7
3,3
7,9
Export of Goods and services
8,6
8,0
9,5
-9,7
19,6
Reduced Imports of Goods and Services
12,35
7,6
8,9
10,0
-15,0
22,6
Gross Domestic Product
5,6
5,5
6,3
6,1
4,5
5,7 11 11

12. Indonesia has Diversified Exports Destination
Share of Exports by Country in 2000
Share of Exports by Country in 2009
2000
Japan
23%
USA
14%
Singapore
11%
Korea 7%
China 4%
Others
41%
2009 (annualized)
Japan
16%
USA 9%
Singapore
Korea 7%
China
10%
Others
49%
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. Imports reflect investment picking up
Source: BPS (processed by TREDA)

15. Effective Policy Responses in 201015

16. Fiscal Incentive to Support Real Sector 2010
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 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
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 16

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
Energy Incentives
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
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 18

19. Bilateral Trade Relations

20. Balance of Trade Between Indonesia - Taiwan

26. Maintaining Indonesia’s Economic Reform Agenda

27. 27

28. Improved Competitiveness28

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 (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