WTO/FTA咨询网

SUMMARY OBSERVATIONS

1.                  Since its previous review in June 2003, Indonesia has made steady economic progress with an average annual GDP growth rate of 5.2% despite major exogenous shocks and natural disasters. Growth, however, has not been high enough to create sufficient job opportunities to reduce unemployment and cut poverty levels.  In order to achieve growth rates of over 6% annually to create the jobs needed to mitigate unemployment, which was in the order of 10% in 2006, the Government has started a comprehensive reform programme aimed, inter alia, at improving the investment climate, the financial sector, and infrastructure, supported by Indonesia's vast natural resources.

(1)               Economic Environment

2.                  Indonesia's real GDP growth rose steadily from 4.7% in 2003  to 5.5% in 2006, while macroeconomic vulnerabilities have been declining.

3.                  Fiscal consolidation has been the hallmark of economic policy as the overall budget deficit narrowed from 2.4% in 2001 to 0.5% in 2005, helped by  cuts in fuel subsidies and delays in spending caused by changes to budgetary and procurement  procedures, and to 1.1% in 2006.  Under the medium-term fiscal framework, public debt declined to 39% of GDP in 2006, down nearly 20 percentage points over three years, and is targeted to continue to fall  to about 30% by 2010, which implies keeping the overall budget deficit under 1% of GDP in the medium term.  However, the tax to GDP ratio of 12% appears insufficient to meet Indonesia's developmental needs.

4.                   Inflation in 2006 was down to 6.6%, apparently within the inflation target, compared with 17.1% in 2005, reflecting the deep  cuts in fuel subsidies.  Inflation is forecast to be around 6% in 2007 although this forecast might need to be raised if the Government decides to reduce electricity subsidies. The overriding objective of the independent Bank Indonesia in the conduct of monetary policy continues to be to contain inflation. 

5.                  Strong domestic demand, particularly consumption, has driven growth since the 1997-98 Asian financial crisis.  The steady recovery in growth in recent years, however, has not been accompanied by an increase in employment levels. Registered unemployment (at 4.8% in 1997) has been over 9% since 2002, edging up to 11.2% in 2005 and then down to 10.3% in 2006.  Labour market rigidities have been cited as one of the main causes of rising unemployment, with Indonesia ranking unfavourably in the region, and planned revisions to labour laws appearing to be stalled. 

6.                  Despite increased spending on poverty programmes, the number of people living in poverty (defined as an income of less than US$17 per month) rose for the first time in six years from 16% to 17.8% of the population  between 2005 and 2006.  In addition to the end of fuel subsidies, the  ban on rice imports contributed to a 30% rise in domestic rice prices by the time of the poverty survey in 2006 and, as the poor spend nearly a quarter of their income on rice, poverty inevitably increased.  In response, the Government relaxed the ban, thereby helping to stabilize  domestic rice prices. 

7.                  Merchandise exports accounted for about 30% of GDP during the period under review, whereas imports as a share of GDP in the same period increased from 18% to 23%.  Foreign trade patterns have not changed substantially although Indonesia has become more dependent on petroleum exports and imports. Most merchandise trade continues to be with East  Asian countries with China increasing its share of both exports and imports. Singapore remains Indonesia's main ASEAN trading partner. 

8.                  After a strong recovery in 2000-01, following a sharp  decline after the Asian financial crisis, gross domestic investment has remained relatively flat.  The share of investment in GDP has averaged around 23% since 2002, down from a peak of over 30% prior to the crisis, and below the average national savings rate of 24%.  Similarly, inflows of foreign direct investment (FDI) collapsed after the crisis and there have only recently been signs of recovery. In order to address Indonesia's poor investment climate, the Government announced an investment policy package in early 2006, which enjoys considerable political commitment through its issuance as a Presidential instruction.  It included submission of an  investment law (passed by Parliament in March 2007), creation of a new investment negative list, drastically cutting the time to start a business, accelerating the review process of non-business-friendly local regulations, as well as streamlining customs procedures and improving customs regulations.  These recent measures do not yet appear to have had a real  impact on inbound FDI, which has historically played a catalytic role in Indonesia's external competitiveness. 

9.                  Improvement of Indonesia's investment climate includes stimulating investment in infrastructure. While infrastructure received high levels of private and public investment in the decades before the crisis, investment has fallen since.  Indonesia's  2006 Infrastructure Reform Package is wide-ranging and  covers power generation, telecoms, water and sanitation, roads and  port and airport modernization.   

