Indonesia Update: Indonesia Climbs 19 Places in World Bank’s 2018 Ease of Doing Business Report

Indonesia Update | November 2, 2017
Authors: Kim Yaeger, Artha Sirait, Ian Saccomanno and Gaofan Zhang
 
LOOKING AHEAD
 
 

November 3: YSEALI Breakfast Networking Event

November 28-December 1: 34th International Conference on the Foreign Corrupt Practices Act

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
 
 
Regional Affairs
South Korean President to visit Indonesia
President Jokowi to attend APEC Summit in Vietnam
Indonesia hopes new Fed chief would have good communication skills

National Affairs
Indonesia to send officials to China to reduce trade deficit
2018 elections vulnerable to religious, sectarian politics: Syamsuddin
US Ambassador Highlights Trade, Foreign Ownership Restrictions at Business Summit
Foreign Direct Investment Into Indonesia Inches Up in Q3
Stability getting better during three years of Jokowi-JK administration
Kalla to not contest for next election
Indonesia jumps 19 places in EODB 2018: WB

Defense & Security
Indonesia buys Norway's NASAMS air defence system
Indonesia Warships in Philippines on Goodwill Mission

Economics
Indonesia continues strong pace of reforms to improve business climate
Indonesia`s ease of doing business index rises to 72
Indonesia's Economy May Beat Expectations, Indrawati Says

Energy
Pertamina posts profit of US$1.99 billion

Financial Services
BI revises down credit growth target for 2017
Indonesia finance minister says economy can weather shocks from Fed hikes
Tax Dodgers Taken ‘Hostage’ in Indonesia to Meet Budget Goals
Indonesia's most valuable bank prowls for acquisition targets
Indonesia introduces monitoring system for futures market
Banks, startups and watchdogs harness Islamic finance opportunities

Food & Agriculture
GAPKI urges government to increase palm oil competitiveness
Coordination needed to settle food resilience issue: Finance minister
President Jokowi calls on youth to work in agriculture sector

Health & Life Sciences
Farmers urge govt to control tobacco import

ICT
DPR Calls on Govt to Finalize Personal Data Protection Law
New ride-hailing transport regulation in place

Infrastructure
Gov't in Hurry to Fix LRT Financing by December
PLN gets Rp 16.3t loan for constructing infrastructure

Manufacturing
'Middle consumer segment shifts to lower-value goods'
 
ARTICLE CLIPS
 
 
Regional Affairs

South Korean President to visit Indonesia Antara News 2nd Nov 2017
South Korean President Moon Jae-in will undertake a state visit to Indonesia on November 8-10, 2017, Foreign Affairs Ministrys spokesman Arrmanatha Nasir stated here on Thursday.

President Jokowi to attend APEC Summit in Vietnam Antara News 2nd Nov 2017
Indonesian President Joko Widodo (Jokowi) will attend the Asia-Pacific Economic Cooperation (APEC) Summit in Da Nang, Vietnam, on November 10-11, 2017. The president will participate in several activities during his stay in Vietnam, including a dialogue between APEC leaders and the APEC Business Advisory Council as well as leaders of the Association of Southeast Asian Nations (ASEAN) on Nov 10, followed by the APEC Leaders Retreat and working lunch on Nov 11.

Indonesia hopes new Fed chief would have good communication skills Antara News 2nd Nov 2017
Indonesia hopes the new chief of the Fed would possess good communication skills to make issues clear, preventing market players from speculating global economic condition by, Finance Minister Sri Mulyani said.

National Affairs

Indonesia to send officials to China to reduce trade deficit The Jakarta Post 2nd Nov 2017
Indonesia will send 23 officials from the Trade Ministry to China to study the market in the country as part of a two-week workshop on trade promotion as officials try to reduce Indonesia's trade deficit with the country.

2018 elections vulnerable to religious, sectarian politics: Syamsuddin Antara News 2nd Nov 2017
Simultaneous regional head elections in 2018 are politically vulnerable to religious sectarianism and religious disharmony, the Presidents Special Envoy for Dialogue and Interfaith Co-operation and Civilization, Din Syamsuddin, noted.

US Ambassador Highlights Trade, Foreign Ownership Restrictions at Business Summit Jakarta Globe 2nd Nov 2017
The United States is concerned about a rising trade deficit with Indonesia, local content requirements and foreign ownership restrictions that could undermine business opportunities, US Ambassador to Indonesia Joseph R. Donovan Jr. said on Thursday (02/11).

