Indonesia unveiled a comprehensive plan to centralise exports of key commodities including palm oil, coal and ferroalloys, aiming to boost government revenue through tighter control of natural resource sales and pricing. According to reports from Reuters, President Prabowo Subianto announced that 'Today the Indonesian government that I lead will issue a regulation on management of commodity exports', stating 'All sales of our resources, from palm oil, coal must be through a (state-operated enterprise) selected by the government as sole exporters'. The government will establish a trading company under sovereign wealth fund Danantara to oversee exports, with the initiative starting after a three-month transition period. As reported by Reuters, Senior Economic Minister Airlangga Hartarto confirmed that every three months the government will evaluate which commodities can be added to the plan, with the transition period potentially extended to the end of the year according to Danantara Indonesia's chief Rosan Roeslani. Indonesia's position as the world's biggest exporter of palm oil, thermal coal and nickel makes this pricing authority particularly significant for global commodity markets.
President Prabowo Subianto announced in a fiery parliamentary speech that the government will determine all commodity prices, stating 'I tell my cabinet, formulate prices for nickel, gold. Every price must be determined by us'. As reported by Reuters, Prabowo's plan aims to tackle concerns about under-invoicing and how exporters account for transfer pricing. The move by Prabowo, who has vowed to optimise revenue from the country's natural resources, is aimed at addressing these concerns about pricing mechanisms and trader margins. According to Reuters, Rizki Siregar, an international trade economist at the University of Indonesia, warned that 'The (export control) agency may create more distortions instead of being the solutions to the distortions, on top of already severe distortions that exporters face'. Indonesia's moves to assert greater control over its resources have rattled investors, with the China Chamber of Commerce in Indonesia warning Prabowo in a letter this month that tighter nickel ore quotas, higher taxes and new pricing formulas are driving up costs and threatening investment.
The announcement has rattled investors, with the China Chamber of Commerce in Indonesia warning Prabowo in a letter this month that tighter nickel ore quotas, higher taxes and new pricing formulas are driving up costs and threatening investment. According to Reuters, Jayden Vantarakis, head of ASEAN research at Macquarie Capital, noted that investors are increasingly concerned about policy direction and this has driven outflows from Indonesia's capital markets. Jakarta's main stock index fell 0.82% on Wednesday, after a drop of 3.5% the previous day as rumours about the plan spooked markets on concerns that it could lead to changes in pricing mechanisms and squeeze trader margins. As reported by Reuters, Pritish Raj, senior manager for APAC & EMEA thermal coal pricing at S&P Global Energy, said 'Markets may price in some degree of transitional uncertainty until there is greater clarity on execution, documentation processes and trade flows'. Jayden Vantarakis added that 'It's hard to see how this announcement will change the direction', noting that state-owned companies were already heavily involved in every key resource sector from energy to minerals such as copper, tin, nickel and gold.
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 reported by Reuters, another new measure requires all exporters of natural resources to keep their entire export revenues in state-owned banks from June 1, a step Senior Economic Minister Airlangga Hartarto said aims to stabilise the flagging rupiah. The central bank also raised interest rates by 50 basis points on Wednesday for the first time in two years, a higher-than-expected increase. According to Reuters, the central bank's move was driven by concerns about the rupiah's weakness and the need to support the currency amid the policy uncertainty. The rupiah has plummeted in recent days, adding to economic pressures facing the country.
Prabowo claimed that Indonesia has lost as much as $908 billion in revenue over the last 34 years because commodities were being sold on the cheap, stating 'We're the biggest producers of palm oil but the price of palm oil is decided in other countries'. According to Reuters, Prabowo argued that 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 emphasized that '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'. The ambitious spending plans fuel investor wariness as Prabowo's government seeks to maximize returns from Indonesia's abundant natural resources. Despite being rich in resources as well as a G20 country, Indonesia had not managed the economy well enough to boost state revenues, Prabowo added. The regulations required to bring the plan into action had not yet been finalised, according to sources familiar with the matter.