10.              The Government has also been laying the groundwork for judicial and civil service reform and undertaking an effective anti-corruption campaign focused on strengthening the institutional framework against corruption.  New institutions such as the Anti-Corruption Commission (KPK), Anti-Corruption Court,  the Interagency Corruption Eradication Team, the Judicial Commission, the Police Commission, and the Prosecutorial Commission have been given considerable authority, and existing institutions like the Supreme Audit Commission and the Attorney General's office have become more active in combating corruption. Corruption investigations have been launched at all levels of government, and among state-owned enterprises, leading to a number of successful prosecutions.  In consequence, corruption and governance indicators appear to have improved since Indonesia's previous review.

(2)               Trade Policy Framework and developments

11.              Indonesia has continued its transition to a democratic and decentralized State.  The decentralization process, under way since 1999, has transferred control of large amounts of public expenditure and service delivery from the central Government to 440 local governments.  Trade policy, however, remains the responsibility of the Ministry of Trade and has not changed significantly since the previous Review.  Indonesia provides at least MFN treatment to all WTO Members.  In an effort to improve transparency and public scrutiny of trade policies, the Government has carried out a review of trade rules and regulations in order to identify and, where necessary, rectify onerous bureaucracy and poorly conceived trade and investment policies.

12.              During the period under review, Indonesia has begun to follow a triple track strategy of international trade negotiations: multilateral, under WTO auspices;  regional, centred on ASEAN and ASEAN+ agreements;  and, for the first time, Indonesia is also pursuing a bilateral trade agreement with Japan, with other possible bilateral agreements under study.  Indonesia considers that a multi-track strategy has become a necessity although it considers that the multilateral trading system is  ultimately  the best option.  To further its objectives, the Government has established a National Trade Negotiation Team responsible for overall negotiating strategy.

13.              Since its previous Trade Policy Review in 2003, Indonesia has continued to undertake systematic efforts to increase the pace of its economic development, including by reducing   constraints to trade, investment, and production and streamlining procedures at the border.  Customs reform is high on the Government's agenda and Parliament has considered important changes that are expected to enter into effect in 2007.  The goal of customs reform is to reduce the time and cost of clearing customs and to limit smuggling and customs fraud.  Indonesia has been active in the APEC trade facilitation framework with the aim of reducing transaction costs. Computerized documentation requirements and customs clearance have facilitated both imports and exports;  registration of importers has remained a requirement.

14.              The tariff has remained Indonesia's main trade policy instrument, albeit a relatively small  source of tax revenue, accounting for a little over 4% of total tax revenue.  The average applied MFN tariff is 9.5% (2006), down from 9.9% in 2004 when Indonesia adopted a new tariff classification for MFN (non-ASEAN) tariffs.  The average applied MFN tariff is 9.2% for industrial products and 11.4% for agricultural imports.  More than 75% of tariff rates are currently in the range of zero to 10%.  In line with long-standing sectoral support, the highest tariffs apply mainly to motor vehicles.  As was the case at the time of the previous Review, over 93% of tariff lines are bound  but at 37.5% the  average bound rate largely exceeds the average applied rate, imparting a degree of unpredictability to the tariff. The difference between average applied and bound rates remains much higher for agricultural products (at 11.4% and 47.3% respectively).   Over 99% of applied tariff rates are ad valorem, a feature that contributes to the transparency of the tariff.  Nonetheless, the structure of the tariff has remained complex, involving 16 ad valorem rates  and three specific rates.  The tariff also embodies a degree of escalation, which has become more pronounced for semi-processed food, beverages and tobacco products as well as for paper, printing, and publishing.  By 2006, the ASEAN Common Effective Preferential Tariff (CEPT) rate had come down to an average of 2.7% (from 3.4% in 2004), and  as intra-ASEAN trade develops it is predicted that Indonesia's CEPT rate will drop further, thus widening the gap with its MFN tariff rate. 

15.              During the period under review, Indonesia has continued to reduce the number of tariff lines subject to import restrictions, currently 141.  Bans for sanitary and other reasons have affected imports of chicken parts, rice, and salt.  No origin-related restrictions have been maintained, except those affecting trade with Israel.  It is unclear how restrictive remaining non-tariff barriers are;  they include   the producer-importer licences (for  sugar imports, for example) and the  importer registration licensing scheme.

16.              Government procurement remains an important instrument of industrial policy.   Indonesia is not a signatory of the WTO Agreement on Government Procurement (GPA). It has revised its government procurement regime to, inter alia, increase domestic sourcing, reduce corruption, and bring its procurement framework more into line with international public procurement practice.  Countertrade transactions, in which  foreign firms tender for certain types of government procurement contracts and construction projects, have fallen off considerably.   

17.              Indonesia  has remained a relatively active user of anti-dumping measures, mainly on base metals and chemicals from the region, initiating 26 anti-dumping investigations between 2002 and 2006;  in 2003 a Safeguards Committee was established, following the enactment of safeguards legislation in 2002. 

18.              National standards are formulated in accordance with international standards,  where feasible; as at the time of the previous Review,  mandatory standards  account for about  3% of all standards. Involvement in mutual recognition arrangements has increased.  Regarding SPS regulations, animal and plant quarantine measures are strictly enforced.

