Interview with Indonesia's Vice President Jusuf Kalla

Question: On 20 October 2016 it will be exactly two years that the cabinet of Joko Widodo has been in office. How about your evaluation of these first two years?

Jusuf Kalla: Regarding accomplishments so far, we can look at gross domestic product growth and compare it to other nations in Asia. Indonesia is now growing around 5 percent year-on-year (y/y) which puts us in the middle group; below growth rates of China, India, Vietnam and the Philippines, but above the other Asian nations. This is a very broad way of looking at our accomplishments. It implies that we are not doing bad but there remains much room for improvement.

Personally, I hope agricultural production will improve this year, particularly now food prices have become stable.

Investment in Indonesia is still rather disappointing but the government now understands the issues that are blocking direct investments and is trying to tackle these issues. For example, the process to obtain permits in Jakarta has been shortened by cutting red tape. However, in the regions there remain many bureaucratic hurdles. Meanwhile, logistics and energy prices remain problematic.

Question: On 11 January 2017 the ban on exports of mineral ore will come into effect even though smelting capacity in Indonesia remains insufficient. Will the government relax this ban, for example by postponing the deadline by several years?

Jusuf Kalla: The relaxation of the ban is currently being discussed. Earlier, Minister Luhut Pandjaitan publicly talked about a possible relaxation of the ban. However, such relaxation cannot be done instantly; laws need to be revised. For now, the government sticks with Law No. 4/2009 on Mineral and Coal Mining (New Mining Law) that includes the ban on mineral ore exports.

Question: But the deadline is already on 11 January 2017. What happens after this date?

Jusuf Kalla: We have already discussed several options but there exists a major dilemma: the case of Freeport Indonesia. The contract of Freeport Indonesia to operate the Grasberg mine in Papua expires in 2021. However, Indonesian law stipulates the miner and government can start negotiations and talks about extending the contract only two years prior to expiration of the contract, which is 2019. Obviously, the miner is hesitant to invest in costly smelting facilities (as demanded by the New Mining Law) before it has certainty that the contract will be extended after 2021.

So, if we start negotiating now about extending Freeport's contract then we breach Indonesian law. But if we do not provide certainty to the miner then they will not invest. And worse, they will not be able to export their output, implying the central government misses out on much-needed tax revenue (Freeport Indonesia is reportedly the largest tax payer to the Indonesian government). This will also cause a major increase in unemployment in Papua, where thousands of local people work for Freeport. So, what should we choose? We are trying to answer this question.

Question: What would you choose?

Jusuf Kalla: It could be a good decision to postpone the deadline for the ban on exports of mineral ore by five years (by revising the presidential regulation). This will give miners time to build smelting facilities, while by 2019 negotiations with Freeport Indonesia can start. We cannot let Freeport Indonesia shut down operations due to the export ban. It would be ridiculous: we are giving speeches around the world to invite investors to invest Indonesia but an existing investor will need to cease operations. The big projects, including Freeport Indonesia, need to continue as they are very valuable for the Indonesian economy. Moreover, foreign investment is all about confidence.

Question: What is the government's opinion about the development of Indonesia's downstream sector?

Jusuf Kalla: The government's opinion is the same as the opinion of the House of Representatives (DPR) or existing laws: the development of downstream industries is necessary.

Question: Entrepreneurs are concerned about declining imports of capital goods and raw materials. What do you think about this?

Jusuf Kalla: The drop in imports of capital goods and raw materials can actually point at two possibilities: (1) domestic production is already solid and therefore does not require imports anymore, or (2) the market has stagnated due to weak consumption and investment. But looking at the weakness of the domestic manufacturing industry, economic growth of Indonesia will most likely not exceed 5 percent (y/y) in 2016.

Question: How is your cooperation with Indonesian President Joko Widodo?

Jusuf Kalla: Many people ask me that question. All I can say is that all decisions that the government takes are the result of meetings, except when it involves the appointing of new ministers.

Question: Last week Widodo appointed Ignasius Jonan (former Transportation Minister) as Indonesia's new Energy and Mineral Resources Minister. What is your opinion about his appointment?

Jusuf Kalla: He entered a new field and therefore will have to learn a lot. However, he is firm and has a strong character.

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