Indonesia ramps up battle against bureaucracy

Indonesia ramps up battle against bureaucracy

Indonesia’s 12th economic policy package is the latest effort to facilitate doing business in the country. Strong political will must complement consistent implementation.

Announced by the President Jokowi himself, the new economic policy package continues to deregulate the economy amid slow growth. The current package slashes the number of required permits, and cuts down processing time to set up a new business.

Improving ease of doing business is one of the main goals of President Jokowi’s efforts to rejuvenate the economy, along with his other two promises: increasing government spending on infrastructure and implementing economic reforms.

With at least one package announced each month since September 2015, the series of economic policy packages simplifies the process to start a new business; with priority given to small and medium enterprises, a key pillar of the Indonesian economy alongside cooperative and state-owned enterprises.

Policy package to address World Banks’ ten indicators of doing business

Despite being the largest economy in Southeast Asia, Indonesia is ranked one of the most difficult countries to do business in (especially among its neighbours), according to the World Bank. The president has vowed to improve the current ranking of 109 to 40 by 2017 (out of a World Bank list of 189 economies).

According the World Bank’s ten indicators (see details below) on the ease of doing business, Indonesia’s rankings are worst in the categories: starting a business, dealing with construction permits, registering property, paying taxes, and enforcement of contracts.

Prior to the tranches of economic stimulus packages, waiting time for the approval of various licenses was 156 days, later shortened to 132 days. The amount of procedures was reduced from 94 to 49.

Deregulations will benefit SMEs but consistent implementation key

Ongoing efforts to deregulate Indonesia’s economy should ease the process of doing business in the country and boost Jakarta’s appeal to both domestic and foreign investment.

Small and medium sized business will be able to benefit from the condensed procedures, such as moving tax payment online, and shorter export processing times. This significantly cuts down the burden of tedious paperwork, especially for small business.

Start ups will also benefit from an investment climate that is now more conducive to starting a business, with less bureaucracy, and easier access to credit. While the latest economic figures are disappointing, economic activities and investments will gradually pick up.

GDP grew 4.92 percent for the first quarter of 2016, below both market and government forecasts; with the former predicting  between 5.01-5.2%, and the latter estimating 5.1%. Private consumption, which accounts for 58% of the country’s GDP, expanded less than 5 percent, at 4.94%. Government spending, which did not gain real momentum until late 2015 after the cabinet reshuffle in August last year, grew by only 2.93%.

Despite slower than expected growth, the business environment and investment climate have improved over the last few months, thanks to the administration’s strong political will in pushing through  recent economic reforms.

Consequently, the Investment Coordinating Board of the Republic of Indonesia (BKPM), the primary interface between business and government, has carried out intensive investment promotions in many countries in Asia, Europe, and America.

Moreover, President Jokowi recently finished a tour of several EU countries including Germany, the UK, Belgium and the Netherlands, which led to the signing of several business-to-business agreements and has strengthened trade and investment.

The investment community is well aware of discrepancies in the planning and implementation of government policy in Indonesia. Strong political will is a positive sign. Now investors would like to see the government remain consistent in executing economic policy.

Categories: Asia Pacific, Economics

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.