Indonesian Leader Widodo Is Trying to Show He Means Business

  • Widodo is preparing `big' stimulus, seeking to start projects
  • Minister Ramli says hired as `fighter' to improve governance

Indonesian President Joko Widodo is adding urgency to his efforts to salvage his economic agenda.

The president, “upset” at the lack of change, brought former finance minister Rizal Ramli into his cabinet in a reshuffle last month to help take on political vested interests and cut through corrupt bureaucracies, Ramli said in an interview. Ramli’s first mission is to more than halve waiting times at the country’s main port in Jakarta within six weeks to speed up trade.

Rizal Ramli, third from right, with the five newly appointed Indonesian ministers
Rizal Ramli, third from right, with the five newly appointed Indonesian ministers
Photographer: Romeo Gacad/AFP/Getty Images

“You have to do shock therapy,” said Ramli, the coordinating minister overseeing transport, energy, public works, tourism and fisheries. Widodo “wants a fighter, and he chose me because I’m a fighter,” Ramli said Thursday in his first interview with international media since taking office.

Widodo, better known as Jokowi, ordered his ministers into meetings starting on Wednesday to fix rules and spending bottlenecks hampering the economy. In recent weeks, he’s inaugurated a delayed power plant project and started flooding a dam over the objections of farmers and villagers. He’s also revamped his economic team, which promised a “big" stimulus to come.

Indonesian quarterly GDP growth from 2012
Indonesian quarterly GDP growth from 2012

Even with a new team behind him and a boost to his ruling coalition from the crossover of a formerly opposition political party, Jokowi faces an uphill battle. Southeast Asia’s biggest economy has been battered by market turmoil, delayed government spending and slumping growth, undermining Jokowi’s promise to bring greater prosperity to the sprawling nation.

“In the short term, what is needed is changing perceptions to build confidence, that is not easy,” said Tony Prasetiantono, an economics professor at Gadjah Mada university who met Jokowi on Monday to discuss ways to kick start the economy. “The big problem with adding stimulus is that the budget is not there for it, and the government is wary of adding to the deficit.”

Targeted Spending

While Indonesian stocks jumped on Aug. 27 after Jokowi’s government promised an economic stimulus package in coming days that will increase investment flows and strengthen the rupiah, the benchmark stock index is still down about 15 percent this year. 

Policy flip flops haven’t helped. The latest example: scrapping a $6 billion plan for a high-speed train and asking bidders China and Japan to submit new proposals for a slower train.

To get things done, Jokowi should move government officials around from “wet” positions that offer lucrative corruption possibilities to “dry” ones, said Ramli. Having clashed with both the state enterprises minister and vice president in his first week over transport and energy policies, Ramli said he would be a critic from the inside.

Among the plans Ramli identified:

  • To improve trade, he will push for more companies using the Tanjung Priok port in Jakarta, which handles about 70 percent of Indonesia’s trade, to be on a “green list” that will mean no customs inspections.
  • To stimulate the economy and domestic consumption, the government is spending its money directly at the village level in small public works projects such as roads and irrigation. 
  • The government will start budget planning earlier to disburse money faster.
  • To attract foreign money longer-term, Ramli wants to double tourist arrivals in five years by developing infrastructure in areas outside of Bali, which he said was “over built”. He said the government was focusing on Lombok island near Bali, Lake Toba on Sumatra and Belitung island near Singapore.

Economic growth could slow to about 4.5 percent this year, and rebound to 6 percent in 2016, Ramli said. 

“We have to fix the budget cycle,” the minister said. “The money has been distributed. We have to push them to spend it faster.”

The measures Jokowi have presented so far, and the ones being prepared, show the challenges of turning Indonesia’s economy around:

  • Darmin Nasution, the coordinating minister for economic affairs, said Aug. 27 that a “big” stimulus package is in the works. The government is required by law to cap the budget deficit at 3 percent of gross domestic product.
  • The new economic team’s first act was an expansion of an existing policy of tax holidays for industrial investors, unveiled Aug. 27. 
  • Jokowi flew to the $4 billion site of the proposed Batang power project for an inauguration ceremony Aug. 28. About 10 percent of the land needed had yet to be fully acquired.
  • The government started flooding the Jatigede Dam in West Java Aug. 31. Villagers say they are being driven out and some had yet to be compensated.
  • On the agenda of the ministerial meetings are the revision of 154 regulations and pushing regional governments to boost budget disbursement. Red tape, land disputes, confusion over permits and overlapping laws have been obstacles to investment for decades.
  • Indonesia will allow the Indonesia Eximbank to lend, guarantee and insure transactions or projects that aren’t commercially viable but necessary for the economy, or to support exports or government policy, the Finance Ministry said Friday
     

“The most important thing right now is maintaining consumer’s purchasing power,” said David Sumual, an economist at PT Bank Central Asia in Jakarta.

Consumer spending, which accounts for more than 50 percent of the economy, has slowed this year because of a slump in earnings from plantations and mines, as well as elevated inflation. 

While a regulatory overhaul may improve the investment climate, it is unlikely to lead to a rapid change in perceptions, he said. “I think this is like a vitamin, not a thing that cures the problems.”

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