Indonesian President Rolls Out Dramatic Economic Reforms

Indonesian President Joko Widodo today, Feb.11, rolled out the details of the plan he called a “big bang" the day before, to open nearly 50 sectors of the economy to foreign investment.

The package of reforms is designed to ease investment rules in e-commerce, retail, health care and moviemaking. It is the most sweeping of a series of stimulus packages that the president has ordered since shook up his cabinet, adding new liberal faces in August 2015, then bustled the entire bunch to the city of Bogor, 60 km. south of Jakarta, in September to demand new reforms that would do away with a wide array of restrictions on new investment.

During the first year of the Jokowi presidency, many had feared he was out of his depth, given that he had risen from furniture manufacturer to governor of the unruly megacity of Jakarta to chief executive in only a few years. Buffeted by international trade headwinds and a domestic spending pause Indonesia, in 2015, experienced its slowest growth since 2009. The cabinet reshuffle, however, has created the impression of Jokowi, as the president is known, as more sure-footed, decisive and more calculating than his detractors had thought.

Nine new packages have been made public since that meeting, cutting red tape, removing obstacles and opening up for investment. The sweeping changes in the latest package, the 10th in the series, are aimed at dramatically pruning the so-called 'Negative Investment List" that keeps out investment by foreign interests.

"We are seriously considering deregulation across the board, but focusing on e-commerce, health care, and creative industry," Joko told reporters ahead of a cabinet discussion of the proposals on Wednesday. "There are 49 sub-sectors [that will be affected] so in my opinion this is the big bang."

The most important of those sectors include retail, agriculture, energy, transport, communications and forestry. In some cases, majority ownership would be allowed by foreign companies. Hospitals, clinics and laboratory services would open to foreign investment.

Growing economic nationalism has dogged the economy for decades but began to accelerate during the final years of the presidency of Susilo Bambang Yudhoyono and his chief economic advisor, Hatta Rajasa. The last revision to the negative investment list, in 2014, was regarded as closing the doors further to investment. Often, vested interests have used Indonesia’s notoriously corrupt courts to bar entry by foreign companies.

Just how difficult the problems are came to the fore on Feb. 10, when a Supreme Court decision from May 2015 was unveiled that removed the furniture giant IKEA’s trademark in favor of a tiny rattan furniture company that wasn’t even registered until December 2013. The company, PT Rataia Khatulistiwa, registered an acronym for the words Intan Khatulistiwa Esa Abadi – IKEA. Although IKEA registered its trademark in 2010, the court ruled it hadn’t exercised the filing for three years. It opened its Jakarta store in 2014.

A request for the IKEA media team’s response hadn’t been received by press time.

Other obstacles have been thrown up in a variety of lucrative extractive industries including oil and gas and mining. Freeport McMoRan, the Phoenix, Arizona mining company which operates the Grasburg Mine, the world’s biggest copper and gold mine in Papua, is being forced to divest 20 percent of its shares to local investors.

That kicked off a still steaming scandal in which the speaker of Indonesia’s House of Representatives, Setya Novanto, was forced to resign on charges he appeared to use the names of Jokowi and Vice President Jusuf Kalla in requesting a bribe of 20 percent of the shares in the mining operation, which must be divested under the terms of Freeport’s mining contract of work. However, the decision to publicize a recording made of the conversation has caused almost as much damage to Freeport as it has to Setya, with top officials in the crosshairs of members of the legislature who, it is said, were looking to enrich themselves from the distribution of the shares.

Jokowi told reporters he has not faced a political backlash or resistance to the steps he has taken so far. "For me competition is very important," he said. "If we have already launched our deregulation, the bureaucracy and the system must follow the new rules." He told reporters infrastructure development and deregulation to promote competition were his chief goals. Indeed, investment growth and infrastructure have both picked up.

But, according to A. Lin Neumann, head of the American Chamber of Commerce, or Amcham in Jakarta, told local media the reforms were a step in the right direction but the proof would be how foreign investors are greeted.

"We've gone through literally years of Indonesia closing down its economy to foreign investment, and so the leadership realizes that in order to reach their goals they need foreign investors, but they have to make it possible for investors to be here, and that's not always been the case," Neumann said.

However, data released last week showed that investment growth picked up in the last quarter of the year thanks to rising public spending. A cut in interest rates by the central bank has also provided stimulus.