|Indonesia Update | November 2, 2017
Authors: Kim Yaeger, Artha Sirait, Ian Saccomanno and Gaofan Zhang
|December 6-8: Myanmar Business Mission|
|THE COUNCIL'S TAKE|
Indonesia Climbs 19 Places in World Bank’s 2018 Ease of Doing Business Report
Indonesia made considerable progress by climbing 19 positions to 72nd out of 190 countries in the World Bank’s 2018 Ease of Doing Business Report. The improvement in ranking is credited to the Indonesian government’s efforts to improve its regulations such as tax reform programs pioneered by Finance Minister Sri Mulyani Indrawati and the Ministry of Finance, although improvements in various sectors are still needed. The full rankings and more details are included in the 15th edition of World Bank’s Doing Business 2018: Reforming to Create Jobs report that was issued on October 31.
Indonesia carried out at least eight reforms the past year, in which it targeted issues in starting a business which led to lower start-up fees from 19.4 percent of income per capita to 10.9 percent, as well as a reduction of time needed from 181 days in 2004 to 22 days today. In addition, the improvement of the e-billing system for tax, customs, excise and non-tax revenue shortened the time for processing cross-border trades from 133 hours to 119 hours. Registering property was made less costly due to a reduction of transfer tax from 10.8 percent to 8.3 percent of the property value. Access to credit was also improved by the establishment of a new credit ratings bureau by Bank Indonesia. Indonesia’s achievement is also a result of cooperation throughout the Ministries and Agencies, including the Investment Coordinating Board which has led the effort to enhance the coordination between different Ministries and Agencies.
According to Coordinating Minister for Economic Affairs Darmin Nasution, the government’s next steps will focus on improving the indicators where Indonesia is towards the bottom of the ranking list, which are mostly related to business regulations, such as starting a business, dealing with construction permits, registering property, paying taxes and trading across borders. The government also wants to reduce business costs with the use of e-payment systems. Indonesia’s recent achievement is also warmly welcomed by the private sector, acknowledging that access to credit is now improved and that the rights of minority shareholders are now strengthened, among others.
In 2014, when President Jokowi took office, Indonesia was ranked 114th in the World Bank’s Ease of Doing Business Report. Just last year, Indonesia climbed 15 places from 106 to 91, which was the biggest increase out of the 190 countries that were ranked. President Jokowi targets to climb to the 40th spot by the end of his term in 2019. Five of Indonesia’s ASEAN neighbors are ranked higher than Indonesia based on this recent report: Singapore (2nd), Malaysia (24th, previously 23rd), Thailand (26th, previously 46th), Brunei (56th, previously 72nd) and Vietnam (68th, previously 82nd).
Finance Minister Sri Mulyani Indrawati Optimistic About Indonesia’s 2018 Economic Growth
As outlined in Indonesia’s 2018 state budget, its projected GDP growth for next year is 5.4 percent, the fastest pace in five years. Growing investment and exports are expected to be major contributors to GDP growth, although no specific indicators were provided regarding the causes of growth in the state budget. Indonesia’s Investment Coordinating Board announced earlier this week that foreign direct investment (FDI) increased by 12 percent in the third quarter this year. Indonesia also hopes to conclude four free trade negotiations (with Australia; the European Free Trade Association; Chile; and Iran) by the end of the year, which are expected to eventually boost Indonesian trade and investment. In addition to investment and exports, credit growth may also be a factor in driving growth. Bank Indonesia has been conducting an aggressive monetary easing program over the past 18 months, through which it was able to cut its benchmark interest rate to 4.25 percent.
