RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/51
5 November 1998
(98-4305)
Trade Policy Review Body Original: English
TRADE POLICY REVIEW
INDONESIA
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of Indonesia is attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Indonesia.Indonesia WT/TPR/G/51
Page 3
TABLE OF CONTENT
I. INDONESIAN ECONOMIC PE RFORMANCE AT  A GL ANCE ..................................5
(1) P RE-CRISIS PERFORMANCE ..................................................................................................5
(2) C URRENT PERFORMANCE .....................................................................................................5
II. KEY DEVELOPMENTS IN TRADE AND ECONOMIC POLICY SINCE THE  LAST
REVI EW......................................................................................................................... .......6
III. INDONESIAN COMMITMENTS IN  THE INTERNATIO NAL FORA......................12
(1) T HE IMPLEMENTATION OF MULTILATERAL INITIATIVES ................................................12
(2) T HE IMPLEMENTATION OF REGIONAL INITIATIVES .........................................................13
IV. THE FUTURE DIRECTION OF INDONESIAN POLICIES .......................................13Indonesia WT/TPR/G/51
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I. INDONESIAN ECONOMIC PERFORMANCE AT A GLANCE
(1) PRE-CRISIS PERFORMANCE
1. Since the late sixties, Indonesia has made steady progress with its economic development.
This progress can be easily observed by through Indonesia’s annual GDP growth rate, which averaged7%, for each of the past twenty-five years.  Other indications of progress include an increased per
capita income and low inflation rate.  In 1996, per-capita income surpassed US$ 1,000.  For the last
ten years Indonesia’s inflation rate was moderate, averaging less than 10% each year.
2. In the early years of development, Indonesia was still heavily dependent on the export of oil
and gas.  However, since the late 1980’s, the manufacturing sector has replaced oil and gas as themain source of export revenue.
3. With the increasingly diversified economy, coupled with a skilled work force and a strong
commitment to free-market economy, Indonesia offers the international business community
enormous opportunities for trade and investment.
4. Since 1994, Indonesia has made significant improvements to its investment climate.
Procedures for obtaining investment approval have been simplified.  Foreign investment companies
are allowed to fully own their businesses.
5. Another policy was introduced in 1995 when the Indonesian government announced the
schedule of tariff reductions through the year 2003.  The schedule is an acceleration of the Indonesian
commitment under the WTO and contains substantial reduction of tariffs on raw materials andintermediate products needed by various industries.
(2) C
URRENT PERFORMANCE
6. The Indonesian economy continually enjoyed strong growth during the year of 1996, and first
half of 1997.  However, since mid-1996, Indonesia was affected by the EL-NINO phenomenon,
causing severe drought in many food production centers, mass harvest failure and heavy smoke in
Sumatra and Kalimantan islands.
7. The Indonesian economy was interrupted by currency turmoil in July 1997 which spilled over
into monetary and economic crisis.  This crisis has brought serious problem to Indonesian domestic
and foreign trade.
8. Structural adjustment in all sectors is needed for Indonesia to overcome the current economic
crisis through the assistance of international institutions such as the IMF, World Bank, and ADB as
well as bilateral assistance.  The Government has signed letters of intent with the IMF on theimplementation of reformation and stabilization programs;  examples include the removal of
structural rigidities, improvement of fiscal transparency, and restructuring of the banking system.
9. Due to budget limitations, the government has set up a new revised budget for the fiscal year
of 1998/1999.  The revised budget is based on the following assumptions: 12% GDP decline, Rp.
10,600 per US dollar exchange rate, USD $13/barrel revenue from oil exports, and a 66% inflationrate.
10. Privatization program on state-owned companies has been going on under the new State
Ministry of State-Owned Enterprises.  The supervision of all state-owned enterprises was transferred
from line Ministers to the State Minister for State Owned Enterprises by the Government RegulationWT/TPR/G/51 Trade Policy Review
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50/1998 and Presidential Instruction 15/1998.  This move is seen by the Government as the first step
in rationalizing the management of State-Owned Ente rprises, leading to their eventual privatization.
A Privatization Board, responsible for the management and privatization of State-Owned assets, was
established after the first Letter of Intent with IMF.
11. In the process of restructuring of the banking system, 16 insolvent banks had their licenses
revoked.
12. To boost the confidence in the banking system, the Government established the Indonesian
Bank Restructuring Agency (IBRA) on 27 January 1998.  In April 1998, IBRA announced liquidity
criterion to determine whether a bank should be placed under supervision, taken over, closed or have
its assets frozen.  To date, 26 banks have been closed or had assets frozen, 4 private banks have been
taken over, and 48 state and private banks are currently being closely supervised.
