Indonesia tariff ‘own goal’

Indonesia’s hapless government has embarked on a sudden tariff program experts agree will damage its economy and fuel inflation.

Having just a month ago reduced taxes on luxury goods to encourage its people to spend more at home and less in overseas destinations like Singapore, now the government has slapped a range of tariffs on some 1000 popular goods categories, including cars, condoms, candy, alcohol, coffee and carpets.

It says the move will stimulate local manufacturing by making imported goods less expensive.

But economists – basing their comments on a long history of economic governance by Asian countries – agree the move will simply reduce spending and fuel inflation. It’s an economic own goal punishing its citizens and effectively subsidising inefficient, poor quality local producers.

“Imposing this is out of alignment with the economic integration agenda and a step backward from the global trend of most economies forging free trade agreements towards lower tariffs, if not zero,” said Victor Tay, COO of the Singapore Business Federation.

“Indonesia has the largest population in Asean and is also a net importer of many products.”

Tay said imposing such barriers may protect local industry in the short term, but in the longer term might lead to local manufacturers being unable to improve their competitiveness against other regional suppliers.

“This will not serve the greater business community well, especially if other countries start erecting their own barriers on a reciprocal basis,” he said.

Indonesian university economist A. Prasetyantoko, concurred: “Higher import taxes would reduce the supply of goods and increase domestic prices, which would in turn further weaken buying power, then economic growth.”

The new tariffs include:

• 20 per cent on imported tea and coffee, raised from five per cent.
• 30 per cent on meat, up from five per cent.
• 50 per cent on cars, up from between 10 per cent and 40 per cent.
• 15-20 per cent on confectionery, up from 10 per cent.
• 150 per cent on imported liquor, previously 125,000 rupiah ($9.30) per litre.

As one commentator in Singapore observed, the new tariffs are likely to make some Indonesians shift to having a coffee at a local coffee shop instead of at Starbucks.

Justifying the increases, Heru Pambudi, customs and excise tax director-general, said: “Domestic industry is being overwhelmed by the flows of imported goods. We need to curb these flows so domestic products would not be outnumbered.”