American Indonesian Chamber of Commerce


New Beginnings

It’s the end of August, people are preparing to return to the grindstone after holidays and new beginnings are in the offing. After months of back and forth, Indonesia and Freeport announced a new way forward that –at least for the moment—appears satisfactory; it’s an agreement to move ahead towards an agreement without either side holding the other side hostage. Our friends at Indonesia’s economic ministries have also been busy with some new policies. President Joko “Jokowi” Widodo issued a new regulation on Thursday to simplify and integrate business licensing processes. The regulation’s goal is to create by March an integrated application system for investors and make them able to obtain all licenses required at one place. The system would slash the time it takes to process investment applications, which can take from one day to up to five years, depending on the industry. Jokowi tried this in 2015, some changes were made, this time it looks like they are going much deeper to re-orient. But as often happens, a top down decree can get muddled by a confused, lethargic, or rent-seeking bureaucracy. Lets hope attention is paid to this “inhibiting factor”.

Together with our colleagues at the US-ASEAN Business Council, we had a fruitful one hour session with Finance Minister Sri Mulyani on August 4 when she was in town discussing bonds with institutional investors. She presented her “new beginnings” and discussed policy with a small group of companies from both organizations. Highlights:

• The bondholders she had met with the day before liked her budget. Its based on $45-50 oil and 5.1% GDP. Spending priorities are capital projects and a land bank fund (for infrastructure). Other priorities are 2018 ASEAN games and the 2018 World Bank/IMF meetings to be hosted in Bali.
• A new election law mandates simultaneous elections of Parliament and the President/VP for the first time. How the 20% threshold (votes in Parliament) nominating rule will be implemented given the concurrent elections remains to be seen. More than 140 local governments will have elections next year.
• Now is the “quiet” time, best for reform. A new package focused on logistics and non tariff barriers will be released soon. 47% of goods are subject to NTB’s but this will be reduced to 17-19%.
• A new accountability law requires Indonesia’s budget to have an unqualified opinion from state auditors for the first time.

US companies expressed concerns over raw nickel exports, foreign equity caps in insurance and payment processing, data localization, and e-commerce foreign takeovers. Nickel differs from other metals, and allowing raw exports again has led to steep price declines, loss of government revenue and investment

Sri Mulyani was genuinely receptive to US investor concerns and promised to study them but also implored American companies to understand the “new Indonesia” represented by President Jokowi, who is “serious about addressing inequality especially in eastern Indonesia.” In her opinion, Indonesia’s dilemma is that “we are a big country and we want to do things ourselves, however, at the same time we also know that is not always possible”.

(These comments are solely the author’s and do not necessarily reflect the American Indonesian Chamber of Commerce or its members)