Immediate results from new Indonesia's policy measures unknown

In a bid to boost US dollar liquidity onshore, the Indonesian government has announced plans to cut tax on interest income (currently at 20% for all bank deposits) for exporters who deposit their earnings in local banks. The cuts will be varied according to the maturity of deposits. In fact, there will be no tax at all on interest earned for deposits with maturity of 6 months or more (either in dollars or rupiah). 

Whether the tax rate cut will be effective in encouraging exporters to bring their dollar earnings onshore partly depend on market anticipation of USD/IDR trend going ahead. This is the difficult bit to manage. As long as the dominant USD theme persists globally, the USD/IDR may continue its upward climb. Note that despite the sustained depreciation of the rupiah against the dollar since end-2013, the rupiah has been practically flat on nominal effective exchange rate terms. 

On Tuesday, the government also announced measures to spur new investments in the economy. Among others, the processing time of new investment permits will be cut to a mere 3 hours from at least 8 days currently. The government will also reduce the number of permits needed for mining exploration and for starting a new business in industrial economic zones. There was no signal, however, that the government will relax the negative investment list anytime soon. 

Coming up with these plans clearly shows a heightened sense of urgency from the authorities to boost confidence on the economy. But the government still needs to get its act together to speed up fiscal disbursement. The need to stop a downward spiral in GDP growth momentum is glaring. That the government has spent only half of its annual budget by August is worrying. Even more disconcerting is the fact that spending on capital expenditure is still a fifth of this year's budget.