13. In accordance with legislation passed by the Development Reformation Cabinet, the Central
Bank of Indonesia is in the process of becoming an independent agency.
14. The Indonesian economy relies on manufacturing, trade, tourism, agriculture, and the
exploration of mineral resources.  Manufacturing sector always dominates; for example, it accounted
for 25.6% of Indonesia’s GDP in 1997.  The main products of the consumer goods were textiles,processed foods, motor vehicles, and electronics equipment.   The main intermediate goods included
plywood, cement, fertilizer, metals and glass products.  The second largest economic sector in 1997
was trade and tourism, accounting for 16.9% of GDP.  Also during 1997, the agriculture sector,
covering forestry and fishing, accounted for 14.8% of GDP.  The main agriculture products for export
are rubber, coffee, palm oil, cocoa, fish and shrimp.
15. The Indonesian economy has dramatically slow ed down due to the current monetary and
economic crisis.  To reverse this situation, the following need to be addressed:
- Increasing domestic demand;
- lowering inflation;
- increasing non-oil/gas exports;  and
- political reformation.
16. To reverse the economic downturn, the Government of Indonesia continues to pursue prudent
monetary and fiscal policies and also take action to strengthen the financial system.   The government
is committed to rapid economic stabilization as well as ensuring adequate supplies of food and basic
necessities to all areas of the country.
II. KEY DEVELOPMENTS IN TRADE AND ECONOMIC POLICY SINCE THE  LAST
REVIEW
17. Since the last review in 1994, the Indonesian Government has taken several measures to
satisfy international commitments and improve the international competitiveness of the Indonesian
economy.  These measures clearly demonstrate that the Government of Indonesia is consistently
implementing its commitments under the WTO, ASEAN and APEC.Indonesia WT/TPR/G/51
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May 1995 Deregulation Package
18. In May 1995, the Government of Indonesia announced a series of deregulation measures as
part of its efforts to improve efficiency and endurance of the national economy, and to increase the
competitiveness of Indonesian products in the international market.  This deregulation packageincludes, among other items, the following provisions:
- Gradual reductions in the rate of import tariffs.  All import tariffs that are currently
over 20% will be reduced to a maximum rate of 20% by 1998 and a maximum rate of
10% by 2003.   Import duties that are currently 20% or lower will be reduced to a
maximum of 5% in the year 2000;
- numerous import duties will be immediately reduced to a rate between 5% and 20%;
- many current import surcharges will be eliminated or reduced;
- a number of products previously protected by non-tariff barriers and which could
only be imported by registered importers or importer producers, will be opened to
general importers;
- capital goods with a minimum value of 30% of the companies original investment
which are imported by companies undergoing business restructuring will be
exempted from import duties;
- some business sectors previously closed to new investment have been opened.  These
sectors include, among others, cooking oil from palms, finished/semi-finished rattanproducts, manufacture of industrial boilers, motor vehicle industry, aircraft
maintenance, and domestic trade support services;
- some business sectors are closed to new investment.  These include mangrove wood
processing, cyclamate and saccharine industries, manufacture of pulp using sulfite,
manufacture of chlor alkali using mercury, and chlorofluoro carbon (CFC/Freon)
industry;
- licensing procedures for industry have been simplified.  Industries in the Industrial
Zone and Bonded Zone will be directly provided with an industrial license (IUI-Izin
Usaha Industri) without being required to first obtain a Letter of Principle Approval.
In order to expand, a company needs only submit its plan for expansion.  A
registration receipt, which acts as an industrial business permit, will be given to
small-group industries;  and
- a number of business sectors remain reserved for small business or small businesses
in cooperation with medium or large businesses.  Such sectors include, for example,
poultry breeding, traditional hats, and tools.
1996 Deregulation Measures
19. In January and June 1996 the Government of Indonesia announced a set of economic
deregulation measures which include:
- Continuation of the Scheduling of Tariff Reductions .  In the May 1995
Deregulation Package, the Government announced the phase reduction of tariffs.WT/TPR/G/51 Trade Policy Review
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One group of tariff lines is to be reduced in steps, so by the year 2000 they will not
exceed 5%.  Another group of tariff lines is to be reduced so, by the year 2003, they
will not exceed 10%.  The government is now announcing the schedule of tariff
reductions (see attached table) to be implemented in coming years so the business
community can best plan investment and production.
- Reduction in Tariffs on Imported Capital Goods . A number of steps have been
taken to reduce the tariffs on imported capital goods.
- Elimination of Tariff Surcharges .  In accordance with the Customs Law, the
surcharges on imported goods will be eliminated.  In doing so, Indonesia accelerates
the implementation of the WTO commitments.
