The latest news shows that the financial market of Southeast Asia’s largest economy is still in deep turmoil as the new export control policy implemented by commodity powerhouse Indonesia this week has caused widespread confusion in the industry.
As of Thursday’s close, the Indonesian stock market’s benchmark Jakarta Composite Index continued its decline, hitting a new low in the past five years, with a cumulative decline of more than 32% since the beginning of the year. At the same time, the exchange rate of the Indonesian rupiah against the U.S. dollar continued to hit a record low, with 1 U.S. dollar being able to exchange for more than 18,000 Indonesian rupiah on Thursday.
As one of the reasons for this series of turbulence, it is the country’s commodity export control measures that are so radical that all market participants are “confused”.
The new policy, announced in mid-May and implemented on Monday, currently requires the country’s commodity exporters of thermal coal, palm oil and ferroalloys to submit sales documents to DSI, a state-owned entity under the country’s sovereign wealth fund Danantara.
When the New Deal is fully implemented in January next year, all manufacturers of the aforementioned commodities will be able to sell their export goods to DSI, which will become the country’s only export channel.
Although the New Deal has been implemented, there is still considerable uncertainty about the specific details.
According to industry insiders, currently local companies actually only need to check a statement in the Ministry of Trade system to indicate their willingness to submit relevant export documents to the government.
Traders are still waiting for more details of the policy, including exactly which products will be affected – in the case of palm oil, the export form itself is very diverse.
Eddy Martono, chairman of the Indonesian Palm Oil Association (Gapki), told the media on Thursday: “The specific operating mechanism is still unclear, and we have not received formal regulatory documents so far.”
According to Indonesian Economic Coordinating Minister Airlangga Hartarto (Airlangga Hartarto), starting this week, thermal coal, palm oil and ferroalloy producers must start submitting export documents to DSI.
Starting as early as September this year, DSI will directly control some specific export businesses.
Affected by this, local coal exports have stalled, waiting for the new system to be clarified.
A Jakarta-based palm oil trader also revealed that export sales of goods that were reached before the policy was announced are still going through export procedures.
However, overseas customers have expressed concerns about payments and whether the new structure will deliver compliant products, according to people familiar with the matter.
Amidst the chaos, some people are taking advantage of the chaos to purchase goods from farmers at low prices.
Mansutus Dalto, chairman of the Indonesian Oil Palm Growers Organization Association, told the media that the price of fresh oil palm fruit fell to 1,500 Indonesian rupiah (approximately RMB 0.56) per kilogram last week, which was a drop of more than 50% from the level before the policy was announced.
Dalto added that the price has since recovered to about 2,400 to 2,950 rupiah.
It is reported that Indonesian associations representing mining, coal, nickel and palm oil producers recommended in a joint statement the establishment of a consultation mechanism including the industry, government and the newly established DSI company to deal with issues related to the New Deal, including pricing, dispute resolution and implementation timetables.
The associations are calling for clarity on how existing and long-term contracts will be dealt with.
They also asked the government to issue transparent technical guidelines to maintain investor and buyer confidence in Indonesia as a global supplier of commodities.
Indonesia’s policy uncertainty has also become a growing concern for global rating agencies.
Both Fitch and Moody’s have downgraded Indonesia’s sovereign outlook to negative from stable.
S&P maintained a stable outlook but noted the need to closely monitor the country’s fiscal burden and rising debt servicing costs.
