• In response to the global financial tsunami, the Indonesian government announced a Rp50 trillion (US$4.6 billion) stimulus package to boost economic growth in January 2009.
• The Indonesian government passed its new Investment Law in 2007, giving foreign investors equal status to that of domestic investors in many industries. Other reforms were also undertaken, including reduced time in setting up businesses, and more efficient customs clearance.
• With the implementation of the China-ASEAN Free Trade Agreement (CAFTA), lower import duties are applied to imports originated from China.
• In late 2008, the Indonesian government issued a regulation requiring imports of electronics, foods and drinks, clothing, toys and footwear be shipped to five dedicated seaports.
• The current president Susilo Bambang Yudhyono has been serving since the last election in 2004. A presidential election will be held in July 2009.

Current Economic Situation

In response to the financial tsunami, Bank Indonesia (the central bank) has reversed its trend of raising interest rates to curb inflation since December 2008, cutting rates by 25 basis points to 9.25%. In January 2009, the Bank further reduced rates by 50 basis points to 8.75%, reflecting bigger concerns about a slowing economy than inflationary pressure.

The Indonesian government introduced a stimulus package worth Rp50 trillion (US$4.6 billion) in early January 2009 with a view to keeping real GDP growth of 5% in 2009. The package consists of tax relief, funding for industries, poverty alleviation and infrastructure development. Implementation arrangements are still being discussed.

The Indonesia economy registered a 6.1% growth in the third quarter of 2008, slowing from 6.5% in the second quarter. The IMF estimated that Indonesia grew by 6.1% for the whole of 2008. The growth was mainly driven by private consumption, which grew by nearly 30% YoY in nominal terms (accounted for 57.8% of GDP as of the first three quarters in 2008) and sustained growth in investment (27.5% of GDP), up 45% YoY in nominal terms.

Indonesia is less export-oriented than its ASEAN neighbours as a share of GDP. Exports of goods and services accounted for 30% of Indonesia's GDP in 2007, compared with some 80% for Vietnam and 110% for Malaysia. The relatively high percentage of private consumption as a share of GDP is likely to offer some buffer to a global recession relative to other ASEAN neighbours. Nevertheless, Indonesia's economy still faces many challenges, including slowing foreign investment and rising unemployment as a result of scaling-back by its foreign investors, particularly in the manufacturing industry.

Agriculture accounted for 15.4% of Indonesia's GDP in the third quarter of 2008, while mining and quarrying and manufacturing took respective shares of 10.9% and 27.7% in the same period. Other important components of Indonesia's economy included construction (8.4% of GDP), wholesale and retail trade (11.7%), and financial, ownership and business services (6.9%), as of the first three quarters of 2008.

Indonesia's exports are diversified and most manufactured goods are exported. Oil and gas took a 21.1% share of total exports in 2007, amounting to US$24,872 million out of its US$118,014- million total. Other major export items included: mineral products (US$13,063 million, 11.1%), electronics and machinery (US$12,325 million, 10.4%), textiles and garments (US$9,768 million, 8.3%), and plastics and related products (US$8,111 million, 6.9%).

For Indonesia's non-oil exports, the European Union absorbed the largest share of Indonesian exports in 2007, at 14.5% (US$13,469 million), followed by Japan (US$13,287, 14.3%), the US (US$11,111 million, 12%), and Singapore (US$8,860, 9.6%).

On the other hand, Indonesia imported US$93,101 million worth of goods in 2007, including electronics and machinery (US$24,332 million, 26.1%), oil and gas (US$20,871 million, 22.4%), base metals (US$10,083 million, 10.8%), and plastics and related products (US$8,854 million, 9.5%).

For Indonesia's non-oil imports, the Chinese mainland was the top source among the country's trading partners. In 2007, Indonesia imported US$11,215 million worth of goods from the mainland, or 15.7% of the country's total non-oil imports. The mainland was followed by Singapore (US$10,467 million, 14.6%), the EU (US$9,304 million, 13%), and the US (US$8,110 million, 11.3%).

Hong Kong was Indonesia's 7th largest source of foreign direct investment (FDI) in terms of approved projects in Asia in 2007. The value of approved FDI from Hong Kong amounted to US$259 million, up 52.4% from US$170 million in 2003.

