The global impact of Indonesia’s export policy shift, Pg8

Key Highlights:

• Indonesia announced a new policy on May 20, 2026, mandating that all exports of key commodities be handled by a state-run agency, PT Danantara Sumberdaya Indonesia.
• The policy will initially apply to palm oil, coal, and ferro alloys, with a transition period from June to September.
• President Prabowo Subianto stated the move aims to combat fraud and under-invoicing, which he estimates has cost Indonesia $900 billion over 34 years.
• Indonesian stocks, particularly in energy and mining, experienced a decline following the announcement, with the Jakarta Composite Index falling by 2.4%.

Detailed Insights:

• The Indonesian government aims to increase its revenue-to-GDP ratio, which currently stands at around 12%, significantly lower than the Asia-Pacific average of 19.5% and the OECD average of 33.9%.
• The new policy seeks to provide the state with greater control over tax revenue and pricing, ensuring fair transfer pricing and minimizing revenue leaks.
• China, India, Vietnam, and the Philippines are major importers of Indonesian thermal coal, while China is a key buyer of Indonesian nickel pig iron.
• Concerns have been raised regarding the potential impact on private companies, as the state-run agency will monopolize their role in commodity exports.
• The 2020 ban on raw nickel ore exports aimed to attract investment in Indonesian processing plants, increasing export value and revenue.
• Danantara, Indonesia’s second sovereign wealth fund, plays a crucial role in the nation’s economic policy but has faced investor skepticism regarding its commitment and stability.

Key Concepts Involved:

• Sovereign Wealth Fund: A state-owned investment fund composed of money generated from a country's surplus reserves.
• Transfer Pricing: The setting of prices for goods and services sold between related legal entities within an enterprise.
• Commodities Market: A market where raw or primary products are traded.