s President Joko “Jokowi” Widodo presented his 2020 state budget to the House of Representatives on Aug. 16, the turbulence in the global economy intensified.
Stock prices in major world markets including in Indonesia have been seesawing for months, reflecting the anxiety of investors around the globe at the continuing uncertainty in the world economy. Industrial production in China has hit its lowest level in seven years. The German economy, the powerhouse of the European Union, is on the brink of
recession.
The ongoing trade war between the United States and China is expanding from slapping tariffs on each other’s imports disrupting the supply chains of high-tech products to a currency war. The uncertainty regarding the final shape of Brexit still haunts investors in the EU and Britain,
Under these circumstances, investors around the world are not in the mood for taking risks. The impact has been strongly felt in Indonesia. Growth of gross fixed capital formation — the second-biggest component of the country’s gross domestic product (GDP) — continued to decline through the second quarter 2019. This, despite various easing-of-doing-business measures and tax incentives put in place by the government.
It is hoped that Indonesia will benefit from the relocation of China’s industries to other countries as they try to circumvent US-imposed tariffs. But in competing for this investment, Indonesia has been outmaneuvered by Vietnam, Thailand and Malaysia as many of China’s industries have relocated their factories to these countries. The relocation of factories from China to Indonesia has been little more than a trickle.
This is because Indonesia is still one of the most restrictive countries in the world for foreign investment. President Jokowi plans to raise the status of the Investment Coordinating Board (BKPM) to that of a ministry in the next Cabinet. But more urgent is Jokowi’s political courage and political will to open more of Indonesia’s economy to foreign investment. Especially when Indonesia’s economic performance in the first half of 2019 was dismal.
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