Hong Kong-listed toy manufacturer Lung Cheong, acquired the remaining stake of its joint-venture plastic and electronics manufacturing unit in September 2008, as the company planned to move more production to its Indonesian plant.

Hong Kong-listed AcrossAsia holds stakes in a number of Indonesian companies, including: Multipolar, which engages in information technology business, and Matahari, a country-wide department store.

Media Chinese International, a Hong Kong company which has publications including Mingpao, runs a Chinese newspaper, Sin Chew-Harian Indonesia, in Indonesia.

In November 2008, A Hong Kong company, Sun International, entered the mining industry in Indonesia by acquiring Gold Track, an Indonesian company which has a mining permit in the country.


Trade Policy

Indonesia is a member of the World Trade Organisation (WTO) since 1 January 1995, and has since then been lowering tariffs and non-tariff trade barriers.


Import tariffs are mostly imposed on an ad valorem basis. The import duty ranges between 0%-20% for most items, except for certain food items, alcohol, perfume, cosmetic or toilet preparations, plastics, ceramic products and cars, which have tariffs ranging from 30% to 150%.

Most of the imports are also subject to a 10% value-added tax (VAT). In addition, there is a luxury sales tax imposed on various items, such as large-size televisions, sports equipment, carpets, and jewellery, etc. The luxury tax ranges from 10% to 75%.

However, exports to Batam, Bintan and Karimun (free trade zones (FTZ) just south of Singapore) are free of import tariffs, VAT and luxury goods tax. These FTZs, particularly Batam, are popular as an offshore production bases for Singapore manufacturers.

Indonesia has only a limited number of import restrictions, but importation of rice, sugar, alcohol, plastics, medicine and lubricants, among a number of other goods, have certain restrictions, such as special licences and / or limited import volume.

In late 2008, the Indonesian government issued a regulation requiring imports of electronics, foods and drinks, clothing, toys and footwear be shipped to five dedicated seaports, namely, Tanjung Priok in Jakarta, Tanjung Emas in Semarang, Tanjung Perak in Surabya, Belawan in North Sumatra and Makassar in South Sulawesi. This regulation is expected to be in effect for two years.

Indonesia is a member of ASEAN, and thus it is committed to the ASEAN Common Effective Preferential Tariffs (CEPT) scheme, under which all industrial products traded within ASEAN are subject to import duties of 0%-5% only.

Under the China-ASEAN Free Trade Agreement (CAFTA), to which Indonesia is a signatory member, Chinese exports enjoy tariff-free access to the Indonesian market since July 2005, and most goods will be exempted from tariffs by 2010.

Besides its ASEAN and CAFTA membership, Indonesia has continued to participate in various FTAs with other countries. These include the ASEAN-South Korea FTA in 2005, as well as the Japan-Indonesia FTA in 2007. Lower import duties are applied to imports originated from the trading partners under different arrangements. Indonesia is also negotiating FTAs with Australia, Pakistan, India and the US.


Hong Kong's Trade with Indonesia ^

Indonesia was Hong Kong's 20th largest trading partner, and 23rd largest export destination (6th largest among ASEAN-10) in 2008. Hong Kong's total exports to Indonesia increased by 20.1% YoY to US$2,177 million in 2008. Major export items included telecommunication equipment and parts (37% of the total), knitted or crocheted fabrics (7.1%), woven cotton fabrics (5.9%), semi-conductors, electronic valves and tubes (3.1%) and computers (2.7%).

On the other hand, Hong Kong's imports from Indonesia grew by 10.9% YoY to US$2,302 million in 2008. Major imports included coal (33.2% of the total), edible products and preparations (11%), telecommunication equipment and parts (8.3%), electrical machinery and apparatus (2.8%) and electrical apparatus for electrical circuits (2.7%).

Indonesian Involvement in the Hong Kong Economy

According to the Census & Statistics Department of Hong Kong, there are 17 Indonesian companies setting up local offices in Hong Kong, taking care of local businesses for their Indonesian parent companies as of 1 June 2008. There is a larger number of small and medium enterprises (SMEs) founded by Indonesians in Hong Kong, with businesses in restaurants, supermarkets, and courier service.

In 2008, there were 348,938 Indonesians visiting Hong Kong, down moderately by 4.7% from 366,217 in 2007.

There were 141,012 Indonesians residing in Hong Kong as of 31 December 2008, which makes it the second largest ethnic minority group in Hong Kong after the Filipinos.