Indonesian President Joko Widodo departs for the United States for a five-day visit on Sunday, Oct. 25 on a mission to try to change the image of his country from one mired in economic nationalism and corruption to one open for international investment.
In addition to seeing President Barack Obama and other US officials, dining with top US companies at the US Chamber of Commerce and speaking at the Brookings Institution think tank, Jokowi, as the president is known, will meet with leaders of the US Congress before going to the west coast where he is to meet with executives of Apple, Microsoft and Google. “They are hoping the visit sends the message that the restrictive and unfriendly regulatory environment is changing in Indonesia,” a source said. “There will be some creative ideas put forward.”
The Indonesian president is also expected to publicly sign several business deals that have been prepared in advance of his visit, and to discuss the possibility of joining the US-led Trans-Pacific Partnership (TPP) within two years. Tom Lembong, the trade minister, a Harvard graduate who has publicly advocated Indonesia’s membership in the 12-member trade pact, will be on the trip along with other officials.
“Jokowi is trying to change the narrative,” said a businessman in Jakarta. “They are hoping the visit sends the message that the restrictive and unfriendly regulatory environment is changing. They have gummed up everything from technological investment through harsh local content rules to requiring a strict permitting regime on imports and limiting expatriate visas, plus they have bungled the way they introduced mandatory use of the rupiah for all transactions in the country.”
As a signal of his personal commitment, Jokowi, as the president is known, in early October personally pushed through a long-stalled deal to allow Freeport McMoRan, the Phoenix, Arizona-based mining giant, to extend its long-stalled mining contract for the Grasberg complex in Papua, in which Freeport plans to invest an additional US$18 billion. It is the largest gold mine in the world and the third-largest copper mine.The investment will fund underground development of the mine.
“The Freeport deal is so important,” a source said. “US$18 billion is enormous and they need it. All the arguing about the legalities of the contract that has gone on masks the fact that officials in Jokowi’s own government appeared to want to grab a slice of Freeport for themselves.”
In addition, in advance of the trip, the government has rescinded a number of restrictive measures on investment and liberalized others. Those liberalizations were signaled in September when the president sent his entire cabinet on a retreat to work on a package of liberalizations.
The president is said to be furious that government ministries have set about ruining international investment sentiment over the past several years, with prevailing arguments that Indonesia didn’t have to share its natural resources with anybody – that while growth might be lower with Indonesians running the show, they would have a bigger share of a smaller pie.
“I think Vietnam’s growth has startled them,” a source told Asia Sentinel. GDP in Vietnam expanded by 6.8 percent in the third quarter of 2015 as the country has eagerly sought foreign investment, including joining the Trans-Pacific Partnership trade pact negotiated by US President Barack Obama. By contrast, Indonesia’s second-quarter GDP slumped to 4.6 percent.
In particular, Jokowi will attempt in Silicon Valley to reverse the impression of Indonesia as hostile to investment in the high-tech field, lunching with 15 tech company chief executive officers in a bid to garner so far-unspecified big-name investment, which means getting the government out of the way. The government has banned foreign investment in e-commerce and restricted it in other areas. Those measures are under review.
“The permanent bureaucracy in the ministries has acted out of sync with the country’s need for investment,” a western businessman said. “The result has been confusion, anger and irritation for a lot of investors. The President has woken up to this and mandated change.”
At that, the task of opening up in the face of an entrenched bureaucracy will not be easy. Virtually since the time he took office in October 2014, the president has toured Asia to say the investment door to Indonesia is open, only to have government officials push through restrictive regulations, including several this year. One requires foreign employees to obtain temporary work permits for any business meeting in Indonesia, and another that requires multinationals to hire 10 domestic workers for every expatriate manager. Yet another more than doubled the price of wine and spirits. The manpower ministry has announced it will ease the work permit rules to help investment.
“They have a lot of fixing to do because these regulations are emotionally popular because they use a lot of nationalist rhetoric – a la import substitution 40 years ago,” a source said. “They are popular with bureaucrats because they obviously open up opportunities for graft and rent seeking.”