With Tax Amnesty Out the Way, Indonesia Seeks to Lure Investors

Bambang Brodjonegoro

Bambang Brodjonegoro.

Photographer: Dimas Ardian/Bloomberg
  • Finance minister says focus will be on cutting red tape
  • Government wants more investment in processing of commodities

After successfully pushing through a tax amnesty law to bring back funds parked overseas, Indonesia’s next key economic agenda item is improving the business climate and directing investment into the processing of commodities, the finance minister said.

To attract investment in manufacturing, infrastructure and services, especially tourism, the government will focus on cutting red tape, Finance Minister Bambang Brodjonegoro said in a Bloomberg Television interview at the Group of 20 meeting in Chengdu, China. That’s in line with its goal of transforming the economy into one based on investment, rather than being dependent on consumption and developing industries to process raw materials, he said.

“The big barrier is our complacency to the commodities,” he said in the interview on July 23. “But with strong consistency from the government, we will be able to do that. Of course it will take time, maybe it won’t be in one to two years, but hopefully in three or four years, we can start seeing the result of this effort.”

President Joko Widodo has been seeking new sources of growth as prices of commodities that made up the bulk of the nation’s exports continue to languish, restricting economic growth at about 5 percent, compared with the 7 percent he pledged when he took office in 2014.

Tax Amnesty

His cabinet has simplified investment permit processes, cut dwelling time at ports and is drafting rules to address dispute settlements -- strategies the government hopes will boost Indonesia’s rank by at least 69 notches to put it among the top 40 nations on the World Bank’s Ease of Doing Business index next year.

The approval of a tax amnesty law in June has given Brodjonegoro some breathing room to boost fiscal spending and prop up growth in the face of weakening revenue. The budget deficit reached 1.83 percent of gross domestic product in the first half, compared with the full-year target of 2.35 percent.

Brodjonegoro said he is readying himself to address a judicial challenge against the law that has been submitted to the Constitutional Court, which is adding to uncertainty on whether the program will succeed.

“We are not concerned,” he said. “Because of our democratic system, all of the new legislation produced by the government and parliament are always challenged in the Constitutional Court. It has been like a ritual.”

So far, investors seem to agree that the tax amnesty will succeed. The nation’s bonds and stocks have attracted a combined $9 billion of inflows this year. The local debt market even saw inflows on June 24, the day after the U.K. voted to leave the European Union, which triggered a widespread sell-off in global financial markets.

The benchmark Jakarta Composite Index entered a bull market on June 29, having gained 13 percent so far in 2016. The rupiah has strengthened 5.2 percent this year, the third-best performer among Asia’s 11 most actively-traded currencies.

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