RI CONCERNED OVER RISING IMPORTS

By Andi Abdussalam

Jakarta, Aug 11 (ANTARA) - The Indonesian government has expressed concern over rising imports that harm its trade balance, but admitted that it could not be prevented, as imports of raw materials are needed to develop industry at home.          Finance Minister Agus Martowardojo said the government was facing difficulties in preventing higher imports of capital goods and raw materials that had, until the second quarter of this year, caused the swelling of the current account deficit.          "We admit that it is difficult to avoid high imports of capital goods and raw materials, but there must be a lag between the time of importation and the time when finished products are ready for export," Agus Martowardojo said.           He said the rise in capital goods and raw material imports has widened the country's deficit, though it will be hard for the government to shun imports altogether, the finance minister said on Friday      The concern was also expressed by  Indonesian chief economic minister Hatta Rajasa, saying the hike in imports could hurt the country's balance of trade, since it could create a trade deficit.          "Unless care is taken, an increase in the imports of components could soar to hurt the balance of trade," he said.  Further, two things need to be monitored by the investment sector, improving domestic consumption and government spending, he added.           Yet, the chief economic minister believes high imports, capital goods and raw materials, in particular, would be temporary as the country was now in need of these commodities for the development of investment.           "We have analyzed the high imports of capital goods and raw materials, which are high because they are needed, but they are eventually expected to increase productivity and boost exports," Hatta Rajasa said.          Finance minister Agus added that with high imports of raw materials and capital goods, efforts to increase exports would be successful. "We will continue to improve our efforts to boost exports and, in the end, bring imports under control," Agus said.          The Indonesian central bank ,or Bank Indonesia (BI), is also watching the country's rising current account deficit following a slowdown in exports caused by a decline in global economic performance and increasing imports to meet strong domestic demand     Dody Budi Waluyo, of the central bank's department of strategic planning and public relations, said Bank Indonesia predicted the current account deficit would rise in the second quarter, but then drop in the second semester this year.          He said the rise in the current account deficit was mainly caused by low exports, while imports, especially of raw materials and capital goods, increased sharply. Capital and financial transactions, meanwhile, had recorded a significant surplus in the form of direct investment, foreign portfolio investment and withdrawals of foreign debts by the private sector.          These developments, Budi said, showed that while global economic conditions were still uncertain, foreign investors' confidence in the country's economic resilience and prospects remained high.         "In the second semester of 2012, the current account deficit is predicted to drop to a safe level to maintain national economic stability," he said.          He noted that this prediction was based upon expectations that global economic conditions and commodity export prices would improve, supported by policies made by Bank Indonesia and the government.          According to chief economic minister Hatta Rajasa, the government's effort to reduce the deficit in the country's current account will curb non-oil and gas imports by reducing the use of subsidized fuels.          "So, the subsidized fuel control system is important for the government to reduce the impact of higher imports that could hurt the trade balance deficit," he said.          He noted that the high imports were composed of 72 percent raw materials, 7 percent consumption goods and 21 percent capital goods.          The import of capital goods recorded the highest growth due to rising demand for imported products, such as airplanes and spare parts, which rose 73.7 percent and motor vehicles and spare parts (45.3 percent), iron and steel products (43.3 percent) and mechanical appliances (25.4 percent).          Further, non-oil/non-gas imports in the first half of 2012 increased 16.5 percent to US$74.9 billion, from the same period last year.          Oil/gas imports in the January-June 2012 period reached US$21.4 billion, an increase of 11.4 percent compared to the same period last year, fueled by rising gas demand which surged 149.8 percent to US$1.8 billion, he said.           Also, according to Trade Minister Gita Wirjawan, Indonesia's import of capital goods in the first semester of 2012 rose 34.9 percent to US$19.4 billion year-on-year.          Indonesia's imports in the first half of 2012, meanwhile, reached US$96.4 billion, a 15.3 percent increase compared to the same period last year and the import of consumer goods rose by 6.5 percent to US$6.8 billion from a year earlier. However, the import of raw and auxiliary materials increased 11.8 percent to US$70.3 billion year-on-year, he said.          The strong growth in the import of capital goods and raw materials was attributed to growing investment inflows and the rising demand for industrial products, he added.          In order to reduce imports, Hatta Raja called on parties in the investment sector to strive not to use imported materials so they might reduce the negative impact of imports on the nation's balance of payment.          Additionally, the minister personally asked the Investment Coordinating Board to make a priority of domestic, rather than imported products.          Regarding domestic consumption, the minister called on all parties to continue safeguarding the domestic market and control inflation so they would not erode economic growth.         "We must continue so imports will not be too large and inflation would not be too high," he said.          He also called on companies to cut down on their imports of raw materials to help reduce the trade deficit. He said those companies that could reduce their imports would  be offered incentives by the Indonesian government.          He added that the government plans to provide tax allowances to industries which reduce their imports.       "Incentives such as tax allowances or a tax holiday will be granted, if necessary, to industries, especially in the manufacturing sector, which use imported raw materials for its finished products," he said.***2*** (T.A014/INE/H-YH/KR-BSR/A/H-YH) 11-08-2012 21:23: