Asean Investor

Jokowi's policies likely to attract investments

ASEAN_Investor
Publish date: Thu, 31 Jul 2014, 04:06 PM
Marc Djandji, CFA is the Editor-in-Chief of The ASEAN Insider, a subscription-based monthly investment newsletter committed to finding compelling investments backed by powerful structural trends in Southeast Asia. He is also a co-Founder and Partner of ASEAN Strategy Group Ltd., an independent investment banking boutique focusing on cross-border M&A and corporate finance advisory for companies in the small to mid-market segment in Southeast Asia.

Indonesia Investment

As often happens after electoral campaigns, promises and slogans prove difficult to keep, president-elect Joko "Jokowi" Widodo and his Indonesian Democratic Party of Struggle (PDI-P) will likely adopt market-friendly policies to attract foreign investment after Jokowi takes office in October.

Such a development would contradict the nationalistic pledges that characterized Jokowi's campaign, which had sparked anxiety among international investors.

According to Arif Budimanta, a PDI-P lawmaker who is also a member of Jokowi's economic team, investment is slated to be a major driver of the economy in the incoming administration, with growth targets set at between 7 and 8 percent in the next five years.

"We plan to maintain the momentum of economic expansion by using investments as the prime mover of our growth," Arif told The Jakarta Post.

"We are not differentiating between foreign and domestic investors. What's important is the value-added process, increasing state revenues and generating employment in the economy," Arif added.

A nationalistic party with a populist, sometimes jingoistic political platform, the PDI-P has often been characterized as a party hostile to foreign investment. However, when Megawati Soekarnoputri, the party's chairwoman, was president from 2001 to 2004, she embraced an open policy with regard to foreign investment.

In its economic platform released before the legislative election in April, the PDI-P argued that Indonesia's economic policies had so far "been dictated by foreign powers". It also emphasized the nation's need "to stand on its own two feet" when making strategic economic decisions.

Indonesia's stable and resilient economic expansion over the past several years has been aided by strong growth in investments, which accounts for one-third of gross domestic product (GDP) and is the second-biggest growth driver after household consumption.

From Rp 222.8 trillion (US$19.24 billion) in total investments realized in the first half of this year, 67 percent came from foreign investors, according to data from the Investment Coordinating Board (BKPM).

Given the vital role of investments in supporting the economy, the PDI-P would need to weigh carefully which sectors to protect from competition with foreign investors.

For instance, Arif argued, limits on foreign ownership in the banking and mining sectors would still be necessary. He also said that Jokowi would "resist pressure" from foreign companies regarding the recent implementation of the Mining Law, which analysts say has created uncertainty in the mining industry.

However, according to Muhammad Prakosa, a PDI-P executive who is also the head of the team that formulated the party's economic platform, looser, more business-friendly regulations could be enacted in the infrastructure and farming sectors that have been saddled by supply-side bottlenecks, a chronic problem in the domestic economy.

"We need to boost our domestic food supplies, which is why we may need to alter policies [that are] currently in place," said Prakosa, whose name has been floated by PDI-P officials as a potential candidate for the agriculture minister position.

"If we assign a greater role for new investments - whether they are domestic or local - then we should be supportive [of them], so that in the future we do not rely on food imports to meet domestic demand," said Prakoso, who served as forestry minister in the Megawati administration.

Nevertheless, while promising a more conducive investment climate for foreign investors, Prakosa highlighted that the PDI-P party would not rely exclusively on markets to regulate the economy. Where the people's welfare was at stake, as in economic and trade policy, there would be "stronger state intervention", he said.

By Satria Sambijantoro, The Jakarta Post, Jakarta

The post Jokowi's policies likely to attract investments appeared first on Asean Investment | Marc Djandji Blog.

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