Foreign Direct Investment Into Indonesia Inches Up in Q3 Jakarta Globe 2nd Nov 2017
Indonesia, whose president has been trying to attract more overseas investors, saw foreign direct investment increase at a slightly faster pace in July-September than in the previous quarter, according to data released on Monday (30/10).

Stability getting better during three years of Jokowi-JK administration Antara News 2nd Nov 2017
Stability has been one of the objectives of President Joko Widodo and Vice President Jusuf Kalla (Jokowi-JK) administration since they took office three years ago.

Kalla to not contest for next election Antara News 2nd Nov 2017
Vice President Jusuf Kalla has confirmed that he will not be contesting in the next general election in 2019 owing to several reasons.

Indonesia jumps 19 places in EODB 2018: WB The Jakarta Post 1st Nov 2017
Indonesia has progressed significantly in deregulating its economy as its ranking in the Ease of Doing Business (EODB) index for 2018 has climbed 19 places to 72 from its previous rank of 91, the World Bank announced Wednesday.

Defense & Security

Indonesia buys Norway's NASAMS air defence system Xinhua 1st Nov 2017
Indonesia has signed a contract worth 77 million U.S. dollars to buy a medium-range air defence system from Norway's Kongsberg Gruppen ASA, the company said on Tuesday. The contract, signed by the partially state-owned company and the Indonesian ministry of defence, includes delivery of a complete Norwegian Advanced Surface to Air Missile System (NASAMS), the company said in a statement. It comprises the system's command posts, radars, launchers, radios and integration as well as training and logistics support, while AMRAAMs, or Advanced Medium-Range Air-to-Air Missiles, will be provided in a separate government-to-government agreement between Indonesia and the United States.

Indonesia Warships in Philippines on Goodwill Mission The Diplomat 1st Nov 2017
On Sunday morning, two Indonesian warships visited the Philippines for what was termed a goodwill and cooperation mission. The visit was a reminder of the ongoing cooperation between the two Southeast Asian countries in the maritime domain. Indonesia and the Philippines, both members of ASEAN situated in maritime Southeast Asia, have long been developing their maritime cooperation. That continues to be the case as both countries pay closer attention to rising transnational threats and increase collaboration in areas such as the Sulu-Sulawesi Seas.

Economics

Indonesia continues strong pace of reforms to improve business climate finchannel.com 1st Nov 2017
Indonesia has made significant progress in several areas measured by Doing Business, and the country is amongst the world’s top 10 reformers, with 39 reforms related to the indicators included in Doing Business adopted in 15 years. More than half of these reforms have been implemented in the last four years. For a second consecutive year, Indonesia carried out seven reforms, the highest single-year count for the country. In this year’s ease of doing business global rankings, the country moved up to 72nd place.

Indonesia`s ease of doing business index rises to 72 Antara News 1st Nov 2017
Indonesias ranking in the World Banks ease of doing business index rose to 72 from 91, out of 190 countries surveyed, according to the World Banks latest report Doing Business 2018: Reforming to Create Jobs.

Indonesia's Economy May Beat Expectations, Indrawati Says Bloomberg.com 29th Oct 2017
Indonesia’s finance minister said Southeast Asia’s biggest economy could expand at a faster pace next year than initially forecast. Economic growth may potentially be boosted by a pickup in investment in 2018, Sri Mulyani Indrawati said in an interview in Jakarta Friday. At the same time, she warned of significant headwinds from "domestic-orientated policies, especially in major countries", such as the flow-through effects of U.S. President Donald Trump’s plans to slash corporate tax rates.

Energy

Pertamina posts profit of US$1.99 billion Antara News 2nd Nov 2017
State oil and gas company Pertamina booked a net profit of US$1.99 billion in the first nine months of 2017.

Financial Services

BI revises down credit growth target for 2017 Antara News 2nd Nov 2017
Bank Indonesia (BI) has revised down its target of credit growth for 2017 to 7-9 percent from previously at 8 to 10 percent.

Indonesia finance minister says economy can weather shocks from Fed hikes Reuters 2nd Nov 2017
Indonesia’s economy is now in a much better position to weather any shocks on global markets due to further increases in U.S. interest rates, Finance Minister Sri Mulyani Indrawati said in an interview on Thursday.

