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Trade policies inhibit investment in Indonesia: World Bank
The global financial institution said that, following new rules on investment, the government now needed to reform its trade policies.
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Workers use a crane to move a container at the Tanjung Priok container terminal in North Jakarta on Aug. 5. (Antara/Rivan Awal Lingga)
T
he World Bank has said that new rules on investment brought about by the Job Creation Law should be complemented by trade policy reforms for Indonesia to attract more investment.
In a virtual press briefing on Tuesday, the institution explained that changes in trade policies were paramount to support the massive “investment diversion” to Southeast Asian countries as a result of the Russian invasion of Ukraine and pandemic-related disruption.
The World Bank noted that, as a risk management strategy to reduce dependence on a single country, investment that was previously focused on China had been diversified to other countries in the region.
However, their estimates found that the main beneficiary of this diversion was Vietnam and, to a lesser extent, Malaysia and Cambodia. Indonesia only benefited to a “low extent” from investment diversion.
“While Indonesia has implemented substantial reform of its investment regime, it is much less willing to reform its trade regime, and that, I think, is a problem,” World Bank East Asia and Pacific (EAP) chief economist Aaditya Mattoo said in the briefing.
The recent investment regulation reforms enacted by the government, such as through the Job Creation Law, significantly helped with what the World Bank termed “investment creation” in sectors deemed to hold ample growth potential, such as utilities, infrastructure and services.
However, to attract massive investment flowing out from China, particularly in manufacturing value chains, reforms in the trade regime were a must, the global financial institution said, citing as an example relaxed import rules to ensure firms could produce competitive export goods.
