Indonesia Plans to Establish a State Agency to Control Export of Commodities, Stock Market Plunges by 3.5% in a Day
Due to market rumors that the Indonesian government plans to establish a new state agency with strong control over the export of commodities, in an effort to crack down on the long-standing industry issue of under-invoicing to evade taxes, and to try to reverse the decline of the Indonesian rupiah to a historical low, the Indonesian capital market experienced a strong shock on Tuesday.
As of the close on Tuesday, the Indonesian benchmark stock index (Jakarta Composite Index, JCI) plummeted by 3.5%, marking one of the most severe single-day declines since March 2020. This also extended the cumulative drop of the index to over 16% in the past month.
The rumored "commodity national unified procurement and sales" mechanism
According to insiders quoted by Bloomberg and local media, the new export control agency planned will fall under the supervision of the Indonesian Sovereign Wealth Fund Danantara (headed directly by President Prabuowo and currently managing assets worth up to one trillion dollars). President Prabuowo Subianto may officially announce this significant personnel and structural arrangement as early as Wednesday (May 20th) this week.
Although the specific operational details are still in flux, widespread rumors in business groups and financial markets suggest that the agency may act as a "central buyer" for strategic commodities in the future.
This implies that domestic coal, crude palm oil (CPO), and key mineral exporters may no longer be able to directly trade with overseas buyers in the future; all export business must mandatorily route through this government-designated national entity. The news triggered strong concerns from exporters and foreign capital about Indonesia's "state monopoly and unified procurement and sales," directly sparking panic capital flight on Tuesday.
Combating the "billions of dollars" tax evasion black hole
One of the core focuses of the new policy is directed at the decades-long "under-invoicing" issue in Indonesia's commodity industry, which has severely weakened the country – that is, exporters intentionally underreport the real transaction value of commodities to customs, thereby illegally transferring huge retained profits to offshore tax havens with low tax rates.
A previous study by the Global Financial Integrity Organization (GFI) estimated that Indonesia lost as much as $6.5 billion in taxes due to the under-invoicing of commodities in just 2016. Indonesia's current Finance Minister, Purbaya Yudhi Sadewa, faced the media's scrutiny at the Ministry of Finance's office on Tuesday, without revealing specific details and asking the public to wait for the President's official announcement. However, he has repeatedly emphasized that cracking down on under-invoicing and clearing customs corruption is the highest priority at present.
The looming currency crisis: Prabuowo's radical "blood transfusion"
In addition to rectifying taxation, the rupiah's decline to an all-time low against the US dollar this week is another direct trigger for the Prabuowo government to resort to this shock therapy.
Currently, the Indonesian economy is facing multiple pressures:
Flagship policy costs are enormous: Prabuowo's推行的 "free school meals for all" and nutrition programs for mothers and infants are extremely large, urgently requiring a massive financial injection;
Rising energy bills: The high global oil prices lead to the continuous expansion of Indonesia's energy import deficit;
Governance concerns prompt foreign capital withdrawal: International investors express concern about the governance within the Southeast Asia's largest economy, as well as the potential uncertainties of the large-scale mergers of state-owned enterprises (Danantara is currently compressing and merging thousands of state-owned enterprises to within 300).
Faced with the collapse of the rupiah, although the Central Bank of Indonesia has frequently intervened in the market and implemented stricter foreign exchange retention restrictions (DHE SDA, mandatory requirement for the exchange of export proceeds of natural resources), the effects have been limited. If the new export agency can be established, it could intercept all commodity exchange funds at the source, maximize the repatriation of foreign currency, and thus become the "ultimate trump card" to support the rupiah.
The global commodity market sounds the alarm
As the world's largest exporter of thermal coal and the largest producer of palm oil, Indonesia's shift towards a "national unity" in commodity export systems is putting global supply chains on edge.
In the past, Indonesia has changed global pricing through radical measures such as banning raw material exports and imposing domestic market obligations (DMO). Since
Content is for reference only, not financial advice.