- Simplifications of Non-Tariff Barriers .  To expedite the procurement of capital
goods and raw materials and to improve the efficiency of industry, several non-tariff
barriers have been eliminated.  These steps also reflect the acceleration of Indonesia’s
commitment under the WTO to reduce the number of non-tariff barriers.
- Regulation on Anti-Dumping .  To counter dumping practices by foreign exporters,
the Anti-Dumping Regulation has been introduced.  This measure is consistent withthe WTO Agreement on Anti-Dumping.
- Facilitation of Exports .  Simplification of requirement and procedures to obtain the
Certificate of Origin, elimination of inspection of export goods by Surveyor, and
elimination of the PEB document for exports with a value of Rp 100 million or less,
are measures adopted to facilitate export.
- Simplification of Licenses for Industry within Industrial Estates .  To increase
export activities, the Government simplified license requirement for industries withinthe Industrial Estates.
- Operation of Bonded Areas/Bonded Warehouses .  The operation of Bonded Areas
and Bonded Warehouses, which could previously be done by state enterprises, is now
opened to the private sector.
- Relaxation of Restrictions on Export and Import Activities by Foreign
Investment Manufacturing Companies .   Some latitude is given to foreign
investment manufacturing companies for import and sale of their own products up the
wholesale level.
- Simplification of Procedures for the Import of Waste as an Industrial Raw
Material .   Procedures for the importation of waste as industrial raw material will be
improved and adjusted under Customs Law.
1997 Deregulation Packages
20. On 7 July 1997 the Government announced the economic policy deregulation as a
continuation of the preceding series of deregulation packages.   The economic policy reform in this
deregulation package included: reduction of import tariff, private auction house, non-direct
investment company, transfer of capital goods, export without notification, regional taxes andredistribution and non tax revenues in the industry and trade sectors.  The purpose of this package was
to decrease bureaucracy and increase exports.Indonesia WT/TPR/G/51
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21. Starting from 17 September 1997 the Government reduced the import duty on raw and
auxiliary materials for certain products covering 153 tariff items.  This reduction was implemented to
stimulate export oriented industries and to increase the sustainable national economy.
22. The range of the reduction of import duties is between 5 to 10 percentage points, and the final
tariff will become zero, 5, 10 and 15 percent.  The reduced duties apply to raw materials for: textiles
(40 tariff items), wood processing (67 tariff items), basic chemical products (31 tariff items) and
leather products (9 tariff items).
23. The raw and auxiliary materials for steel, machinery and automotive and agriculture products,
are respectively 3 tariff items each.
Indonesian Economic Experience in 1997
24. Over the past three decades, Indonesia has reaped maximum benefits from structural changes
that were created to achieve a more integrated global economy.  The maintenance of macroeconomic
stability through the pursuit of prudent fiscal and monetary policy, financial sector reform, and greater
openness of the economy have been the keys to this success.  During this period, the economy grew atan average of almost 7% a year, inflation was contained at a single digit level and the economy
became more diversified, with the private sector having a greater role in the economy.
25. The second half of 1997 marked the beginning of the Indonesian economic downturn as
reflected in the slowdown in economic activities , soaring prices, and weakening of financial
institutions.  The battered Rupiah exchange rate c oupled with high interest rates led to a slowdown in
many economic sectors.
26. The economy is estimated to have grown by only 4.65% in 1997, far below the performance
of the previous year.  The slowdown accounted for the weakening domestic demand, mainly
consumption and investment in both private and pu blic sectors.  The weakening domestic demand was
reflected in a much reduced pace in expansion of the bank loan for investment and consumer
spending.  The inflation rate rose significantly, reaching 11.05% in 1997, fuelled by the depressed
Rupiah exchange rate, and the long drought associated with the change in the global climate thatadversely affected agricultural output.
Indonesian Economic Policy in 1998
27. Recognizing the problems confronting the country, the government of Indonesia has
introduced various programs and adjustment measures.  As a member of the IMF, World Bank, and
ADB, Indonesia frequently consults these institutions and invites them to provide advice about how to
improve the economy.  On 15 January 1998, the Government adopted the Program of Economic andFinancial Reform and Restructuring.  This program was formulated to cover actions in several areas
including: efforts to restore financial sectors, fiscal consolidation, monetary issues, the exchange rate,
and structural adjustments in the form of broadening and deepening the deregulation program.  To
complement and modify the Memorandums of 15 January 1998, the Government of Indonesia signed
two Supplementary Memorandums on 8 April 1998 and 24 June 1998.
