Indonesia tightens state control over exports of vital commodities

JAKARTA, Indonesia (AP) — Indonesia is tightening state control over its globally important natural resources, with new regulations requiring that state-owned enterprises handle exports of key commodities like palm oil, coal and iron alloys.

President Prabowo Subianto told parliament on Wednesday that Indonesia had lost as much as $908 billion because its commodities were undervalued when they were exported. Increasing control will bring more money into government coffers, he said, describing the underreporting of exports to reduce taxes as “fraud or deception.”

“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 the world’s largest exporter of thermal coal and palm oil, Indonesia is a global powerhouse in terms of commodities. The Southeast Asian nation of roughly 287 million also has the world’s largest known reserves of nickel, a critical mineral that China and the United States are competing to control.

State-owned enterprises now handle only a modest portion of Indonesia's exports of such commodities, experts say.

Greater state control will give Indonesia greater “bargaining power” in future negotiations with superpowers keen on securing access to the country’s vast resources, said Dinita Setyawati of the energy think tank Ember.

The new centralized commodities system could also help Indonesia address long-standing environmental issues caused by the overexploitation of its natural resources, she said, but that will depend on how policies are implemented.

“There’s going to be a question of trust,” Setyawati said. “Most notoriously, corruption needs to be watched to make sure that everything goes according to what it should be.”

Over the past few months, the government has cracked down on unauthorized mining operations. It has been pushing to develop domestic refining of commodities like coal and nickel, in 2020 outlawing exports of raw nickel ore.

Prabowo's announcement this week is by far the government's biggest move to directly control the nation's commodities, said Putra Adhiguna of the Energy Shift Institute, a Jakarta-based think tank.

He said the policy will boost state revenues and help make up for shortfalls caused by higher subsidies provided to protect consumers from higher fuel prices caused by the energy shock from the Iran war. That could have a significant impact on the economy.

Indonesia's central bank raised its key interest rate by 0.5 percentage point to 5.25% on Wednesday, mainly to counter a weakening in the country's currency, the rupiah.

The export control plan's first phase is expected to run from June to August, when private companies will turn over their import and export transactions to state-owned enterprises. State-owned companies are expected to manage all trade transactions between foreign buyers and domestic sellers by September.

“This policy will optimize tax revenue and government revenue, as well as the management and sale of our natural resources," Prabowo said. He continued that "we do not want our revenue to be the lowest simply because we lack the courage to manage what belongs to us, what belongs to the Indonesian people.”

Delgado reported from Bangkok.

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