Palm oil tax hurts export performance

Andi Haswidi, The Jakarta Post

The latest figures from the Central Statistics Agency (BPS) show that the government's attempts to control cooking oil prices by hiking the export duty on crude palm oil may finally be bearing fruit, albeit at the expense of the country's exports.

The hike in CPO export duty from US$558 per metric ton to $622 on July 9 was not immediately felt that month as total exports still managed to reach $833 million, up from $798.4 million in June.

However, total monthly exports of CPO and related products dropped by 21 percent in August, the BPS said, a decline of $148.8 million to $684.2 million, which accounted for 8.99 percent of the overall non-oil and gas category.

This decrease resulted in a decline in total non-oil and gas exports to $7.75 billion as of the end of the month, or a drop of 3.3 percent from July's exports.

Total exports in August amounted to $9.61 billion, a decrease of 2.11 percent compared to the previous month.

"This shows that the government is not consistent in its targets. By increasing the CPO export duty, they are undermining their own export growth target," economist Faisal Basri told The Jakarta Post on Tuesday.

Faisal urged the government to desist in the future from using CPO export duty to control the price of cooking oil.

"The government must come up with some other mechanism rather than meddling with export duties," he said.

At the beginning of the year, the government announced an ambitious target of 20 percent export growth, -- above the average growth target of 14 percent penciled in by many analysts, including those in the trade ministry.

According to the BPS, the total value of exports from the beginning of January until the end of August reached $73.35 billion, up 13.35 percent compared to the same period in 2006, with the non-oil and gas category contributing about $59.9 billion, an increase of 19 percent over the same period of 2006.

On the import side, Faisal said that an increase of almost 45 percent in imports of consumer goods between January and August sent negative signals about the country's economy.

"Just when we hoped that this would be a period of recovery, unfortunately the importation of consumer goods has continued to increase," he said, adding that the sharp growth in such imports not only created inflationary pressures in the economy, but also had no positive effects on export growth.

Faisal said that import growth should be commensurate with export growth, and that, ideally, imported goods should be those that added value to the production of exports.

The BPS reported that the share of raw materials and capital goods in the country's import structure over the January to August period declined compared to last year, down respectively from 77.22 percent to 75.94 percent and from 15.08 percent to 14.51 percent.

By contrast, the contribution of imported consumer goods increased from 7.7 percent to 9.55 percent.

Another economist, Ninasapti Triaswati, said that the BPS import data failed to take account of the smuggled goods from China and other countries in the region that were flooding the country.

"I cannot imagine how dire the real condition of our trade is. Eradicating smuggling must be made a priority," she said.
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