Indonesian President Announces Plan to Centralize Control of Key Commodity Exports |
Pacific Money | Economy | Southeast Asia
Indonesian President Announces Plan to Centralize Control of Key Commodity Exports
The move is likely to unsettle international investors already concerned about the uncertain trajectory of economic policymaking under Prabowo.
A palm oil plantation in Kalimantan, Indonesia.
Indonesian President Prabowo Subianto has announced a plan for the government to take control of the country’s major commodities exports, in a bid to boost government revenue at a time of global economic disruption.
In what Reuters described as “a fiery, 95-minute speech” to parliament, Prabowo said that Indonesia had lost as much as $908 billion due to the undervaluing of its commodities at the time of export. He said that exports had been underreported by “fraud or deception” in order to reduce taxes, and that increasing state control would lead to more revenue flowing into the national accounts.
“The primary objective of this policy is to strengthen oversight and monitoring – and to combat under-invoicing, transfer pricing, and the diversion of export proceeds,” Prabowo said, as per the Associated Press. He added, “We don’t want low revenue only because we have no courage to manage our own resources.”
Prabowo said that the new policy will start with palm oil, thermal coal, and nickel products – three commodities in which Indonesia is the world’s leading exporter. Under new regulations, a new state-owned enterprise, Danantara Sumberdaya Indonesia, will take over control of exports of these commodities, although more commodoties may be added later as the government sees fit. According to Nikkei Asia, this company will be 99 percent owned by Danantara, the sovereign wealth fund launched by Prabowo in February of last year.
State-owned enterprises are already heavily involved in every key resource sector, but currently handle only a small proportion of Indonesia’s commodities exports.
“I tell my cabinet, formulate prices for nickel, gold. Every price must be determined by us,” Prabowo said, according to a Reuters report. “If they don’t support our price, then they don’t have to buy it. We can use it ourselves.”
There are signs that the policy is intended to redress other challenges facing the Indonesian economy, which have frustrated Prabowo’s plan to achieve 8 percent annual economic growth during his five-year term. In his address to parliament, the Indonesian leader said that the revenue windfall will help offset the soaring cost of the country’s fuel subsidies, which are shielding the public from the full impact of the price surge caused by the Iran war and the closure of the Strait of Hormuz. This has placed additional pressure on the national budget, which was already under strain due to the Prabowo administration’s expensive social programs.
Prabowo also announced a measure requiring all exporters of natural resources to keep their entire export revenues in state-owned banks from June 1. This is at least partly intended to stabilize the rupiah, which fell to a new record low this week, amid a stock market slump and a jump in global oil prices. The currency has now depreciated by more than 14 percent since Prabowo took office in October 2024 and is now worth less against the U.S. dollar than during the Asian financial crisis of 1997-1998.
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