INDONESIA'S STIMULUS PACKAGE - LITTLE FOCUS ON

UNCLAS JAKARTA 000556

SENSITIVE
SIPDIS

FOR EAP/MTS, OES/EGC FOR B.DEROSA-JOYNT AND E.FENDLEY, EEB
DOE FOR PI-32 CUTLER

E.O. 12958: N/A
TAGS: EFIN ENRG SENV ID
SUBJECT: INDONESIA'S STIMULUS PACKAGE - LITTLE FOCUS ON
GREEN INVESTMENT

REF: SECSTATE 26022


1. (SBU) Indonesia's fiscal stimulus has little focus on
green investment. The package, equal to IDR 73.3 trillion
(about USD 6.3 billion at current exchange rate of IDR
11,500/USD) or about 1.4 percent of GDP, relies primarily on
tax measures with approximately IDR 17.1 trillion in new
spending. Most of the new spending (IDR 12.2 trillion) is
focused on infrastructure (roads, bridges, rails, ports,
flood control, irrigation, energy and housing).


2. (U) Implementation of the fiscal stimulus package,
approved by the legislature on February 24, is just
beginning. While some ministry-level implementation details
have not yet been finalized, Finance Ministry briefing
materials on the stimulus package identify the following
"green" measures:

- VAT subsidies for biofuels (IDR 200 billion) aimed at
ensuring availability of biofuels at lower prices competitive
with non-renewable oil-based fossil fuels. The subsidy is
aimed at supporting future increases in biofuel production
and reducing dependence on fossil fuels;

- income tax relief (IDR 800 billion) for geothermal
production; and

- extension of a VAT incentive for geothermal energy to
promote power generation from geothermal sources (unspecified
portion of wider VAT subsidy).


3. (U) The package also contained the following measures:

- subsidies for automotive diesel (IDR 2.8 trillion);

- reduced peak electricity tariffs for industrial users (IDR
1.3 trillion); and

- power plant and transmission line construction (IDR 425
billion).

HUME