Indonesia may offer fiscal incentives for its upstream industry to improve its economic resilience as the global economy slows, senior government officials said Monday.
Deputy Finance minister Anny Ratnawati said Monday the country needs to find a balance between boosting its downstream industry, while not forgetting to improve its upstream industry.
“We don’t want to be dependant on raw materials from other countries…we have vast domestic demand which should be able to be domestically supplied. Our fiscal policy must be able to accommodate this to sustain the growth momentum,” Ratnawati added.
Indonesia, a major exporter for key commodities such as crude palm oil (CPO), rubber, coal and other minerals, has in recent years provided a variety of incentives to boost the country’s downstream industry to add value to its overall exports. Recent examples include lowering export taxes on refined CPO products and introducing export taxes on some mineral ores.
However, years of under-investment have created supply constraints in the southeast Asia’s biggest economy, which in turn has made it heavily dependant on imports of machinery and some raw materials to meet demand. Indonesia posted its second consecutive monthly trade deficit in May, after recording its first deficit for two years in April.
With a relatively young population of roughly 240 million and a burgeoning middle class, domestic consumption accounts for more than half of Indonesia’s gross domestic product, providing a sufficient buffer whenever external demand deteriorates. The country’s economy grew 6.5 percent last year and may grow between 6.1 percent and 6.5 percent this year.
“Going forward, we’ll provide more fiscal incentives for the upstream sector, unlike now where most incentives are for the downstream sector,” Bambang Brodjonegoro, head of fiscal policy board at the finance ministry, said.
“For instance in textile industry, the upstream here is the yarn industry. This sort of industry will be offered incentives,” he said, without providing details. -By Farida Husna