By Stanley Widianto, Gayatri Suroyo and Fransiska Nangoy
JAKARTA, May 20 (Reuters) – Indonesia unveiled a sweeping plan on Wednesday to centralise exports of key commodities such as palm oil and coal, aiming to boost government revenue through tighter control of the sale and pricing of its abundant natural resources.
Sovereign wealth fund Danantara will oversee a trading company designated to channel exports, starting with palm oil, coal and ferroalloys after a three-month transition. The government may add more commodities at three-month intervals.
“I tell my cabinet, formulate prices for nickel, gold. Every price must be determined by us,” President Prabowo Subianto said in a fiery speech to parliament.
“If they don’t support our price, then they don’t have to buy it. We can use it ourselves.”
Indonesia is the world’s biggest exporter of palm oil, thermal coal and nickel, and Prabowo’s plan aims to tackle concerns about under-invoicing and how exporters account for transfer pricing.
INVESTOR WARINESS
Indonesia’s moves to assert greater control over its resources have rattled investors.
Tighter nickel ore quotas, higher taxes and a new pricing formula are driving up costs and threatening investment, the China Chamber of Commerce in Indonesia warned Prabowo in a letter this month.
“Investors are increasingly concerned on policy direction, and this has driven outflows from Indonesia’s capital markets,” said Jayden Vantarakis, head of ASEAN research at Macquarie Capital in Singapore.
“It’s hard to see how this announcement will change the direction,” he said, adding that state-owned companies were already heavily involved in every key resource sector from energy to minerals such as copper, tin, nickel and gold.
GROWING PRESSURE
Economic pressure on Indonesia is mounting, with a series of ratings outlook downgrades and the rupiah currency repeatedly plumbing record lows against the U.S. dollar, as Prabowo’s ambitious spending plans fuel investor wariness.
Another new measure requires all exporters of natural resources to keep their entire export revenues in state-owned banks from June 1, in a step Senior Economic Minister Airlangga Hartarto said aims to stabilise the flagging rupiah.
The central bank also raised interest rates on Wednesday for the first time in two years, by a higher-than-expected 50 basis points.
Rumours about the plan spooked the market on Tuesday, stoking concerns it could bring changes in pricing mechanisms and squeeze trader margins. Jakarta’s main stock index fell 0.82% on Wednesday, after a drop of 3.5% the previous day.
“Markets may price in some degree of transitional uncertainty until there is greater clarity on execution, documentation processes and trade flows,” said Pritish Raj, senior manager for APAC & EMEA thermal coal pricing at S&P Global Energy.
Prabowo said Indonesia has lost as much as $908 billion in revenue in the last 34 years because its commodities were being sold on the cheap.
“We’re the biggest producers of palm oil but the price of palm oil is decided in other countries,” he said.
Indonesia’s natural resources were sufficient for the welfare of the entire country but the economy had not been managed well enough to boost state revenues, he added.
“In the opinion of the government – and I am sure every patriot will support this – the earth, water and all the resources within it must be enjoyed by all Indonesians.”
(Reporting by Ananda Teresia, Gayatri Suroyo, Stanley Widianto and Fransiska Nangoy; Additional reporting Bernadette Christina Munthe, Sudarshan Varadhan and Gregor Stuart Hunter; Writing by Fransiska Nangoy, David Stanway, Gibran Peshimam and Tony Munroe; Editing by John Mair, Christian Schmollinger and Clarence Fernandez)
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