28. Considering its broad scope and its coverage of a number of economic aspects, the program
will be implemented over the three-year period.  Its implementation will be closely monitored and
reviewed.  To that end, Indonesia will be assisted  by experts from the IMF, World Bank, and ADB.WT/TPR/G/51 Trade Policy Review
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29. The fundamental objective of the structural adjustment program is to increase national
efficiency and competitiveness of the Indonesian economy.  To accomplish this objective, the steps to
be implemented include:
- On 21 January 1998, special tax and customs benefits previously granted to the
National Car Program were discontinued.
- A gradual reduction of import tariffs, including those on chemical products and
iron/steel, to 10 percent in the year 2003.  Starting on 1 January 1998, import tariffs
on a large number of chemical products were reduced from 10 – 20 percent to 5
percent.  Most tariffs on iron/steel will also be reduced starting January 1999.
- Starting 1 January 1998, various commodities, such as wheat, wheat flour, soybean
and garlic, can be imported freely under General Importer status.  Currently, soybeanand garlic imports are subject to a 20 percent tariff and wheat and wheat flour imports
are subject to a 10 percent tariff.  They are to be reduced to 5 percent in the year
2003, and the administered retail price of cement has also been abolished.
- A reduction of obstacles hindering exports, including export taxes, is to be
implemented in stages.
30. The main structural elements of Memorandum of Economic and Financial Policies include
further deregulation, trade liberalization, privatization of state enterprises, improvements in the
banking system and corporate restructuring.
31. While medium-term outlook remains uncertain given the severity of the crisis, the objective
of the Government of Indonesia is to restore sustainable economic growth with low inflation as
quickly as possible.
32. The Government of Indonesia attaches the highest priority to ensuring that food and other
essential items are available at affordable prices to the entire population.  Food prices, particularly the
price of rice and cooking oil, have risen drastically since the beginning of May 1998, causing serious
social hardship.  While most private trade is functioning well, the Government is taking a number of
actions to ensure that there are no remaining impediments to the efficient movement of basic
commodities throughout the country.
33. The program also envisages that virtually all of the restrictions that have been in place over
time will soon be removed.  For instance:
- From 1 February 1998, BULOG monopoly is limited solely to rice;
- the Clove Marketing Board is eliminated by June 1998;
- all restrictive marketing arrangements are abolished by 1 February 1998, specifically:
cement, paper, and plywood;
- all formal and informal palm oil plantation barriers are removed by 1 February 1998;
- effective on 1 February 1998, tariffs on all food items were cut to a maximum rate of
5 percent, while tariff rates on non-food agricultural products were reduced by
5 percentage points;  andIndonesia WT/TPR/G/51
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- on 29 May 1998, the Government adopted a reformation policy on investment in
which the list of Sector Closed for Investment was revised.
Sectors Closed for Investment
(i) Primary Sectors
• Cultivation and Processing of Marijuana and the like
• Exploitation of Sponges
• Contractors of Forest logging
• Uranium mining
(ii) Secondary Sectors
• Hazardous Pesticides of Penta Chlorophenol, Dichloro Diphenyl Tricholo Ethane
(DDT), Dieldrin, Chlordane.
• Production of pulp using Sulphite processing and production of Pulp with whitening
Chlor
• Alkalin Chloride Industries using Mercury process
• Manufacturing of Choloro Fluoro Carbon (CFC/Freon)
• Manufacturing of Cymate and Saccharine
• Processing of mangrove wood to produce finished/semi-finished goods
• Liquor/Alcoholic beverages
• Firecrackers and fireworks
• Explosive Materials and the like
• Manufacturing of weapons and related components
• Printing of valuable papers
• Postage stamps
• Duty stamps
• Commercial Paper of Bank Indonesia
• Passports
• Stamped Postage
(iii) Tertiary Sector
• Casino/Gambling
Sectors Closed for Investment when a part of the shares are owned by foreign
citizens and/or foreign legal entities
(iv) Primary Sectors
• Freshwater fish and fresh water fish cultures
• Forest Utilization Right
(v) Tertiary Sectors
• Taxi/Bus transportation
• Local shippingWT/TPR/G/51 Trade Policy Review
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• Private television broadcasting, Radio broadcasting services, News Paper and
Magazines
• Operation of cinema
• Spectrum Management of Radio Frequency and Satellite Orbit.
• Trade Services and its support Services, except: Retailer (mall, supermarket,
department store and shopping center), Distributor/Wholesale, Restaurant, QualityCertification Services, Market Research Services, and After Sales Services.
• Medical Services: general clinics, maternity Clinic, specialist clinic and dental clinics.
