Indonesia, the world's top exporter of thermal coal and palm oil, plans to tighten state control over commodity shipments in a move that could roil global markets and has already sent a chill through its domestic stock exchange.
"This is Prabowo's most drastic move yet to shore up state revenue," a source familiar with the matter said, referring to President Prabowo Subianto's expensive flagship policies, including universal free school meals.
The government is creating a new state entity to manage exports of key commodities, aiming to crack down on the widespread practice of under-invoicing, which shifts profits to lower-tax jurisdictions. The country's benchmark stock index fell 3.5% on the news, while the Indonesian rupiah has hit a record low against the US dollar, driven by rising energy import costs and concerns about governance. A study by Global Financial Integrity estimated the government lost $6.5 billion in tax revenue from under-invoicing in 2016 alone.
The new agency, to be supervised by the sovereign wealth fund Danantara, could be announced as soon as May 20. The move is intended to maximize foreign exchange inflows and support the struggling rupiah. In response to the rumors, Malaysian palm oil futures for August delivery climbed 1.17% to 4,587 ringgit per metric ton, as traders anticipated a shift in demand to Malaysia.
Global Market Impact
As the world's largest exporter of both thermal coal and palm oil, any change in Indonesia's export policy has significant global implications. The country has previously banned exports of certain natural resources to encourage downstream processing and secure domestic supplies. The new policy could lead to price volatility and supply uncertainty for major importers.
Fiscal Pressures Drive Policy
The policy shift comes as President Prabowo's government faces significant fiscal challenges. The administration has already seized land from palm oil and mining companies and imposed large fines for permit violations. Finance Minister Purbaya Yudhi Sadewa has made cracking down on under-invoicing a key priority, even threatening to replace customs officials with foreign contractors to combat corruption.
This article is for informational purposes only and does not constitute investment advice.
