President Joko Widodo Unveils Indonesia’s 1st Economic Policy Package
On Wednesday afternoon, Indonesian President Joko Widodo unveiled some details of the new economic policy package, involving major deregulation measures, that had been announced last week by Chief Economics Minister Darmin Nasution. This package aims - on the medium to long term - to boost Indonesia’s sluggish economy.
The package that was unveiled today, and is to be implemented in October 2015, is the first of a total of three deregulation programs. This first package involves various matters. President Widodo said the government, in cooperation with other institutions (central bank and the Financial Services Authority), will increase efforts to safeguard the country's fiscal and monetary stability, which also includes controlled inflation (currently inflation in Indonesia is still high at 7.18 percent y/y in August).
President Widodo announced that 89 regulations are to be revised as they are considered to burden the country’s business environment. In order to smoothen the ease of doing business in Indonesia the government will also simplify the process for companies to obtain business permits, cut red tape, curtail overlapping regulations, enhance the use of electronic-based services in an attempt to reduce (potential) misconduct by government officials, and enhance law enforcement as well as business certainty.
In order to protect the people from the weakening economy (weakening purchasing power) the government will empower the micro, small and mid-sized businesses through subsidized loans with low interest rates of 12 percent only (from 22-23 percent currently).
The government will also accelerate and increase the flow of central government funds to the local governments across the country. These funds are specifically for infrastructure development in the regions. Local government will become important powers to speed up realization of strategic projects of national interest. This includes the simplifying of the process for obtaining spatial planning permits, land acquisition and goods procurement, as well as providing stronger legal certainty.
Lastly, Widodo said investment in the property sector needs to be encouraged, including friendly policies for low-income communities. Indonesia is currently plagued by a backlog of 15 million property units.
Whether investors will appreciate this package is unknown as there are still many more details to be studied. Moreover, the government of Indonesia has a track record of failing to accomplish successful implementation of its ambitious programs. Therefore, investors may not yet be overly enthusiastic. For example, President Widodo pledged to boost (much-needed) infrastructure development in Indonesia, Southeast Asia’s largest economy. For that purpose the government allocated IDR 290.3 trillion (approx. USD $21 billion) for infrastructure development, equivalent to 20 percent of the country’s total revised 2015 State Budget (IDR 1.98 quadrillion). However, plagued by red tape, land acquisition troubles, political party struggles, procurement bottlenecks, poor planning, and weak cooperation between government institutions the government only managed to spend 11 percent of the total allocated funds (IDR 290.3 trillion) in the first seven months of 2015. A remarkable poor performance and leading to weak investor sentiment.
During the announcement at the State Palace in Jakarta Widodo was joined by Central Bank Governor Agus Martowardojo, Chairman of the Financial Services Authority (OJK) Muliaman D. Hadad, Chief Economics Minister Darmin Nasution, Finance Minister Bambang Brodjonegoro, Trade Minister Thomas Lembong, Energy Minister Sudirman Said, and Agriculture Minister Amran Sulaiman.