III. INDONESIAN COMMITMENTS IN THE INTERNATIONAL FORA
(1) THE IMPLEMENTATION OF MULTILATERAL INITIATIVES
34. The ratification of Marrakesh Agreement has been done by the government of Indonesia on 2
December 1994.  The government supports the role of WTO in strengthening the multilateral trading
system and commits to the implementation of the obligations and responsibilities arising from the
Uruguay Round.  This was shown by Indonesian commitments in WTO which recently includesinformation technology, telecommunication, and financial services.
35. Concerning the implementation of the UR results, Indonesia abolished most of the non-tariff
barriers it committed to in Schedule XXI. Furthermor e, the Government has also eliminated import
surcharges since June 1996. The remaining non-tariff barrier is in the oil sector.
36. As a member of the WTO, Indonesia has implemented the WTO Valuation Agreement since
1 April 1997.  Since that time, the determination of customs value for the imported goods is based on
the provisions of the Agreement.  Moreover, Indonesia created the following instruments in the form
of law and regulations, such as Custom Law No.10/1995; Ministerial Decree of Finance No.
690/KMK.05/1996; Circulated Letter of Custom s Director General N o.SE-11/BC/1997; Director
General of Customs Decree No.KEP-14/BC/1997 and No.KEP-21/BC/1997.  In line with the
implementation of the Agreement, Indonesia also revised its import procedures to accommodate the
new customs valuation system.  Thus, the imported goods are processed through a green or red
channel.  The selection for the green or red is based on the risk assessment conducted by intelligence
unit.
37. Since 1994, Indonesia has undertaken a concerted exercise to improve existing IPR protection
and procedures according to international standards and practices as prescribed by all international
conventions and intellectual property rights.  Efforts are also underway to enact  new laws and amend
existing ones in compliance with WTO/TRIPS Agreements.  As of May 1997, Indonesia enacted three
new laws in the field of IPR, namely:
- Laws No.12 of 1997 regarding The Amendment to Law no.6 of 1982 on Copyright,
as amended by law No.7 of 1987;
- Law No.13 of 1997 regarding The Amendment to Law No.6 of 1989 on Paten;  and.
- Law No.14 of 1997 regarding The Amendment to Law No.19 of 1992 on Trademark.
38. Steps are being undertaken to fulfill Indonesia’s WTO/TRIPS obligations by the year of 1999.
Enactment of new laws, namely, for the protection of plant varieties, performers’ right and lay-out
designs of integrated circuits as well as minor amendments to the existing patents and trademark laws
are at various stages of drafting.Indonesia WT/TPR/G/51
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39. Indonesia has put into effect the most favored nations for all WTO members and has never
changed the status since mid 1995.  As for information, the Ministerial decree of Finance signed on
January 21, 1998 mentioned reducing the tariff with MFN system for all nations.
(2) THE IMPLEMENTATION OF REGIONAL INITIATIVES
40. Indonesia attaches strong importance to regional cooperation and continues to participate
actively in various regional groupings, such as ASEAN and APEC.
41. As one of the Bogor Declaration initiators on trade and investment liberalization on 2010 for
industrialized economies and 2020 for developing economy APEC members, Indonesia has
committed to continual liberalization on trade and investment.  Indonesia will continue to pursue tariffreductions in line with its trade liberalization efforts and commitments in ASEAN and APEC.
42. Indonesia’s priority is focused on efforts to enhance trade and economic cooperation within
ASEAN in the field of trade and services, intellectual property rights, transportation and
communication, infrastructure development and industrial cooperation.
43. To implement the ASEAN-AFTA commitments, Indonesia has taken measures since 1994 to
lower its tariffs, and renewed the schedule of tariff reduction for AFTA by the year of 2003, which
includes 7.212 tariff lines.  Those tariffs consist of Inclusion List (6.622), Temporary Exclusion List
(541), Sensitive List (4), and General Exception list (45).
44. The current economic crisis will not change Indonesian commitment to implement CEPT-
AFTA scheme by the year 2003.
IV. THE FUTURE DIRECTION OF INDONESIAN POLICIES
45. Over the years, the government has consistently demonstrated its ability to maintain its
commitment to economic development.  However, due to unprecedented economic turbulence since
mid 1997, the government’s first priority, in short-term, is to stabilize economic and political
situations.  The most urgent priorities for the government are improving the distribution system and
ensuring adequate supplies on basic need commodities.
46. The government of Indonesia is committed to continue the reform program covering 5 main
components:
- Maintaining macro economic stability;
- reforming and strengthening the banking system;
- restructuring corporate debt;
- pursuing structural reform to improve governance and private sector efficiency;  and
- taking action to protect the poor and sustain key human resource investments.
47. Indonesia will continue to uphold its commitments to the international community.
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