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April 7, 2005

INDONESIA: Pressure mounts on government to reverse import tariff cuts

The Indonesian government is coming under increasing fire from the country’s automotive industry after last month’s decision to slash import duties on buses and bus parts.

The Indonesian government is coming under increasing fire from the country’s automotive industry after last month’s decision to slash import duties on buses and bus parts.

The ministry of finance made the surprise announcement on March 10 to help limit the prospect of hefty bus fare hikes following a largely anticipated increase in fuel prices at the beginning of the month.

Fuel prices rose 29% on average after the government reduced fuel subsidies – a decision supported by the IMF and the World Bank. Bus operating costs rose significantly as a result, however, but the government is hoping that fare hikes will be no more than 10%.

The domestic automotive industry continues to question the logic of the decision, however, even as the government shows no sign of reversing its policy. For a year, original and replacement bus parts will be exempt from import duties altogether, while tariffs on bus engine-chassis, CKD kits and CBU vehicles will fall to 5%, from 25-40%.

There is fear that an influx of cheap replacement parts from China could put local manufacturers out of business. Importers are also likely to stock up on cheap imports and the effects would last a lot longer than 12 months. The Federation of Indonesian Metal and Machine Industry Associations (GAMMA) last week said the government “should provide additional incentives to local manufacturers rather than encourage imports”.

The latest to speak out is Gundai Sindhuwinata, president director of the Indomobil group – one of the country’s largest automotive groups. He admits that the decision will have a “negative impact” on the bus industry in Indonesia, adding that the government should be more supportive of the industry.

Indonesia’s bus industry has been under pressure since the first round of tariff cuts in 1999. There are only two manufacturers of buses left in the country, Hino and DaimlerChrysler, making 1,231 full-size buses between them last year. A total of 1,411 large buses were sold in the country last year, according to data compiled by industry association Gaikindo.

PT DaimlerChrysler Indonesia, which made over 353 buses in Indonesia last year, is reconsidering its sourcing policy for buses and will price up engine-chassis imports from its Brazilian and Chinese operations, according to a source within the company.  The company continue to urge the government to reconsider its decision, adding that 350 jobs at its bus operations south of Jakarta are in jeopardy.

Tony Pugliese

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