Despite the upbeat forecast, both external and internal concerns and uncertainties remain. Politically, the 2019 presidential election will bring political changes and possibly instability, which may have a negative impact on economic development. Financially, credit growth has remained weak with a 7.86 growth this year compared with an average growth of more than 10 percent two years ago. The country is also still hopeful for strong infrastructure investment projects in line with President Jokowi’s infrastructure ambition. In the private sector, the business environment has improved in the past several years, but the regulatory and legal frameworks are still in need of refinement to create a friendlier environment for investors. It is worth noting that spending by Indonesian consumers and businesses make up half of Indonesia’s GDP, and there has been a notable sluggish growth with relatively flat private consumption growth and retail sales. Externally, the U.S. is pushing for domestic-oriented policies such as cutting corporate tax and tightening money policy, which may have flow-through effect on Indonesia. Minister Sri Mulyani Indrawati stated that President Trump’s tax reform is creating pressure for Indonesia and the race is worrying because it is not a win-win scenario. Indonesia’s corporate tax rate currently stands at 25 percent, even though President Jokowi has publicly stated that he is considering cutting the corporate tax in two stages, where the tariff is first lowered to 20 percent and then 17 percent.
Faced with the challenges, Minister Sri Mulyani is taking steps to boost tax revenue and tighten the government budget. She plans to raise Indonesia’s tax-to-GDP ratio from 11 percent to 16 percent by 2019. The government is also preparing amendments to income tax and value-added tax to help achieve that goal.
|IN THIS UPDATE|
South Korean President to visit Indonesia Antara News 2nd Nov 2017
President Jokowi to attend APEC Summit in Vietnam Antara News 2nd Nov 2017
Indonesia hopes new Fed chief would have good communication skills Antara News 2nd Nov 2017
Indonesia to send officials to China to reduce trade deficit The Jakarta Post 2nd Nov 2017
2018 elections vulnerable to religious, sectarian politics: Syamsuddin Antara News 2nd Nov 2017
US Ambassador Highlights Trade, Foreign Ownership Restrictions at Business Summit Jakarta Globe 2nd Nov 2017
Foreign Direct Investment Into Indonesia Inches Up in Q3 Jakarta Globe 2nd Nov 2017
Stability getting better during three years of Jokowi-JK administration Antara News 2nd Nov 2017
Kalla to not contest for next election Antara News 2nd Nov 2017
Indonesia jumps 19 places in EODB 2018: WB The Jakarta Post 1st Nov 2017
Indonesia buys Norway's NASAMS air defence system Xinhua 1st Nov 2017
Indonesia Warships in Philippines on Goodwill Mission The Diplomat 1st Nov 2017
Indonesia continues strong pace of reforms to improve business climate finchannel.com 1st Nov 2017
Indonesia`s ease of doing business index rises to 72 Antara News 1st Nov 2017
Indonesia's Economy May Beat Expectations, Indrawati Says Bloomberg.com 29th Oct 2017
Pertamina posts profit of US$1.99 billion Antara News 2nd Nov 2017
BI revises down credit growth target for 2017 Antara News 2nd Nov 2017
Indonesia finance minister says economy can weather shocks from Fed hikes Reuters 2nd Nov 2017
Tax Dodgers Taken ‘Hostage’ in Indonesia to Meet Budget Goals Bloomberg 1st Nov 2017
Indonesia's most valuable bank prowls for acquisition targets The Jakarta Post 31st Oct 2017
Indonesia introduces monitoring system for futures market The Jakarta Post 31st Oct 2017
Banks, startups and watchdogs harness Islamic finance opportunities Nikkei Asian Review 31st Oct 2017
GAPKI urges government to increase palm oil competitiveness The Jakarta Post 2nd Nov 2017
Coordination needed to settle food resilience issue: Finance minister Antara News 31st Oct 2017
President Jokowi calls on youth to work in agriculture sector Antara News 28th Oct 2017
Farmers urge govt to control tobacco import The Jakarta Post 31st Oct 2017
DPR Calls on Govt to Finalize Personal Data Protection Law Tempo 2nd Nov 2017
New ride-hailing transport regulation in place The Jakarta Post 30th Oct 2017
Gov't in Hurry to Fix LRT Financing by December Jakarta Globe 2nd Nov 2017
PLN gets Rp 16.3t loan for constructing infrastructure The Jakarta Post 2nd Nov 2017
'Middle consumer segment shifts to lower-value goods' The Jakarta Post 2nd Nov 2017