19.              Indonesia has export licensing, prohibitions and restrictions to ensure protection of natural resources and endangered species, provide an adequate domestic supply of essential products, promote higher-value-added downstream industries, and upgrade the quality of export products.  Exports of products subject to restrictive measures, including coffee, textiles, rubber and certain types of wood, have been allowed only through registered  and approved exporters.  During the period under review, a ban on log exports was in force, and in 2005, export taxes were introduced on raw skins, white tanned hides and coal.  In 2004 the Government ended several credit programmes that offered subsidized loans to support exports. Export finance is provided by the state-owned Bank Eksport Indonesia.

20.              Support for production and trade has been provided through financial assistance for R&D as well as through industry- and/or region-specific tax incentives.  In 2006, the Government proposed tax reforms, inter alia, to simplify the tax incentive regime. Indirect taxes, such as VAT and sales tax on luxury goods,  are levied, in principle, in a non-discriminatory manner.  Rising global oil prices obliged the Government to reduce subsidies for fuel in 2005 and bring prices closer in line with world prices;  it is estimated that savings from fuel subsidies could free up US$6-8 billion annually for developmental spending. Measures to assist domestic production and/or  control/restrain trade in several sectors remain in place;  they include exclusive import rights to domestic producers of certain sensitive items such as rice,  alcoholic beverages, sugar, hot- and cold-rolled coil iron, and steel products.  State-owned enterprises continue to play a central role in the economy and  are estimated to account for up to 40% of Indonesia's GDP.  A handful of commodities and services, including petrol, electricity, cement and transport, remain subject to "administered prices". 

21.              Indonesia's competition policy framework has not undergone any significant change in the period under review. The independent Commission for the Supervision of Business Competition (KPPU) has continued to implement Indonesia's anti-monopoly legislation. Most of  the cases dealt with up to 2006 relate to collusion on tenders and bid-rigging in government procurement by  state-owned enterprises or government agencies. The emergence of the KPPU as a body with the authority to handle bid-rigging cases is  significant in improving competition in the economy, in particular for government contracts.  Government action on consumer protection has continued in terms of preparing and introducing implementing regulations of the consumer protection law.

22.              Indonesia has sought to strengthen protection of intellectual property rights (IPRs) by expanding its international commitments and improving its legal framework to combat IPR violations.  Although  institutional constraints have continued to impede effective implementation of the laws, the Government appears to have made some progress in controlling piracy, with  the periodic seizure of sizable amounts of pirated optical disc products.  A 2006 Presidential Decree established a National Task Force for IPR Violation Prevention, which is tasked with coordinating law enforcement efforts of the customs authorities and police, and increasing the number of qualified judges, prosecutors, and IP lawyers. 

(3)               Sectoral Policy Developments

23.              Indonesia is the world's largest archipelago with an ethnically diverse population of 223 million and abundant natural resources, including timber, fish, minerals, petroleum, natural gas, and considerable biodiversity. Agriculture (including animal husbandry, fishing and forestry)  accounted for almost 13% of GDP in 2006 and  is home to the largest segment of the Indonesian population and of the poor;  it has a primary role in achieving the objective of poverty alleviation.  It remains the most important sector in terms of employment, providing livelihoods for over 44% of the workforce, which indicates that labour productivity in agriculture is less than one fifth of the level in the rest of the economy.

24.              Indonesia's vast range of mineral resources has been exploited intensively, enabling the mining sector to make an important contribution to exports, in the order of 8% in 2005.  Since 1980, the share of manufacturing in GDP has increased from some 13% to about 28% and manufacturing's share of exports has increased five fold to 64%.  The services sector has also expanded, boosted by the travel and tourism industry, and in 2006 it accounted for 40% of GDP and employed nearly 38% of the working population. 

25.              As was the case at the time of the previous Review, agriculture continues to receive special government assistance, which reflects concern over food security and the view that this can best be met by achieving self-sufficiency in food staples, in particular rice.  Central to this policy is the stabilization of the price of rice through intervention in the market, to maintain a ceiling price for consumers and a floor price for producers, and by controlling trade. Due to shortages as a result of the 2004 ban on rice imports, the price of rice rose about 30% above international prices and, given that  two thirds of farming households in Indonesia are net consumers of rice,  was widely considered to be the main factor in the increase in poverty in 2006;   the ban has been partially removed to allow imports to help stabilize prices.  By the time the Uruguay Round Agreements were implemented, Indonesia had removed a number of licensing restrictions affecting agriculture.  Sanitary and phytosanitary and food quality regulations have led to import restrictions, particularly on animals and animal products and on  food items requiring a halal certificate.  

