Indonesia, Malaysia to visit Brussels over concern about EU
 deforestation law 

  The world's two biggest palm oil producers Indonesia and Malaysia will send top officials to the
  European Union next week to voice concern over a new deforestation law they believe could be
  detrimental to small farming businesses. 

  Indonesia and Malaysia accounts for about 85% of global palm oil exports and the EU is their
  third-largest market. 

  The European Parliament approved a landmark deforestation law last month to ban imports into
  the EU of coffee, beef, soy and other commodities unless companies could provide "verifiable"
  information the products were not grown on land that was deforested after 2020. 

  Those in violation would face hefty fines. 

  Indonesia and Malaysia both confirmed the visit to Brussels would take place on May 30 and May
  31. 

  Both have accused the EU of discriminatory policies targeting palm oil and Malaysia had
  previously said it could stop exporting it to the EU over the deforestation law. 

  The regulation has been welcomed by environmentalists as an important step to protect forests,
  with deforestation responsible for about 10% of global greenhouse gas emissions. 

  Indonesia's Coordinating Minister for Economic Affairs Airlangga Hartarto said the law would
  burden smallholders with onerous administrative procedures. 

  "The law could exclude the important role of smallholders in the global supply chain and fail to
  recognize their significance and rights," Airlangga said in a statement. 

  Airlangga will make the Brussels trip with Malaysia's Commodities Minister Fadillah Yusof. The
  mission will seek to discuss ways of minimizing negative impacts of the law, especially on
  smallholders, the statement said. 

  EU diplomats have denied the bloc is seeking to ban imports of palm oil and said the law applies
  equally to commodities produced anywhere. 

  Source: Reuters

  Indonesia relaxes June exports ban for five raw minerals

 
  Indonesia will continue shipping some raw minerals for the next year despite a looming export
  ban, its mining minister told parliament on Wednesday, as companies rush to finish smelters to
  process the metal ore domestically. 

  The resource-rich country had planned to ban exports of all metal ore starting in June to
  encourage investment in the domestic processing industry. 

  But copper, iron ore, lead, zinc and anode mud from copper concentrates will be allowed to leave
  the country until May next year so that local smelters, the development of many of which was
  delayed by the pandemic, would be ready to handle the materials, said Energy and Mineral
  Resources Minister Arifin Tasrif. 

  He said banning exports prematurely would cost the country revenue and jobs. 

  Companies can keep exporting if they pay export duties and if their smelters were at least half-
  completed as of January. But they will be fined for every month of delay, Arifin said. 

  Jakarta has said it would exempt copper miners Freeport Indonesia and Amman Mineral Nusa
  Tenggara from the ban as their smelter development had been disrupted by the pandemic. 

  However, bauxite shipments will be stopped in June, Arifin said, since four existing smelters can
  absorb ores intended for export. 

  "By optimizing the processing at these four smelters there would still be an additional export
  value of $1.9 billion ... so the government would still get a net benefit," he said. 

  But Ronald Sulistianto, chairman of Indonesian Bauxite and Iron Ore Companies Association,
  said there are only two operating bauxite plants in the country. 

  "We produce 30 million tonnes, where would this output go? If this cannot be absorbed, many
  [workers] would lose their jobs," he said. Each smelter producing alumina from bauxite has
  capacity to handle about 6 million tonnes of ore. 

  Arifin also noted that out of eight bauxite processing plants currently being built, seven were found
  to be "just open fields" despite companies saying they were up to 66% complete. 

  Ronald said these projects had seen little progress due to difficulty in securing financing, including
  from state-controlled banks that still see them as risky. 

  Indonesia in 2020 banned exports of nickel ore, rattling global markets. But the policy resulted in
  massive inflows of smelter investment and helped boost the value of exports from Southeast
  Asia's largest economy. 

  Source: Nikkei 

  BI focused on 'stability' as US debt worries roil markets

  Bank Indonesia (BI) is bracing for the economic fallout of unresolved debt ceiling negotiations in
  the United States with measures aimed at keeping the rupiah stable while waiting to see whether
  a deal might result in US budget cuts.  

