Indonesia's economy faced a 2.07% downturn in 2020 due to COVID-19, its first since 1998. This year, pursuing a five percent growth target requires significant investment enhancements addressed by recent government policies. Despite strengths, attracting Foreign Direct Investment (FDI) remains challenging. President Joko Widodo urged increased support for foreign investors in 2019. Indonesia ranked 73rd in the 2020 World Bank Ease of Doing Business Index, reflecting infrastructure limitations and bureaucratic hurdles. President Jokowi upgraded the Investment Coordinating Board (BKPM) to a ministry in 2021 to streamline policy-making. Led by Chairman Bahlil Lahadalia, the Ministry of Investment will centralize the business permit process, launching an online platform in June to benefit both large companies and SMEs. In late 2020, the Omnibus Law Act, despite facing opposition from trade unions, was enacted and amended by more than 75 regulations, identified as a blockade to foreign investment. In February 2021, the government established the Indonesia Investment Authority (INA). This new sovereign wealth fund enables investors to contribute to specific sub-funds aimed at supporting crucial sectors, including infrastructure, tourism, healthcare, and technology. The designated priority sectors will be discussed at the Indonesia Investment Forum 2021 (IIF), conducted digitally on May 27-28, aiming to facilitate connections between foreign investors and the prioritized project operators in Indonesia. Indonesia is enhancing its investment climate through measures like the Ministry of Investment and Omnibus Law. Despite economic challenges, investment surges and resilient household spending indicate a positive outlook for domestic growth.
Indonesia's upcoming presidential and legislative elections, scheduled for Wednesday (2/14), are stirring economic uncertainties as market concerns grow over a potentially prolonged electoral process and the potential departure of Finance Minister Sri Mulyani Indrawati. The uncertainty has triggered market reactions, with the rupiah slipping, the stock market experiencing volatility, and foreign investments slowing. The departure of the highly regarded finance minister, known for her role in steering Southeast Asia's largest economy through the pandemic and implementing tax reforms, has intensified investor apprehensions. Foreign investments in Indonesian assets have slowed, reflecting investor caution until the new president's governing coalition is formed and budget priorities are announced. The possibility of a second-round election in June further adds to investor nervousness. Despite these uncertainties, some investors still view Indonesia as an opportunity, highlighting its controlled inflation and the expectation of a healthy 5% economic growth in 2024. However, the outcomes of the elections, including candidates' views on spending, populism, and financial dependencies, remain critical concerns for investors. The proposals of the three leading candidates to create a new tax collection agency also contribute to the economic landscape, such as targets set for tax-to-GDP ratios and promises of personal income tax cuts. As the election unfolds, its impact on Indonesia's economic trajectory and policy direction will be closely watched and managed through financial and monetary policies.
In a world of uncertainties, Indonesia stands out as an untapped market with vast potential across various sectors, poised to seize numerous opportunities. Indonesia provides a favorable environment for growth in retail, health, education, telecoms, and financial services due to its growing population and robust consumer confidence. Moreover, the increasing demand for airplane replacement parts and services within the Indonesian aviation sector reveals that this country is doing infrastructural development and technology uptake at a fast rate. Furthermore, Indonesia's emerging banking and telecommunication industries are fertile ground for IT providers and fintech companies, given the rise in digitalization. This further displays the investment prospects present in Southeast Asian nations through the government's unrelenting commitment to enhancing public infrastructure, such as transportation networks, besides municipal projects. Using the Public-Private Partnership (PPP), among other approaches, Indonesia emphasizes the private sector's involvement in infrastructure development to create a suitable investment and innovation environment. Furthermore, Indonesia has concentrated on energy and electricity transmission services and increased the defense budget to partner with US defense manufacturers. As Indonesia copes with the intricacies of global uncertainties, its determination to exploit market opportunities while at the same time strengthening strategic partnerships emphasizes a hopeful path toward sustainable growth and development. In this regard, Indonesia's proactive posture and dedication to economic variety make it a key actor in the world market, ready to unleash its latent potential and adapt to future uncertainties resiliently and flexibly.
East Asia Forum
What would you like to learn next week? Comment, Like, and Share.