Indonesia’s 16th Economic Policy Package to Focus on Investment

After macroeconomic growth was rather disappointing at 5.01 percent year-on-year (y/y) in the second quarter of 2017, the Indonesian government will soon release a new economic policy package, specifically aimed at boosting investment in Indonesia. However, Indonesia’s business world urge the government to first evaluate the effectiveness of preceding policy packages before implementing a new deregulation package. Moreover, some say it would be better to focus on improving confidence among consumers.

Indonesian Coordinating Minister for Economic Affairs Darmin Nasution said the new economic policy package will involve one big program to encourage and speed up investment. By using one model all problems related to permits and licenses at both the central and regional level can be streamlined, hence curtailing red tape. Nasution added that the government will require at least one more week to design the package. It would be the 16th economic policy package released under the Joko Widodo administration.

The attractiveness of Indonesia’s investment and business climate is undermined by relatively weak coordination and cooperation between the various ministries and/or government agencies, as well as between the central and regional authorities.

For Nasution rising investment is the key to combat bleak household consumption in Indonesia. The pace of household consumption growth fell below the 5 percent (y/y) level in the second quarter of 2017. Considering household consumption accounts for about 55-60 percent of Indonesia’s total GDP, weakening growth of household consumption is felt across the economy. He targets to see investment growth rise at a pace of at least 5.8 percent (y/y).

However, Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), said the government will need to focus on boosting consumer confidence rather than creating a new policy package for investment. Because if the people feel confident, they will spend, hence companies generate more sales and are more willing to invest in business expansion. Sukamdani added that he is pessimistic about Indonesia achieving the GDP growth target of 5.2 percent (y/y) this year.

Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (Gapmmi), advises the government to focus on government spending as this would cause the much-needed multiplier effect and would also cause a rise in household consumption.

Luhut Pandjaitan, Indonesian Coordinating Minister for Maritime Affairs, said Indonesian President Joko Widodo recently urged all ministers to ease complexities and speed up processes for existing development programs. These programs include toll roads, electricity, and port development projects.

Bambang Brodjonegoro, Minister of National Development Planning (Bappenas), said the Indonesian economy needs to grow at a pace of 5.4 percent (y/y) in the second half in order to achieve the target that was set in the state budget. This will be a difficult undertaking but the good news is that investment growth reached beyond 5 percent (y/y) in Q2-2017.

Thomas Lembong, Chairman of Indonesia Investment Coordinating Board (BKPM), told reporters earlier this week that the cabinet is positive about revising the Negative Investment List, implying that more investment opportunities will be opened up to foreign investors.


[Source : Indonesia Investment. August 2017]