With a Dozen Economic Reform Packages under His Belt, Indonesia’s Jokowi Settles In
May 26, 2016
Last September, almost a year after taking office, President Joko “Jokowi” Widodo released his first installment of policy packages intended to stimulate the Indonesian economy. Focused on improving industrial competitiveness through reducing red tape, the reform package removed 89 business investment regulations and eased the acquisition of licenses, land, and bank accounts.
He has released 11 additional packages—one or more each month—since then, the last of which was announced on April 28. Another is expected soon, with word that his ministers are reviewing a draft that focuses on sector-specific changes. The packages emphasize deregulation, tax incentives, elimination of redundancies, predictability, and harmonization (customs at ports, land use, and currency for payments).
In short, Jokowi is trying, step-by-step, to live up to his pledge of making it easier to do business in Indonesia. The World Bank ranks Indonesia 109th for ease of doing business, behind regional neighbors such as Singapore (1st), Malaysia (18th), Thailand (49th), Vietnam (90th), and the Philippines (103rd). Jokowi wanted that number to be in the 40s by the end of his term, but suggested he could live with improvement to the 60s or 70s in the coming years.
The reforms reflect Jokowi’s mindset: they are practical and focused on concrete steps. But while the spirit of the reforms is in line with accepted practices for improving ease of doing business, implementation of such an ambitious program in a country focused on decentralization and empowerment of local officials is a fair test for Jokowi’s prowess as a politician and president. The 13th package, in fact, is expected to address procedures at the regional level.
Jokowi has pledged to eliminate 3,000 regional government regulations by July (he has identified 42,000 regulations in need of elimination or change at the central government level), arguing they hamper the setting up and operation of businesses. Coordinating Minister for Economic Affairs Darmin Nasution reported 94.5 percent of the policy packages have already been implemented. Releasing data to support this claim would be welcomed by Indonesia’s economic partners.
In a May 19 opinion article in Kompas questioning the effectiveness of Jokowi’s economic reform packages, Indonesian economist and former chairman of the State Audit Agency Anwar Nasution noted that the Central Bureau of Statistics reported slowed economic growth and stagnant achievements in investment and exports in the first quarter of the year. Indeed, Indonesia’s economy grew less than expected in the first quarter at 4.92 percent, down from analysts’ expectation of 5.07 percent.
But should we expect the results of reforms begun last September to be evident in first-quarter numbers for 2016? Or is the improvement of the investment environment a process that takes more time to bear fruit?
Often described as “a gold mine in a minefield” by foreign investors, Indonesia is a country with enormous potential but one that is also an extremely difficult place for foreign companies to operate. Surely it will take longer than a handful of months to change that reality and perception, even if the best laws are on the books. The expectation of instantaneous results has been an unwelcome and frequent feature of Jokowi’s presidency; many public evaluations of his performance thus far have been dismissive of the time required for real change at the national level.
When he assumed office in October 2014, Jokowi faced high expectations deriving from his unprecedented story. A former furniture dealer who became mayor of Surakarta (Solo) and then governor of Jakarta, Jokowi defeated Prabowo Subianto—scion of the establishment—to become the first Indonesian president elected from outside the political or military elite. His election was seen as a rebuke of the old ways, including endemic corruption, giving Jokowi an opportunity for clean governance and a fresh start.
But soon enough, the chatter began that the president was in over his head. He nominated too many political appointees versus technocrats, he stumbled by sticking with graft suspect Budi Gunawan for chief of the national police, and he equivocated when the same police went after the Corruption Eradication Commission in response. He wasn’t even the most influential member of his own political party; that would be Megawati Sukarnoputri, a former president herself.
As Jokowi moves through the second year of his presidency, he seems to have regained his footing, and recent events have strengthened his position. At the Golkar party’s congress in Bali in mid-May, newly elected chairman Setya Novanto formally announced his party would leave the opposition Red and White Coalition, helmed by Prabowo, to support Jokowi’s coalition. The addition of Golkar, Indonesia’s second-largest political party, gives the president’s coalition control of 62 percent of Parliament, representing a shift in the balance of power that should allow Jokowi to push through more of his agenda.
Plans to reform Indonesia’s negative investment list—the regulation listing sectors closed off to foreign investment—were announced in February. The revamped list, signed and made public in late May, shows sectors including toll roads, waste management, restaurants, and cinemas will be 100 percent open for foreign ownership. Meanwhile, investments in e-commerce under $7 million will be subject to a 49 percent foreign ownership cap. The clarity the list provides and the expected increased openness should help. Jokowi has also made more efforts to consult the business community during the law-making process than his predecessors did.
A second cabinet reshuffle, too, could solidify Jokowi’s economic reforms—rumors have circulated in Jakarta for months that such a move is imminent. The first such reshuffle took place last August, introduced numerous reform-oriented technocrats, and preceded the release of the first economic reform package. The recent addition of Golkar to the president’s coalition may hasten the reshuffle, with increased pressure to bring new members of the coalition into the cabinet. There is some risk—will reform-minded ministers who are looking to move beyond a commodity-based economy remain in place and be given the time and space to complete their mission? Or will political pressure and entrenched interests win out? Let’s hope Jokowi will give his ministers the same space he should be afforded to execute his reform agenda.
(This Commentary originally appeared in the May 26, 2016, issue of Southeast Asia from Scott Circle .)
Shannon Hayden is associate director of the CSIS Southeast Asia Program at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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