JAKARTA, INDONESIA— A clear national strategy, long-term foreign investment, and infrastructure development are key for Indonesia to reach its full economic potential, according to a report released today by the U.S. Chamber of Commerce and the American Chamber of Commerce (AmCham) in Indonesia at the annual U.S.-Indonesia Investment Summit. Co-hosted by the two organizations, the Summit brings together U.S. private sector leaders and the Indonesian cabinet for discussions on the current business climate in Indonesia.
The report, entitled “The Big Picture: Indonesia's Partnership with U.S. Investors,” was prepared by the U.S. Chamber and AmCham Indonesia and is based on extensive interviews with Indonesian cabinet ministers, senior officials, and U.S. and Indonesian business leaders. It examines Indonesia’s economic development goals, assesses the various policies in place or under consideration to support those goals, and considers the challenges standing in the way of their realization.
“There is no question about Indonesia’s tremendous economic potential, but without a supportive policy environment, that potential will remain out of reach,” said Brian Arnold, president of AmCham Indonesia. “While the government says it wants a more liberalized economy, the fact is that it continues to issue regulations restricting the involvement of foreign investors in Indonesia.”
The report notes that the Indonesian government has set a goal of becoming one of the world’s largest economies within 20 years. To get there, it is focused heavily on re-industrialization in an effort to reduce dependence on commodities, backed by a massive infrastructure program, which spans everything from roads and ports to power plants and a national broadband network. Over the past two years, the government also has issued 16 economic policy reform packages aimed at improving the business environment, including the removal of 35 sectors from the Negative Investment List.
“Many companies consistently say that new investment plans for Indonesia are held back or delayed by uncertainty in the regulatory environment and worries over compliance issues,” said John Goyer, U.S. Chamber of Commerce senior director for Southeast Asia. “These delays come at the cost of slower economic growth in Indonesia. Offering a consistent, predictable business environment encourages new business investment and ultimately helps grow Indonesia’s economy.”
The report states that systematic reforms are needed in order for Indonesia to realize its full economic potential and for it to attract the foreign investment required to help bridge the gap between a current average growth rate of 5 percent annually and 6-7 percent:
- Redeveloping a comprehensive policy approach supported by a clear roadmap. Each government regulation issued should be in line with the roadmap, which would help create the regulatory consistency and certainty that both foreign and local investors want.
- Ensuring this comprehensive approach and roadmap are based on the country’s competitive advantages. While Indonesia’s large population and rich natural resources give it a major edge, it has to be strategic in order to compete with countries that have more skilled labor, better infrastructure, and well-developed industries in certain sectors.
- Developing regulations transparently based on reliable data, sound science, and a transparent regulatory process with mandatory public consultation and stakeholder engagement. President Widodo himself has stated that rules, regulations, and policies should be made through a transparent process – a standard practice among governments in advanced economies throughout the world. This needs to be put in practice in Indonesia.
- Boosting competiveness by investing and regulating for the long term. One consequence of political cycles is the lack of clear planning for the long term. But investing in areas like education reform to develop the graduates needed for the kind of economy Indonesia will have in 20 years’ time is necessary for Indonesia to become – and remain – competitive over the long term, even though such investments don’t generate visible returns in the short term.