Indonesia's 16th Economic Policy Package to Focus on Investment

Indonesian Coordinating Minister for Economic Affairs Darmin Nasution said the new economic policy package will involve one big program to encourage and speed up investment. By using one model all problems related to permits and licenses at both the central and regional level can be streamlined, hence curtailing red tape. Nasution added that the government will require at least one more week to design the package. It would be the 16th economic policy package released under the Joko Widodo administration.

The attractiveness of Indonesia's investment and business climate is undermined by relatively weak coordination and cooperation between the various ministries and/or government agencies, as well as between the central and regional authorities.

For Nasution rising investment is the key to combat bleak household consumption in Indonesia. The pace of household consumption growth fell below the 5 percent (y/y) level in the second quarter of 2017. Considering household consumption accounts for about 55-60 percent of Indonesia's total GDP, weakening growth of household consumption is felt across the economy. He targets to see investment growth rise at a pace of at least 5.8 percent (y/y).

However, Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), said the government will need to focus on boosting consumer confidence rather than creating a new policy package for investment. Because if the people feel confident, they will spend, hence companies generate more sales and are more willing to invest in business expansion. Sukamdani added that he is pessimistic about Indonesia achieving the GDP growth target of 5.2 percent (y/y) this year.

Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (Gapmmi), advises the government to focus on government spending as this would cause the much-needed multiplier effect and would also cause a rise in household consumption.

Luhut Pandjaitan, Indonesian Coordinating Minister for Maritime Affairs, said Indonesian President Joko Widodo recently urged all ministers to ease complexities and speed up processes for existing development programs. These programs include toll roads, electricity, and port development projects.

Bambang Brodjonegoro, Minister of National Development Planning (Bappenas), said the Indonesian economy needs to grow at a pace of 5.4 percent (y/y) in the second half in order to achieve the target that was set in the state budget. This will be a difficult undertaking but the good news is that investment growth reached beyond 5 percent (y/y) in Q2-2017.

Thomas Lembong, Chairman of Indonesia Investment Coordinating Board (BKPM), told reporters earlier this week that the cabinet is positive about revising the Negative Investment List, implying that more investment opportunities will be opened up to foreign investors.

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	15 June 2017	• Improving Indonesia's logistics: - enhance the role of transportation insurance - reduce costs for logistic service providers - strengthen the Indonesia National Single Window (INSW) authority - reduce the number of prohibited and restricted goods

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