Jakarta. Government’s decision to eliminate import duties on liquefied petroleum gas (LPG) and plastic raw materials is expected to ease cost pressures across a wide range of industries, from petrochemicals to tofu and tempeh producers. 

Industry groups and economists, however, cautioned that the benefits may be limited by global geopolitical tensions and elevated energy prices.

The measure is part of the government’s Rp 26.34 trillion ($1.5 billion) economic stimulus package for the second half of 2026, which includes food assistance, transportation discounts, tax incentives, industrial subsidies, and employment programs.

For the petrochemical industry, the removal of the current 5% import duty on LPG is particularly significant because LPG can serve as an alternative feedstock to naphtha, whose supply has become increasingly constrained.

Earlier this year, Indonesia’s two largest petrochemical producers, Chandra Asri Petrochemical and Lotte Chemical Indonesia, declared force majeure after struggling to secure sufficient naphtha supplies, disrupting production of plastic packaging materials.

According to the Indonesia Olefin, Aromatic and Plastic Industry Association (Inaplas), all of Indonesia’s naphtha requirements are imported. Roughly half of the country’s plastic raw materials -- including polyethylene, polypropylene, PET, polystyrene, and PVC -- also come from overseas, totaling around 8 million tons annually.

The industry has been hit hard by rising costs linked to the conflict in the Middle East. Between April and June, prices of plastic raw materials surged by as much as 150%, according to the Indonesian Plastics Recycling and Downstream Industry Association (Aphindo).

“The combination of soaring prices and import duties has put enormous pressure on manufacturers,” Aphindo Secretary-General Henry Chevalier told the Jakarta Globe on Thursday. “The industry is waiting for the finance minister’s regulation to implement the zero-duty policy.”

Henry noted that domestic producers currently meet only about 60% of national demand for plastic feedstocks, forcing manufacturers to rely heavily on imports.

The impact extends beyond petrochemicals. Higher plastic packaging costs have also affected food producers, including tofu and tempeh makers, who have faced rising operating expenses despite soybean imports already enjoying minimal tariffs.

To help offset those pressures, the government has allocated Rp 500 billion ($28 million) to subsidize soybean purchases for tofu and tempeh producers.

Even so, the Indonesian Tofu and Tempeh Cooperatives Association (Gakoptindo) remains cautious about the effectiveness of the measures.

“I doubt the incentives will be an instant cure,” said Gakoptindo Secretary-General Wibowo Nurcahyo. “The aftereffects of the recent geopolitical turmoil could linger for some time. But if the government fully implements the policies and prices normalize, we would certainly welcome it.”

According to Gakoptindo estimates, rising fuel prices, packaging costs, and transportation expenses increased operational costs by about 24% in the first half of 2026. The cost of a 50-kilogram bundle of plastic packaging rose to around Rp 2.75 million ($153) in June from Rp 1.75 million ($97) in January.

The Indonesian Bottled Water Producers Association (Amdatara) also welcomed the duty waiver.

“It is a positive step that can help stabilize production costs, maintain competitiveness, and secure supplies for consumers,” Chairman Karyanto Wibowo said. “However, its effectiveness will depend on consistent implementation throughout the supply chain.”

Economists believe the broader stimulus package will provide only modest support to growth. Faisal Rachman, chief economist at Bank Permata, said the measures are primarily designed to preserve purchasing power and prevent an economic slowdown rather than generate a significant investment-driven expansion.

“At around 0.15% to 0.2% of GDP, the package is relatively small,” Faisal said. “We estimate it could add only 0.05% to 0.15% to GDP growth in 2026, depending on implementation and multiplier effects.”

Bank Permata maintains its 2026 growth forecast of 5.26%.

Other economists argue that reducing import costs offers only short-term relief. Yusuf Rendy Manilet said Indonesia should focus on building a more complete domestic petrochemical supply chain to reduce dependence on imported feedstocks.

“Indonesia has abundant natural gas, palm oil, and mineral resources, but the industrial supply chain remains incomplete,” Yusuf said. “As a result, we continue exporting raw materials while importing higher-value downstream products.”

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