In September and October this year, the Indonesian government announced economic policy packages aimed at creating a conducive macroeconomic environment, hence boosting the country’s economic growth that slowed in the second quarter due to global economic conditions.

First Phase of the Economic Policy Package

The first phase of this package, issued on 9th September, focuses on three main purposes: developing a conducive macro economy, boosting the national economy and protecting low-income members of society and boosting the rural economy.

As part of attempts to boost the national economy, the government plans to conduct debureaucratization and deregulation in some sectors. The policies encompassed by these debureaucratization and deregulation are aimed at restoring and improving industrial activities by removing industrial regulatory burdens and bureaucracy, increasing industrial competitiveness, and creating new initiatives (such as tax facilities to boost some sectors). The deregulation will be conducted by the government by rationalizing the regulations, eliminating redundancy or irrelevancy of the regulations, and harmonizing and making consistent the regulations.

Based on a list of deregulation plans issued by the Coordinating Ministry for Economic Affairs, there are 134 regulations (17 Government Regulations, 11 Presidential Regulations, 2 Presidential Instructions, 96 Ministerial Regulations and 8 other regulations) which will be deregulated. These are spread around 16 ministries/agencies, i.e., Coordinating Ministry for the Economy, Ministry of Industry (MOI), Ministry of Trade (MOT), Ministry of Finance, Ministry of Agriculture, Ministry of Energy and Mineral Resources, Ministry of Agrarian and Spatial Planning, Ministry of the Environment and Forestry, Ministry of Manpower, Ministry of Transportation, Ministry of Public Works and Housing, Ministry of Health, Ministry of Tourism, Ministry of Cooperatives, Small and Medium Enterprises, Capital Investment Coordinating Board, and Food and Drug Control Agency.

Most of the regulations (32 regulations) that will be deregulated are in trade sectors under the Ministry of Trade. The deregulation in this sector aims to improve competitiveness in the trade and industrial sectors related to raw materials importation, and smooth the flow of goods in Indonesia. Related to customs, the deregulation includes tax holidays for certain sectors and elimination of certain requirements for importation.

Below are key points of deregulation both those that are still planned and those that have been implemented:

1. MOT Regulation No. 27 of 2012 on Importer's Identification Number (API) will be amended to relax import requirements in relation to API. Under the amendment, it will be reiterated that API is the only identity document of importers. Other identity documents such as Registered Importer (IT) will be replaced by Import Approval (SPI), and the supervision over import of the products will be conducted through tariff instruments. We understand that the regulation has been issued. However, the draft has not been available in the official website of the relevant ministries.
2. In some regulations, requirements for surveyor verification reports for exporting and importing certain commodities will be eliminated. This requirement is deemed not necessary as there has been a strict real time system which is sufficient to supervise export of certain commodities and there will be a post-audit system to supervise import of certain commodities. Based on the list of deregulation plans, some of those commodities are timber, rice, batik and cosmetics.
3. Some MOT regulations will be amended to eliminate the compulsory recommendation from the MOI to import certain commodities as it is deemed slowing down the import process, and the government will instead supervise the import through a post-audit system. Based on the list of deregulation plans, some of those commodities are sugar, rice and steel.
4. The requirement for certain recommendation and documents on the import of textiles and textile products, e.g., Taxpayer Registration Number (NPWP), Company Registration Certificate (TDP) and Trade Business License (SIUP) at the port of origin or upon entering Indonesia is also being reviewed. This plan is aimed to maintain the smooth supply of raw materials for textile and textile products.
5. MOT Regulation No. 14 of 2007 on Standardization of Services in the Trade Sector and Supervision over Compulsory Indonesian National Standards (SNI) of Traded Goods and Services was amended by the government by issuing Minister of Trade Regulation No. 72/M-DAG/PER/9/2015 on 28th September 2015. This amendment eliminates the compulsory requirement to have a Goods Registration Certificate (SPB) when importing goods. Previously importers had to apply for an SPB each time they wanted to import goods. The SPB contains a Goods Registration Number (NPB). Under the new regulation, it seems that importers are now only required to have an NPB, the validity of which follows the term of the SNI mark certification (SPPT-SNI). As such, it appears that once an importer obtains a NPB, it can import the products numerous times until the validity of the NPB expires.

6. Issuance of Minister of Trade Regulation No. 73/M-DAG/PER/9/2015 on the Obligation to Have Written Labels in Bahasa Indonesia on Goods which revokes Minister of Trade Regulation No. 67/M-DAG/PER/11/2013 as amended by Minister of Trade Regulation No. 10/M-DAG/PER/1/2014. The new regulation revokes the requirement to affix the labels before customs clearance.

   It seems that under the new regulation goods can be imported without having an Indonesian label affixed on it provided that the it must later on be labelled before the goods are marketed domestically.

   Before this new regulation, importers had to label their products in Bahasa Indonesia before those products arrived in Indonesian customs.

