Indonesian President Joko Widodo just wrapped up a visit to the U.S., during which he hoped to drum up business for Southeast Asia’s no. 1 economy, which has slowed in recent years.
Widodo headed to Washington at a time when Indonesia restricts international investment in a number of sectors, and experts said slashing what foreign businesses bill as cumbersome regulations would do much to ramp up investment into the region’s most populated country, not to mention create jobs in Indonesia.
But the big question is: How much red tape will Widodo cut? While there have been some positive signs, it remains unknown how far the president will go.
Key to this would be revising the so-called negative investment list — a list of sectors from which foreign investors are either barred or face restrictions.
In the lead-up to the Washington visit, Widodo’s administration said it would consider allowing foreign investment into the country’s burgeoning e-commerce sector, as long as the overseas players partner with local firms. This comes at a time when online shopping is set to boom in Southeast Asia, and amid a rising tide of optimism that the country’s digital economy could become world class in the next few years. Widodo said the country’s Internet economy will surge to $130 billion in the next five years, from $13 billion today, reported the Wall Street Journal.
“E-commerce would be well received but there’s a lot of other areas that companies would like to see opening up more,” Murray Hiebert, senior fellow at the Center for Strategic and International Studies in Washington, told Borderless News Online.
Opening up manufacturing, for example, would potentially help to get Indonesia into the global supply chain that runs through China, as Indonesia is not part of that supply chain, which includes neighbors such as Thailand, Singapore, Malaysia and increasingly Vietnam, he said.
On a positive note, and in a major development, Widodo this week reversed his standing on the Trans Pacific Partnership (TPP), saying he wanted Indonesia to participate in the agreement, which allows a number of countries better access to the massive U.S. and Japanese markets at a reduced tariff level.
Meanwhile, Hiebert noted that a number of policies stemming from an increased level of economic nationalism over the years have had unintended negative consequences. One example is the policy of limiting beef imports from Australia because Indonesia wants to be self-sufficient. “But they don’t produce enough beef so the price goes through the roof,” he said, adding that consumers are the ones feeling the sting due to such policies.
While many consumers and foreign investors would benefit from more economic openness, experts said Widodo may be hesitant to completely overhaul the regulatory environment on fears of backlash from local companies that may feel threatened by increasing foreign competition.
Hiebert noted that over the last decade or so that Indonesia has become much more economically nationalist in terms of allowing foreign companies to invest, and many local companies want to keep foreigners out.
Moreover, fixing inefficient and disorganized bureaucracies is a tough job in any country, and critics say there is a general lack of coordination between government agencies that is slowing economic growth and investment.
“Every ministry seems to make its own decisions…and they often introduce regulations that cross purposes with each other and create considerable red tape. Just general bureaucratic obstacles that make it very difficult and that don’t really benefit the economy in any way,” Hiebert said.
“If their goal is to help entice foreign investment to help boost the economy, they may have to find ways to address some of these issues,” he said, referring to Widodo’s administration.
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