Timor car project to proceed despite cutbacks
FINANCIAL TURMOIL IN INDONESIA
The “sacred cows” of the Indonesian economy – the national car project, IPTN airline projects and Bulog’s monopoly – suffered severely as Jakarta agreed to sweeping reforms.
DERWIN PEREIRA checks out with analysts in Jakarta on their perceptions of the latest announcements and their likely effect on the national economy.
* GEARING UP ————
A SMILING Mr Hutomo Mandala Putra, President Suharto’s youngest son, declared yesterday that the Timor car project would continue despite tough measures imposed by the IMF.
“This is not a setback for us. All businesses face certain risks,” he told reporters. “We are doing this for national interests.”
The IMF-backed reform meant that all special tax, customs and credit privileges for the national car project would be revoked immediately. IMF managing director Michel Camdessus told a press conference that the cancellation was “effective immediately”.
Analysts believe that scrapping such privileges was indicative of the government’s efforts to put the economy back on the right footing.
It was also significant because it showed that Jakarta had no qualms affecting well-connected businesses in the process.
“The government is willing to strike a highly controversial project close to the first family,” said Mr David Chang, research director of the local-based Trimegah Securities.
“This is evidence of a strong commitment to push the reform measures through, enough to win the confidence of investors.”
The special tax breaks given the national car programme has been criticised widely by the United States, Japan and the European Union, which have brought the case to the World Trade Organisation (WTO).
Mr Suharto stressed that “whatever the decision of the WTO, Indonesia must accept and implement it”.
In February last year, he decreed preferential treatment, which included substantial import duties and luxury-tax exemptions to the producer of a national car.
The government shortly afterwards said that only PT Timor Putra National qualified for the exemptions.
The exemptions knock off about 60 per cent from the average sale price of cars compared to the 1,500 cc Timor sedan.
Besides the tax privileges, a consortium of banks led by state bank PT Bank Dagang Negara, has earmarked US$690 million (S$1.2 billion) in loans to help the national car maker.
Timor’s sagging sales, despite its cheap price of about 36 million rupuah (S$10,500) were boosted slightly by a ministerial directive for government offices to buy Timors.
The Timor is now being built in South Korea, until the factories here become operational this year.
PT Timor Putra Nasional was chosen as the first national car supplier and is required to clear an eventual goal of a local content exceeding 60 per cent by next year.