Economic Packages Indonesia: Key to Success Lies in Regions
Infrastructure development and deregulation are the two main recipes used by the Indonesian government - under the leadership of Joko Widodo - to attract investment. By making it easier and cheaper to obtain permits and by providing better infrastructure (implying investors need to invest less in additional infrastructure facilities while logistic costs ease) Indonesia's investment climate improves. As such, the ease of doing business in Indonesia will improve accordingly. However, good coordination and cooperation between the central and regional governments is required.
Cooperation and coordination between the central and regional governments of Indonesia remains a troublesome issue in the era of decentralization in the Post-Suharto period. Obviously the implementation of uniform policies across this huge archipelago is an extremely difficult undertaking, especially because there exist a multitude of social and cultural differences between the regions. However, it is also caused by the low quality of human resources, especially at the regional level. This adds to the low awareness of regional leaders to cooperate and coordinate policies with the central authorities.
Therefore President Widodo emphasized the importance of good coordination between central and regional authorities when speaking at the Apkasi Investment Trade International Summit (AITIS) on Saturday (07/05). Widodo said it is key for overall economic growth of Southeast Asia's largest economy that the regions fully implement the content of the 12 economic policy packages that have been unveiled by the Indonesian government since September 2015. These packages deal with several matters ranging from tax incentives and deregulation to lower energy tariffs for industries and the opening up of sectors to foreign direct investment. These packages will have no effect at all if the regional authorities will not adjust their existing local regulations to the new policy changes.
Also Indonesia's Chamber of Commerce and Industry (Kadin) emphasized that local leaders should not implement new regulations that hinder investment in the regions. According to Kadin there are several regional governments that have issued new regulations that have actually undermined the policies of the recent economic policy packages. There seems to exist a notion among local authorities (or a mindset) that local revenue will decline if they adjust their local regulations to the (new) central policies, or, that the local authorities will benefit less from the new central policies compared to the central authorities.
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 |