Indef Criticizes Indonesia's Economic Policy Packages
The Institute for Development of Economics and Finance (Indef) criticizes the 14 economic policy packages that have been released by the Indonesian government between September 2015 and November 2016. While these packages aim at boosting competitiveness, employment opportunities, purchasing power, investment and overall macroeconomic growth, results have been disappointing so far. Ahmad Heri Firdaus, economist at Indef, says the packages are too "general" and thus fail to focus on the specific environment in a specific sector (and-related sub-sectors).
Another issue is that the government should actively downplay expectations that any of these economic policy packages can make a big difference on the short-term. The reality is that none of these packages had significant positive short-term effects and indeed the packages require time before the impact can be felt. However, due to high expectations and few visible short-term effects, people can thus get the impression that the packages have failed.
Lastly, there exists a problem regarding the implementation of the economic policy packages at the regional governments. While participation and commitment of the regional governments are vital for the success of the packages, cooperation and coordination between the central and regional authorities of Indonesia remains a troublesome issue in the era of decentralization in the Post-Suharto era.
Obviously the implementation of uniform policies across this huge archipelago is an extremely challenging undertaking, especially because there exist a multitude of social and cultural differences between the regions. However, weak coordination and cooperation between center and regions is also caused by the low quality of human resources, especially at the regional level. In some cases the reforms ordered by the center may undermine regional revenue streams and therefore regional leaders are reluctant to impose the packages in full force.
Despite the 14 economic policy packages, overall macroeconomic growth of Indonesia accelerated only slightly to 5.02 percent (y/y) in full-year 2016 (from 4.8 percent y/y in the preceding year).
Read more: Economic Growth Indonesia: GDP at 5.02% in 2016, Not Good, Not Bad
Enny Sri Hartati, economist at Indef, emphasized that government-led infrastructure development will only have a major positive impact on the economy (the so-called multiplier effect) if infrastructure development is indeed in line with the potential of the regional economic context. Her words imply that she believes the government may be too enthusiastically boosting infrastructure development without undertaking a careful study first that can confirm whether an infrastructure project will indeed have a big positive effect on the regional economy.
On the other hand, Hartati added that too much planning and hesitation without proper action would also be problematic. For example, when during the Susilo Bambang Yudhoyono administration the Masterplan for Acceleration and Expansion of Indonesia's Economic Development was unveiled, there was plenty of comprehensive studying and documentation done previously. However, in the end not even 20 percent of the masterplan's targets were realized.
Economic Stimulus Packages of the Indonesian Government:
| Package | Unveiled | Main Points |
| 1st | 9 September 2015 |
• Boost industrial competitiveness through deregulation • Curtail red tape • Enhance law enforcement & business certainty |
| 2nd | 30 September 2015 |
• Interest rate tax cuts for exporters • Speed up investment licensing for investment in industrial estates • Relaxation import taxes on capital goods in industrial estates & aviation |
| 3rd | 7 October 2015 |
• Cut energy tariffs for labor-intensive industries |
| 4th | 15 October 2015 |
• Fixed formula to determine increases in labor wages • Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses |
| 5th | 22 October 2015 |
• Tax incentive for asset revaluation • Scrap double taxation on real estate investment trusts • Deregulation in Islamic banking |
| 6th | 5 November 2015 |
• Tax incentives for investment in special economic zones |
| 7th | 4 December 2015 |
• Waive income tax for workers in the nation's labor-intensive industries • Free leasehold certificates for street vendors operating in 34 state-owned designated areas |
| 8th | 21 December 2015 |
• Scrap income tax for 21 categories of airplane spare parts • Incentives for the development of oil refineries by the private sector • One-map policy to harmonize the utilization of land |
| 9th | 27 January 2016 |
• Single billing system for port services conducted by SOEs • Integrate National Single Window system with 'inaportnet' system • Mandatory use of Indonesian rupiah for payments related to transportation activities • Remove price difference between private commercial and state postal services |
| 10th | 11 February 2016 |
• Removing foreign ownership cap on 35 businesses • Protecting small & medium enterprises as well as cooperatives |
| 11th | 29 March 2016 |
• Lower tax rate on property acquired by local real estate investment trusts • Harmonization of customs checks at ports (to curtail dwell time) • Government subsidizes loans for export-oriented small & medium enterprises • Roadmap for the pharmaceutical industry |
| 12th | 28 April 2016 |
• Enhancing the ease of doing business in Indonesia by cutting procedures, permits and costs |
| 13th | 24 August 2016 |
• Deregulation for residential property projects for low-income families |
| 14th | 10 November 2016 |
• Creating a roadmap for the nation's e-commerce industry: - easing and widening access to funding - offer tax incentives - harmonize regulations and gradually develop a national payment gateway - promote e-commerce awareness campaigns and improve e-commerce education - accelerate the development of high-speed broadband network - improve the e-commerce logistics system |
| 15th | ? |
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