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Reform or suffer
The President should demonstrate a much higher sense of urgency by showing stronger leadership in pushing through his reform agenda, otherwise the country will never be able to benefit from the trade and investment redirection caused by the US-China trade conflict.
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President Joko “Jokowi” Widodo speaks during the launch of the 2019-2024 Indonesian Sharia Economy Masterplan in Jakarta on May 14. (Antara/Akbar Nugroho Gumay)
T
he key messages of the Manila-based Asian Development Bank (ADB) report on Indonesian economic updates are very similar to the strong warning conveyed by the World Bank early this month: The government should accelerate bureaucratic and structural reforms, otherwise the economy will continue to muddle with 5 percent growth, much lower than its potential, as manufacturing investors will continue to stay away.
The main difference is the tone and manner in which the messages were given. The ADB sounded more diplomatic, as reflected in remarks by ADB’s country director for Indonesia, Winfried Wikclein, at a news conference in Jakarta last Wednesday: “ There is still a lot of room for improvement” in regard to business licensing and investment climate.
The World Bank, however, expressed a more straightforward message, urging the government to surprise investors with bold reforms that create credibility, in relation to Indonesia’s openness to foreign investment and certainty over rules and the proper implementation of the president’s policies and executive orders.
Both multilateral development institutions acknowledge regulatory reforms have been stepped up over the past five years but concede that good policies from the president have often been nullified by discretionary rules or regulations issued by ministers or heads of regional administrations. Whereas, other countries in Southeast Asia have implemented faster reforms that make them much more attractive to foreign investment.
Chief economics minister Darmin Nasution confirmed on Wednesday that too many laws transfer autonomy to ministers, governors and regents to execute government policies. The problem is that the discretionary decisions or rules often do not fully comply with the president’s policies.
Such regulatory barriers will continue to hinder investment as the government is still drafting an omnibus bill in a bid to streamline and realign all laws and regulations.
Many expect President Joko “Jokowi” Widodo to show stronger political courage by launching bold reforms during his second, final term starting later next month, as he will no longer bear any political burdens for reelection. But observing how Jokowi has wasted much of his social and political capital over the last few weeks with bad political communication, we doubt whether he is aware of the emergency in his presidency and eroding trust in his government.
Nevertheless, bigger foreign direct investment is even more crucial now for Indonesia, in view of the economic slowdown in the United States, Europe and China (Indonesia’s biggest trading partner), the US-China trade war, Japan-South Korea trade tension and threats from Brexit.
The President should demonstrate a much higher sense of urgency by showing stronger leadership in pushing through his reform agenda, otherwise the country will never be able to benefit from the trade and investment redirection caused by the US-China trade conflict. Without a higher rate of investment, our growth will remain low, unable to create enough jobs to absorb the estimated 2.5 million new job seekers entering the labor market annually.
