Indonesia launches ‘big bang’ liberalisation

February 12, 2016

Indonesia launches ‘big bang’ liberalisation

by Avantika Chilkoti in Jakarta

Indonesia has announced plans to liberalise rules on foreign investment in a number of industries, as President Joko Widodo strives to jump-start growth and draw investors to Southeast Asia’s largest economy.

Facing criticism over creeping protectionism and regulatory flip-flops, the government has announced a big overhaul of the so-called “negative investment list” — a highly sensitive catalogue of sectors in which foreign investment is limited.

A total of 35 industries were removed from the list on Thursday, including film, tourism and restaurants, in what economists are referring to as a “big bang” move that could drive efficiency and competitiveness in local industry.

“This policy is not about liberalisation, it is to encourage economic modernisation,” Pramono Anung, cabinet secretary, told reporters.

 In certain sectors foreign groups will still be unable to wholly own businesses but they will be able to invest alongside local partners. Investments in the e-commerce industry above Rp100bn ($7.3m) will also be free from restrictions, in a move that has been closely watched in recent months as Jakarta’s start-up scene has blossomed.

“The extent of creative destruction created by e-commerce is unprecedented,” Sofyan Djalil, Minister for National Development Planning, told the Financial Times in an interview last month. “On one hand we have to protect family shops but on the other hand we have to enter this new reality — I think smart policymakers have to find a mixed policy.”

The announcement is the latest in a series of reform packages from Jakarta since September, including changes to the national minimum wage and new streamlined licensing processes for large infrastructure projects.

“It’s definitely a step-up compared to the policy packages you saw before — these were relatively small-scale,” said Euben Paracuelles, an analyst at Nomura. “From the signalling standpoint I think this could cement what has been changing slowly from protectionist sentiment to a little more market friendly [sentiment].”

 Elected on a promise of reviving growth and pushing through pro-business reforms, President Widodo has so far developed a reputation for inward-looking policy and growing protectionism. Last year, for example, foreign businesses expressed alarm over suggestions that expatriate workers would be required to pass a language test to work in Indonesia, while import duties were raised sharply on a range of consumer goods.

Yet the president is now looking to foreign investment to boost growth as commodity prices remain weak and economic growth in the resource-rich market slowed to a six-year low in 2015.

Since shaking up his cabinet in August, in particular, Mr Widodo has launched a big reform push. Trade minister Thomas Lembong has led a marked pivot in economic policy. Following his appointment in August, the Harvard-educated former private equity executive has moved away from protectionist rhetoric and Indonesia has expressed interest in joining the Trans- Pacific Partnership.

 Foreign direct investment was up 19 per cent year on year in 2015 to Rp365.9tn ($27.3bn), according to official data, with a spike in the last quarter when sentiment improved markedly.

This week’s announcement comes amid rising concern for foreign investors in the country, which has a population of 250m and is an important market for many multinational groups.

 In the past week Swedish furniture group Ikea lost a legal battle against a small local furniture business claiming the Ikea trademark. Harley-Davidson, meanwhile, has pulled out of the country following the introduction of new import tariffs and luxury goods taxes that have squeezed business.

 Additional reporting by Taufan Hidayat in Jakarta



3 thoughts on “Indonesia launches ‘big bang’ liberalisation

  1. And it is going to end in a whimper. Owning a majority stake was in force many years ago. Yet when DBS acquired more than 50% of an Indon bank, it was forced to divest. Malaysia does not have a monopoly on flip-flopping policies.

  2. DPM has defended the Government’s decision to bring in over 1.5 million Bangladeshi workers as, the Government was merely fulfilling the demands of the industry and business groups.

    The above justifications appears to be in conflict with his remark that hiring local workers is still the main priority and that the Government maintains that its priority is towards local workers.

    Any person will ask how the bringing in of 1.5m more Bangladeshis or any other immigrant will achieve the objective of his statement that
    “We need to reduce our reliance on foreign workers”.

    This time the imports are reported to include women. No mention is made which industry or business group made this ‘demand’ and whose needs these women will be satisfying. Could it be that the men are coming because the locals are unable to satisfy the local women and now the local women are not satisfying the ‘demands’ of the local men.

    The number coming may be double or more if they come with families and the strain on local health-education-accommodation services which are already stretched, may even collapse.

    Further currently billions in forex are being sent to the home countries of the foreign workers and with the new arrivals the country may probably achieve by 2020 the ‘undeveloped’ vision instead of achieving the ‘developed’ status as is the slogan of the political leaders in power.

    Now even Indonesia appears to be on the way to become a better managed nation. Other ASEAN countries have been advancing and there is a possibility of even Myanmar becoming ahead.

    With all this our PM is on his way to US and may be other countries for a seven days ‘working’ trip!!!!

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