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Discourse: Chinese jitters, oil price major challenges to RI this year

  • The Jakarta Post

    The Jakarta Post

Jakarta | Mon, January 18, 2016 | 05:34 pm
Discourse: Chinese jitters, oil price major challenges to RI this year

Bambang Brodjonegoro - JP/Arief Suhardiman

It'€™s only the first few weeks of 2016 and the world is already witnessing another episode of Chinese economic jitters, with its volatile stock market affecting markets around the world. At the same time, no improvement appears in sight for oil prices as crude slips below US$30 per barrel.

Finance Minister Bambang Brodjonegoro talked to The Jakarta Post'€™s Raras Cahyafitri and Tassia Sipahutar about how the two issues could affect Indonesia'€™s own economy and how the government sees overall spending in 2016. The following are excerpts from the interview.

Questions: What do you think will be the toughest issues to handle this year?

Answer: In 2016 I think the slowing Chinese economy and falling oil prices are at the top of the list of concerns. Regarding China, the fact is that it is still our major trading partner. This means that its slowing economy influences our exports and global demand.

In terms of oil, it is automatically the benchmark against other commodity prices. If it is heading downward, it will influence all other commodities and, whether we like it or not, it is a big issue in Indonesia, even though we already started to reduce our dependence on commodities in 2015

What is your strategy to deal with the China issue?

For China, first of all, we have to change our export pattern. We will not rely on exports of raw commodities or energy anymore because China'€™s mood is now more toward consumption, not investment. What it needs is final or consumer goods. What we'€™re trying to do is make our exports to China be as close as possible to the category of final or consumer goods.

We did not direct too many of those goods to China in the past. This is just a matter of export reorientation, helping our producers and exporters find a way to enter the Chinese market.

We'€™re also trying to attract higher investment from China. It still possesses a large investing capability even though it has '€œoverinvested'€ domestically. So this is time for us to be closer to China. Not through trade, but through investment. We want to attract more fully committed foreign direct investment to Indonesia from China.

At the moment, we are improving the investment climate, easing licensing procedures and offering tax incentives if available. The combination of all these will help attract Chinese investors.

The intent is actually there, but investment realization is still low. We need to change our mindset, to see China differently from before. When we focus on China, we don'€™t only want to trade, but to win investment deals.

What'€™s your approach to the falling oil price, in regard to the state'€™s oil revenues?

On the demand side, even though the price has fallen, it has disrupted our idea of using cleaner, renewable energy. On the revenue side, luckily we are already used to the situation in which oil is no longer a major state revenue source.

That'€™s what happened in the 1990s when revenue from oil was crucial to the APBN (state budget). However, entering the 2000s, its role started to decline and in 2015 we learned to live and survive with low oil prices.

For instance, with an average oil price of $40 per barrel, our PPh (income tax) from oil and gas stood at Rp 49.72 trillion ($3.58 billion) only last year, out of total tax revenues of Rp 1.06 quadrillion. Meanwhile, the PNBP (non-tax state revenue) from oil and gas only amounted to around Rp 70 trillion.

We are already aware of this. We know that oil will not contribute much and perhaps even less. What is important now is to find other revenue sources to compensate for the falling oil price.

But the drop in oil prices is dragging down the prices of other commodities.

Automatically, but that'€™s related to global demand. We can'€™t do anything, but we can set up a BLU (public service agency) for palm oil, for example. It is in charge of managing levies on exports of palm oil that will assist in biodiesel subsidies and spur biodiesel demand.

Demand for crude palm oil will automatically increase and boost the price, but that is a limited effort. Globally, we are not a price maker.

How does the government plan to speed up disbursement of the state budget funds in 2016?

We have begun to speed up the process. Many projects are slated to commence in January because we already opened the tender process in November. We have also issued the DIPA (budget implementation document) and signed project contracts in December.

So January is the period of the first-term payment and project construction. At least four ministries are ready to launch their projects, namely the Public Works and Public Housing Ministry, Agriculture Ministry, Transportation Ministry and Energy and Mineral Resources Ministry.

Will we see more evenly distributed disbursements this year? Say 25 percent disbursement in each quarter.

We will still see the highest disbursement in the fourth quarter. That is just normal because we don'€™t want to pay a large sum of money in advance with the risk of contractors running off with the money. What we'€™re trying to avoid is accumulating disbursements until the very last minute.

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