South China Sea-IARI
STRATEGIC ASSESSMENT. U.S. Secretary of the Treasury Janet Yellen and Indonesian Minister of Finance Sri Mulyani Indrawati signed the $649 million Indonesia Infrastructure and Finance Compact – a five-year grant between the U.S. government’s Millennium Challenge Corporation (MCC) and the Government of Indonesia.
MCC Chief Executive Officer (CEO) Alice Albright joined the signing ceremony at the International Monetary Fund with representatives from the U.S. and Indonesian government. “This partnership represents the United States’ and Indonesia’s shared belief in democracy and innovation-driven economic growth,” said Secretary Yellen, who is Vice Chair of MCC’s Board of Directors. “The compact will support Indonesia’s Just Energy Transition Partnership, and the development of climate-resilient infrastructure that meets the standards under the Partnership for Global Infrastructure and Investment (PGII) – jointly announced by our presidents at the G20 Leaders’ Summit.”
Following a discussion with G20 Finance Ministers and Central Bank Governors at the IMF-World Bank Spring Meetings 2023 in Washington, D.C., Finance Minister Sri Mulyani Indrawati via her official Instagram account said the world’s economic situation in 2023 will be significantly worse than the previous year. The economy must therefore be continuously watched until the end of this year.
She pointed out that discussions about financial system stability also involved central bank governors and finance ministers. The issue takes into account expanding international cooperation to help different countries suffering from the effects of the global crisis, as well as the effect of economic conditions on various countries’ interest rate hike policies, food security, and energy security.
The International Monetary Fund has revised up its outlook on Indonesia’s economic growth despite the fund projecting much lower figures for the global economy amid prolonged economic uncertainty and geopolitical strains.
The IMF’s latest forecast put Indonesia’s GDP growth on a 5 percent path in 2023, according to the fund’s World Economic Outlook report in April, 0.2 percentage points higher than the fund’s January report.
The figure also puts Indonesia almost on a par with China’s growth projection at 5.2 percent this year, which the IMF decided to keep unchanged compared with its January report. By contrast, the IMF lowered its outlook for the global economy to 2.8 percent, 0.1 percentage point lower than its January forecast.
Faisal Rachman, economist at state-owned lender Bank Mandiri, said the Fund’s more optimistic outlook for Indonesia was due to the country’s solid domestic economy. This would allow the economy to remain resilient in 2023 despite flagging global growth.
A while back, the Indonesian Chamber of Commerce and Industry (Kadin) felt that the United States was unfair to Indonesia, particularly regarding the “exclusion” of nickel and other important minerals from Indonesia from the subsidy package. It is known that the United States will offer a tax credit for the purchase of an electric car through the new Inflation Reduction Act (IRA).
However, due to Indonesia’s lack of a free trade agreement with the United States and the predominance of Chinese firms in the nickel industry, this incentive does not apply to electric vehicles whose batteries contain nickel components made in Indonesia.
Two Chinese polyester fibre makers are seeking Beijing’s approval to build a US$10 billion refinery and petrochemical complex in Indonesia, sources with direct knowledge of the matter told Reuters.
The move comes as China ramps up talks on mega investments in South-east Asia as part of President Xi Jinping’s Belt and Road Initiative, and as Beijing limits approvals for new domestic refineries to cut carbon emissions and a fuel supply overhang.
Indonesia will propose a free trade agreement for some minerals shipped to the US so that companies in the electric vehicle (EV) battery supply chain operating in the country can benefit from US tax credits, a senior minister said.
Washington has issued a new guidance for EV tax credits under the Inflation Reduction Act (IRA), requiring a certain value of battery components to be produced or assembled in North America or a free trade partner. The rules are aimed at weaning the US off dependence on China for the development of its EV battery supply chain.
Asked about the new IRA guidelines, Indonesian minister Luhut Pandjaitan, who has been spearheading efforts to attract US companies, told a news conference that Jakarta will propose a limited free trade agreement (FTA) with Washington.
“We do not have an FTA with them. Now we’re proposing a limited FTA with them,” Luhut said, adding that he would meet Ford and Tesla executives to discuss the matter when he travels to the US later this week.
Indonesia has just concluded the first round of negotiations with the Eurasian Economic Union (EAEU) for a free-trade agreement as part of an effort to increase exports to non-traditional markets in the Eurasian region. The first negotiation round was held from April 3–5, 2023, in Jakarta.
“With a total population of 183 million people and a GDP (gross domestic product) value of US$2.04 trillion, EAEU can become a hub for Indonesian products in Central Asia and Eastern Europe,” the Director of Bilateral Negotiations at the Ministry of Trade, Johni Martha said in a statement issued here.
