Indonesia Plans Tax Breaks, Waives Some Visa Fees to Help Rupiah

March 13, 2015 — 9:03 AM COT
By  Agus Salim Suhana and Eko Listiyorini

(Bloomberg) — Indonesia will give tax incentives to companies that reinvest profits in the country and waive visa fees for Chinese tourists as it seeks foreign currency to prop up a rupiah that has fallen to a 17-year low.

Companies that create more jobs or exports will get bigger tax breaks, Coordinating Minister for Economic Affairs Sofyan Djalil said in Jakarta on Friday, without giving details on the size of the incentives. The policies, which have yet to be completed, were decided at a meeting of ministers, central bank officials and financial regulators on Friday.

The measures are aimed at attracting investment to address a persistent current-account deficit that has been weighing on the rupiah, Asia’s worst-performing currency this year. President Joko Widodo’s economic strategy has so far focused on reinvigorating slowing economic growth and reducing inequality, even as the currency has dropped almost 10 percent since he took office in October.

“We want to make adjustments to improve our economic structure to be better going forward,” Djalil told reporters. “The rupiah is an issue beyond our control. What we can fix domestically, we will fix.”

The rupiah dropped 1.7 percent this past week to 13,198 to the dollar, prices from local banks show, the biggest weekly drop in seven months after the central bank signaled it will tolerate further weakness.
Attracting Investment

Indonesia is trying to lure more tourists from China, its largest trade partner. The government will also waive visas for visitors from South Korea, Japan and Russia, Djalil said. Japan is a major investor in Indonesian infrastructure and auto manufacturing, while about 150 South Korean companies attended an investment seminar in Jakarta this week.

The government has previously offered tax incentives to try to attract investment, which slowed in the three months from October to December. PT Sri Rejeki Isman, an Indonesian textile company, hopes to benefit this time as it seeks to lift exports to take advantage of a pick up in U.S. demand.

“Tax incentives alone are not enough, it also requires soft loans from the government, ease of importing raw materials and incentives for exports,” said Iwan Lukminto, the company’s vice president director, in an interview on Friday. “We hope that the government and Bank Indonesia seriously handle the exchange rate, since if it penetrates 14,000 rupiah per dollar it would cause chaos in the market.”
Current Account

The government’s latest policy efforts didn’t strengthen the rupiah on Friday because of global factors, and markets weren’t likely to be excited by this package, said Eric Sugandi, an economist at Standard Chartered Plc. in Jakarta.

“The current-account deficit can’t be narrowed drastically,” Sugandi said. “The key is how to produce capital goods and raw materials in the country.”

Indonesia sees a lot of incoming raw material shipments and wants to take action against alleged dumping by adding a tax on imports of steel and plastic, Finance Minister Bambang Brodjonegoro told Bloomberg on Tuesday. Indonesia imported more than $1.6 billion worth of iron, steel, plastics and related materials in January, making up 14 percent of total imports, according to data from the country’s statistics agency.

The deficit in the current account, the broadest measure of trade, will probably be about 3 percent of gross domestic product this year, Bank Indonesia Deputy Governor Perry Warjiyo said on Tuesday, similar to last year.

To contact the reporters on this story: Agus Suhana in Jakarta at asuhana1@bloomberg.net; Eko Listiyorini in Jakarta at elistiyorini@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Neil Chatterjee, Dick Schumacher

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