Indonesia announced a spate of measures to shore up its economy as conditions to receive more than $30 billion in aid from the International Monetary Fund, the World Bank and Asian Development Bank.
Separately, Timor Putra removed President Suharto's son from his post at the Indonesian auto maker in a partial concession to calm concerns over the national car project.
The moves to deregulate trade and industry are the latest indications that the government is being forced to carry out some major reforms in return for the IMF's support.
Separately, Indonesian automobile producer PT Timor Putra Nasional said that Hutomo Mandala Putra, the company's former president director and the youngest son of Indonesian President Suharto, has been moved to the role of president commissioner as part of a wider reshuffling of the company's management. Mr. Hutomo, will be replaced by Wardijasa, the former Deputy Chairman of Indonesia's Investment Procurement Board.
However, the government said Friday that the IMF hasn't ordered the halt of Indonesia's controversial "national car" policy, which gives huge tax breaks to Timor. Japan, the European Union and U.S. have frequently complained to the World Trade Organization about the policy.
Among the measures, Indonesian Minister of Industry and Trade Tunky Ariwibowo announced deregulation steps aimed at increasing the nation's export competitiveness and attracting foreign investment.
Mr. Tunky reaffirmed the government's commitment to deregulate the supply and price of wheat flour, soybeans and garlic – commodities currently regulated by the National Logistics Board, or Bulog.
Beginning on Jan. 1, 1998, these commodities can be imported by general importers and will be subject to tariffs. Tariffs on dried garlic will be raised to 20% from 0%; tariffs on dried soybeans will be increased to 20% from 0% while tariffs on wheat flour will rise to 10% from 0%. By the year 2003, however, these tariffs will be reduced to 5%.
The industry minister went on to say that over the next three to five years, the distribution of these commodities will go through a "transitional period." Bulog will be the sole distributor of wheat flour. Toward the end of the period, consumers will continue to receive a subsidy, equal to the difference between the factory selling price and consumer buying price. Bulog will also continue to stabilize the price and supply of rice and sugar.
Bulog, created more than 40 years ago to ensure food security and price stability for Indonesian farmers and consumers, had long been seen as the symbol of President Suharto's reluctance to make hard choices on deregulation and economic reform.
When local prices of essential food commodities rise above what Bulog deemed as excessive levels, the agency intervenes by selling the commodities at below prevailing market prices.
In a recent report, the World Bank criticized the regulations, which distort prices and business opportunities, thereby increasing costs and causing losses in efficiency, as resources become attracted to protected activities.
Mr. Tunky also reasserted the government's position to allow market forces to control the price of cement. The Administrative Retail Price for cement is no longer needed.
Meanwhile, in a move to increase Indonesia's non-oil-and-gas exports, the government will increase the number of commodity groups that receive "special export" facilities to 18 from 10. The eight new commodity groups are as follows: iron and steel, automotive components, machinery and machinery components, jewelry, chemicals, rubber, mineral products, and plastic sheets.
The minister also said that Indonesia's government is committed to reducing import tariffs in a move to improve export competitiveness. Tariffs on such fresh, cold, or frozen fish as salmon and trout will be lowered to 5% in 1998 from their current levels of 10%-20%. The tariff will be cut to 0% in 2003.
Tariffs on chemical products like ethylene, propylene, styrene, polyethylene, polypropylene, polystyrene will be reduced to 20% by the year 2000 from their current level of 25%-40%. The tariff will be lowered to 10% in 2003.
In 1998, tariffs on styrene and polystyrene will be reduced to 25% from 30%, while tariffs on polypropylene and polyethylene will be reduced to 35% from 40%.
Tariffs on metal products are scheduled to be cut as well. The tariff on coated steel, for example, will be lowered to 10% from 15% in 2003.
Meanwhile, exports having high growth potential also will have their export taxes removed, Mr. Tunky said. Items included in this group are rattan, rawhide leather, iron ore, copper ore, silver ore, processed and raw natural cork, and aluminum scrap. The income tax on gold bars was also removed.
Other moves aimed at assisting export growth include the elimination of the value added tax for indirect exports, a simplification of import permits and procedure, and the establishment of bonded zone import procedures.
The government also plans to improve the domestic business environment for foreign investors by allowing foreign investment companies to be the sole distributor and wholesaler of their products produced in Indonesia.
Meanwhile, in the currency market, buying by Bank Indonesia, the Bank of Japan and the Monetary Authority of Singapore sent the rupiah sharply higher against the U.S. dollar in late-morning trading.
The U.S. currency was quoted at 3,260 rupiah, down substantially from around 3,600 rupiah late Friday. Traders said the central banks bought the rupiah, because they were pleased with Indonesia's planned reforms.
In Monday's trading, the Jakarta Stock Exchange index rose 0.3%, or 1.296, to 501.714.