26.              In the forestry sector, regulatory controls, including export restrictions, seem to have had very limited success in dealing with the problem of over-exploitation of forests and particularly illegal logging,  which is thought to account for over 50% of timber production. The ban on log exports, reinstated for the duration of the review period, has done little to stem losses from the smuggling of illegally felled logs or to address environmental problems, such as damage caused by illegal logging,  and instead may have depressed domestic log prices, thereby encouraging  processing of wood-based products.  The Government, both central and regional, has stepped up efforts to combat illegal logging, but the foreign demand for cheap timber appears to be overwhelming Indonesia's enforcement capacity.

27.              The 2001 liberalization of the oil and gas sector has allowed foreign firms  to enter the oil market, particularly in exploration and production; private companies are now allowed to open retail outlets for fuel.  Pertamina's monopoly on importing and distributing fuel has been lifted, and refining, storage, and transport have been liberalized. An electricity law passed in September 2002 envisaged an end to the state electric company's monopoly on electricity distribution and the possibility for private companies, both local and foreign, to sell power directly to consumers within five years.  In January 2005, however, the Constitutional Court announced that the law was unconstitutional and it was annulled.

28.              With respect to manufacturing,  Indonesia's average applied MFN tariff has been reduced, from 9.6% in 2004 to 9.2% in 2006, but certain sectors (e.g. chemicals, fabricated metal products, motor vehicles, alcohol products, motor cycles, bicycles) continue to be subject to high rates, ranging up to 150%.   In the textiles and clothing sector, average MFN tariff protection has remained constant at 10.8%.  2002 saw the introduction of a decree concerning textile import arrangements, whereby only companies that have production facilities using imported fabrics as inputs for finished products may obtain import licences.  There are no limits on foreign ownership in the automotive sector and no local-content requirements or incentives.  Tariff barriers have also been lowered, although, at an average MFN rate of 26.5%, they remain relatively high by international standards. 

29.              The financial sector has gone through major restructuring and reform since the financial crisis in 1997-98. The Indonesian Bank Restructuring Agency (IBRA) oversaw substantial consolidation during its six years of operation, but a large portion of the banking system remains in government control. During the period under review, Indonesia has continued to make progress towards establishing a strong and competitive private banking sector, although the two biggest state banks still have weak governance and large non-performing loans (NPLs). According to Bank Indonesia, total banking sector NPLs as a percentage of total loans rose to  9.3% in 2006 compared to 8.2% in 2003. Banks still dominate the financial system, accounting for 80% of financial assets, but the strengthening of non-bank financial institutions (NBFIs), such as insurance companies, finance companies  and pension funds, while small for a country of Indonesia's size, has become a key policy imperative, as articulated in the 2006 financial sector policy reform package. The development of NBFIs promises to  increase access to low-cost financial services and mobilize domestic savings and channel them into profitable investments.

30.              Indonesia has been undertaking significant reform of its policy in the telecommunications sector.  Reform has brought about increased private sector and foreign participation.  Indonesia's two main carriers - PT Telkom and PT Indosat, which are 65% and 16% state-owned, respectively - have been partially sold to private investors.  Competitive licences have been awarded for the provision of GSM mobile services, Internet services, and other value added services.

31.              Given its size and island structure, Indonesia faces considerable challenges in establishing the extensive transport infrastructure  essential for its economic and social development.  Road development policy is focused on increasing road capacity and quality by strengthening main national road corridors and providing better access to less developed and remote areas. Ports are generally inefficient, imposing additional time and costs on domestic cargoes  and exports.  While the main airports function well, increased transport demand due to deregulation and the proliferation of low-cost airlines is putting pressure on capacity at medium-sized and small airports.

(4)               Prospects

32.              The Government's Medium-Term Development Plan 2004–2009  envisages annual average GDP growth of 6.6% and aims to cut the poverty rate  to 8.2%  and the unemployment rate to 5.1%  by 2009. The Plan recognizes that the main challenge is to increase growth to a level that can create sufficient jobs to hold back rising   unemployment (and underemployment) and reduce poverty.  

33.              The Government is implementing a comprehensive reform agenda to strengthen public institutions, improve the business and investment climate, and boost infrastructure development.  If implementation continues in a timely manner, these reforms will remove some of the main obstacles to private investment and contribute to a more flexible labour market and more efficient public administration, thus contributing to an acceleration in growth and helping to reverse the rising trend in unemployment. On the other hand, delays in implementation of the Government's key structural measures, including approval of tax and labour laws, could undermine investor confidence, and growth could remain in the sub-6% range (similar to that seen in the last few years) with unemployment continuing to trend upwards.

34.              The Government has shown clear resolve to carry out major reforms.  Indonesia could also take advantage of the multilateral system to further  lock-in any  unilateral reforms,  thereby boosting investor confidence and facilitating foreign investment, which will be key to Indonesia's future prospects.