Danantara Sumberdaya Indonesia: Indonesia’s OPEC

The biggest takeaway this week is definitely the newly formed Pt. Danantara Sumberdaya Indonesia (DSI) to manage export commodity pricing and practices for coal, crude palm oil (CPO), and ferroalloy. I do not think many of us can give a verdict on how this will affect the market and Rupiah, because one thing still hangs on the balance: execution. If it’s ineffective, bribes and bid rigging will prevail within the system. Processing and issuing permits may be slow. Not to mention, the need to understand modern business laws and practices to combat the actual root of the problem: under-invoicing and price gouging. They would need to set strict quality control of standards for these commodities, report honest clean transactions, and adjust prices to supply and demand.

The internet’s vibes after the speech:

• Prabowo wages war on Indonesia’s conglomerates
• Communist

I agree with one of them. Yes, this will most likely eat into the profits of some of Indonesia’s most prominent. Prajogo Pangestu, Anthony Salim, Boy Thohir, Sandiaga Uno, Edwin Soeryadjaya just to name a few. They have significant stake in the mining industry and their companies also happen to be heavyweight movers of the IHSG index. But if executed optimally, Indonesia’s tax revenue base can improve marginally, which would open doors for other sources of revenue and growth.

Now the commie callout, relax. If our society was truly an open free market, Chinese companies would dominate the scene and bring in their own workers to displace the local workforce. Sound like a familiar problem? Yeah, in those instances, only then we want the government to intervene to protect local interest, right? The intention behind this move is a noble and worthy one as well, to maximize our potential revenue and protect our national resources. The Chamber of Commerce of China sent a letter to Prabowo recently detailing the increasing difficulties of business dealing in Indonesia. While most of the points do serve as a wake-up call for the government to tighten up its investment attractiveness, one point stood out to me. The group disapproves of the proposed minerals tariff set up by Bahlil, the Minister of Energy and Minerals Resources. The proposed tariff stood for about two days before it got pulled for review. I believe the formation of DSI is the result of that tariff internal review. When you’ve got the big boys rattled, that’s when you know you’re on the right track. I believe the letter was a well-timed request when the Indonesian equity market is in panic mode. You tend to make coerced decisions under duress. I’m glad the Indonesian government doubled down instead, and chose to do right by its future.

Whatever short-term pain lies ahead, can and will be overshadowed by any future promising report showing growth in Indonesia’s GDP or tax revenue. I’ve learned over time in politics that: giving is easy, but taking back is almost impossible. The moment a benefit, a concession/tax break, or a standard of living is established, it stops being a gift and starts being a right. So once we start receiving tax revenue from this system, that surplus money will be the norm. That is why it’s important we get the ball rolling with this governing body. DSI is set to begin operation in June, fully operating by September. The government projects a 6.5% economic growth for 2027. The projection for this year falls between 4.9% — 5.7%. That reveals that the government projects several hundred billion USD in extra revenue as part of that ~1% growth YoY.

Also important to note, they’ve selected Luke Thomas Mahony, an Australian and former director of PT. Vale Indonesia. Vale Indonesia is a nickel mining company part of MIND ID, the BUMN for minerals and coal mining. I pointed out his nationality because it’s uncommon to have a foreigner lead a state owned business. Also interesting that they did not pick anyone from the private sector of companies owned by one of the conglomerates mentioned above.

Originally published at https://danieljeremy.substack.com.