  Following its monthly monetary policy meeting on Thursday, BI Governor Perry Warjiyo elaborated
  that the move involved two toolsets, known as triple intervention and a twist operation.  

  “The focus is on strengthening rupiah exchange rate stabilization, so that low imported inflation
  remains low and the creeping effect of financial market uncertainty can be mitigated,” Perry said in
  a press conference.  

  Triple intervention consists of tools to influence the spot market, the domestic nondeliverable
  forward market and the bond market, all intended to keep the rupiah trading around a desired
  level against other currencies.  

  A twist operation, on the other hand, is a stabilization measure through selling short term bonds,
  of which BI holds some Rp 1.4 quadrillion (US$94 billion), to lift the yield of short-term bonds
  without pulling the gains on long-term bonds upward, thus attracting inflows and strengthening
  the rupiah.  

  The negotiation between the governing Democrats and the Republican-led House of
  Representatives in the US has been stalled for weeks, but it still widely expected to be concluded
  by early or mid-June. The longer the talks drag on, the more uncertainty they cause for markets. 

  “In a nutshell, the whole world is experiencing the impact of this debt ceiling negotiation. […] The
  dollar exchange rate strengthens while every other currency is under pressure,” said Perry.  

  Regardless, BI has kept its key interest rates unchanged for four months in a row as it expects the
  two sides in the US to find a middle ground eventually.  

  BI’s benchmark seven-day reverse repo rate remains at 5.75 percent following Thursday’s
  meeting, the level it reached in January after being raised by a cumulative 225 basis points (bps)
  beginning in August last year.  

  Perry explained that the central bank was paying close attention to the negotiations in the US. He
  said that should the US lift its debt ceiling, it would result in higher debt and higher treasury yields,
  which would in turn affect monetary policy considerations of the US Federal Reserve.  

  “Because if the ceiling is higher, expenditure, growth and inflation will be higher as well,” said
  Perry, before detailing that some were expecting a lifting of the ceiling to be followed by budget
  cuts.  

  BI was watching out for that scenario, under which the amount of debt would be lower, while the
  treasury yield would not rise as much, “possibly bringing down the [US benchmark] federal funds
  rate” from the current range of 5 to 5.25 percent.  

  “We believe that the federal funds rate has reached its peak. The possibility of it going up in June
  is not high. It will remain,” said Perry, explaining that it was most likely to remain high longer as
  US inflation had been coming down slowly.  

  Publicly listed Bank Permata chief economist Josua Pardede considered BI’s measures sufficient
  to mitigate the economic risk surrounding the US debt ceiling talks. He also told The Jakarta Post
  on Thursday that there was no need to change interest rates in response to the debt ceiling
  predicament for now, given the strong standing of the rupiah. 

  “So far, we are seeing that the rupiah year-to-date is still strong, especially when compared to
  other currencies,” said Josua, adding, “Yes, it is true that the rupiah experienced a month-to-date
  contraction, but it’s not that steep”.  

  Josua attributed the currency’s stability to Indonesia’s economic fundamentals, which had been
  posting positive on the metrics that mattered, such as inflation, trade and S&P Global’s purchasing
  managers’ index (PMI).  

  He noted that whether the Democrats or Republicans came out as winners in the debt ceiling tug
  of war did not affect Indonesia much, as what really mattered for the archipelago was for the talks
  to conclude as soon as possible, putting an end to the uncertainty caused.  

  Irman Faiz, macroeconomic analyst at public lender Bank Danamon, said global uncertainty
  remained high due to rather sticky US inflation and the debt ceiling issue.  

  “Our calculations show that BI still has space to maneuver should these risks materialize. Such a
  decision will depend heavily on the development of domestic inflation as well as pressure [on the
  rupiah] caused by the Fed’s policy stance,” he said. 

  Ratings agency Fitch on Wednesday put the the US' credit on watch for a possible downgrade,
  raising the stakes as negotiations over the country's debt ceiling went down to the wire.  

  Fitch put the country's "AAA" rating, its highest rank, on a negative watch in a precursor to a
  possible downgrade should lawmakers fail to raise the amount that the Treasury can borrow
  before it runs out of money, the so-called X-date. 

  Source: The Jakarta Post