Second Phase of the Economic Policy Package

Following the announcement of the First Phase by President Joko Widodo, the government announced the Second Phase of the Economic Policy Package on 29th September. The Second Phase puts more emphasis on the government's effort to increase investment by amending and deregulating regulations which would facilitate investment for domestic investment companies (PMDNs) and foreign investment companies (PMAs).

The Second Phase introduces the following elements:

1. 3-Hour Licensing Process for Investment in Industrial Zones.

   The government will soon implement a 3-hour licensing process for investment in industrial zones. This breakthrough will be implemented by three regulations, i.e., a regulation of the Head of the Investment Coordinating Board (BKPM Regulation), a government regulation on industrial zones and a regulation of the Minister of Finance.

   This 3-hour licensing process, however, will only apply to investors that have a minimum investment plan of 100 billion IDR and/or plan to employ more than 1,000 Indonesian workers. The licenses to be issued in three hours include the investment license, approval for the company's deed of establishment and ratification of the company's legal status by the Minister of Law and Human Rights and the company's taxpayer identification number (NPWP).

2. Quicker Tax Allowance and Tax Holiday Approval

   The government will issue tax allowance and tax holiday approval much quicker than is currently the case. A tax allowance application will be approved or rejected by the government within 25 days after receipt of a complete application. Tax holiday applications will be approved or rejected within 45 days.

3. Elimination of Value Added Tax for Certain Transportation Vehicles

   The government has issued Government Regulation No. 69 of 2015 which exempts imported shipyards, trains, airplanes and spare parts from value added tax.

4. Establishment of Bonded Logistic Zones

   The government is preparing two bonded logistic zones, one in Cikarang (West Java) and the other in Merak (Banten). The bonded logistics zone in Merak will serve as a storage facility for fuel logistics, while Cikarang will support the logistics-related manufacturing industry. The government will provide several taxation facilities in these bonded zones, such as the exemption of value-added tax (VAT) and sales tax on imported intermediary goods, as well as the possibility to postpone import duty payments. We understand that the umbrella regulations for the establishment of these bonded zones are already finished and are ready to be signed by the President.

Third Phase of the Economic Policy Package

On 7th October 2015, the government issued the Third Phase of the Economic Policy Package to complete the previous two economic policy packages issued. If in the previous two packages, the government focused on amending and deregulating regulations to remove bureaucratization deemed as obstacles for investment, in this package the government focuses on reducing costs for conducting business in Indonesia.

Below are the two major elements of this package:

1. Price Reduction

1. Fuel Price
• The price of Avtur, LPG 12kg, Pertamax and Pertalite is reduced as per 1 October 2015.
• The price of diesel fuel (both subsidized and non-subsidized) will be reduced by 200 IDR/liter to 6,700 IDR/liter.
• The price of gasoline fuel price will not be changed

2. Gas Price

   Gas Price will be set lower (effective as per 1 January 2016) in accordance with each industry’s ability to pay.

3. Electric Power Price

   Electricity power price will be reduced by 12 IDR/kWh - 13 IDR/kWh following the reduction of the global oil price (automatic tariff adjustment). The government will also give a discount of 30% for the use of electricity between 11p.m. and 8a.m.

2. Acceleration of Processing Time for Acquiring Land Permission

1. The time needed to process the right to use land for business (HGU) will be reduced from 30-90 business days to 20-45 business days.
2. The time needed to process an extension of HGU will be reduced from 20-50 business days to 7-14 business days.
3. The time needed to process the right to build (HGB) and right to use will be reduced from 20-50 days to 20-30 days.
4. The time needed to process an extension of HGB and right to use will be reduced from 20-50 days to 5-17 days.
5. The time needed for any complaint related to land affairs will be reduced from 5 business days to 2 business days.

Note that even though the regulations provide that it will take 30-90 business days to process a HGU, in practice it could take up to two years (and the same goes for other land certificates mentioned above). By the amendment of the regulations, we hope that the new provisions on the time needed for the above land certificates can be fully implemented.

Current Impact

Even though there is no discussion on the change and amendment to the negative list of investment (as some had hoped before), it appears that the Economic Policy Packages issued by the government recently has contributed to give hope to business actors, thereby increasing positive sentiment, which in turn led to a strengthening of the Indonesian Rupiah.

After falling to the lowest point in 17 years, the Indonesian Rupiah started to strengthen at the beginning of October. The currency appreciation was also accompanied by the increase (until the date of this publication) of Indonesia's benchmark stock index (Jakarta Composite Index/Indeks Harga Saham Gabungan/IHSG).

According to a statement made by Bank Indonesia, besides due to the economy policy packages issued by the government that have boosted positive sentiment in the market, the Indonesian Rupiah's significant increase and the stock market's appreciation were also triggered by external factors, i.e. a confirmation that the US central bank is likely to increase its interest rates next year instead of this year.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 19th October 2015

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

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Useful Documents

Minister of Trade Regulation No. 27 of 2012

Minister of Trade Regulation No. 72/M-DAG/PER/9/2015 (Indonesian)