Tax Dodgers Taken ‘Hostage’ in Indonesia to Meet Budget Goals Bloomberg 1st Nov 2017
Eight months after the government closed an amnesty program that gave Indonesians a chance to come clean on their tax affairs, it’s taking aggressive action to deal with those who still haven’t paid up. 

Indonesia's most valuable bank prowls for acquisition targets The Jakarta Post 31st Oct 2017
PT Bank Central Asia is seeking to buy a mid-size lender as intensifying competition and a sluggish Indonesian economy prompt some owners to consider exiting the industry, according to the firm’s top executive.

Indonesia introduces monitoring system for futures market The Jakarta Post 31st Oct 2017
The Trade Ministry's Futures Exchange Supervisory Board (Bappebti) introduced a new system to monitor the futures commodity market to fight rampant illegal trading. The system, called the single-monitoring system of alternative trading systems (SPTT-SPA), aims to monitor the futures market in a real-time basis and prevent market and financial fraud.

Banks, startups and watchdogs harness Islamic finance opportunities Nikkei Asian Review 31st Oct 2017
Early one August morning, before the heat became unbearable, several dozen people gathered in a courtyard in the Indonesian village of Kasaman, not far from Jakarta. They were there to repay debts -- and to simply be seen. "Everyone, please check the details of your contracts." Seated before the crowd of mostly women, the staff of BTPN Syariah shouted instructions. The Islamic bank hosts similar meetings across the country: Residents who take out small loans under Shariah-compliant microfinance arrangements gather every two weeks to make payments in front of their neighbors.

Food & Agriculture

GAPKI urges government to increase palm oil competitiveness The Jakarta Post 2nd Nov 2017
The Indonesian Palm Oil Producers Association (GAPKI) has urged the government to help increase the competitiveness of palm oil products, as palm oil remains the country’s most important export commodity, the GAPKI chairman stated on Thursday at an industry conference.

Coordination needed to settle food resilience issue: Finance minister Antara News 31st Oct 2017
Finance Minister Sri Mulyani said coordination among ministries and between central and regional administrations was needed to settle the issue of food resilieance in Indonesia with regard to dealing with exploitation of natural resources. "We have a room to settle the problem but the challenges are not easy to deal with. Geographically Indonesia can provide natural resources that are needed not only by us but also by global community. Coordination is needed," she said at Asia Pacific Food Forum here on Monday. The coordination is needed not only among ministries concerned with providing food supplies such as the ministry of agriculture and the ministry of fisheries but also between central and regional administrations, she said.

President Jokowi calls on youth to work in agriculture sector Antara News 28th Oct 2017
President Joko Widodo (Jokowi) has called on the youth to work in the agriculture sector and to modernize it. "I want to invite our youth to work in the food and agricultural sectors by applying modern management (practices), as, so far, we have seen that we increasingly focus on agricultural cultivation in farms," the head of state said during an interactive discussion with Indonesian youngsters while commemorating Youths Pledge Day at the Bogor presidential palace, here, Saturday. The post-harvest period is also important in the agriculture sector in order to offer added value to the commodities, he added.

Health & Life Sciences

Farmers urge govt to control tobacco import The Jakarta Post 31st Oct 2017
The Indonesian Tobacco Farmers Association (APTI) has called on the government to control the importation of tobacco to protect local farmers who have been heavily affected by the influx of imported tobacco.

ICT

DPR Calls on Govt to Finalize Personal Data Protection Law Tempo 2nd Nov 2017
The House of Representatives (DPR) called on the government to finalize the personal data protection law. The DPR's deputy chairman of Commission I overseeing intelligence, security, and foreign affairs Hanafi Rais said the finalization of the law is urgent as the government requires mobile phone users to register their SIM cards with ID card and family card numbers.

New ride-hailing transport regulation in place The Jakarta Post 30th Oct 2017
The Indonesian government has issued a new regulation on ride-hailing transportation services, which is expected to end the lengthy dispute between stakeholders of both conventional and online public transportation services. Transportation Minister Regulation No. 108/2017 on Non-route Public Transportation is to replace a similar regulation, 14 articles of which were annulled by the Supreme Court in August.

Infrastructure

Gov't in Hurry to Fix LRT Financing by December Jakarta Globe 2nd Nov 2017
TThe government is racing with time to prepare documents allowing state-owned construction company Adhi Karya to obtain the funding it needs to finish the light rail transit project in the greater Jakarta area.

PLN gets Rp 16.3t loan for constructing infrastructure The Jakarta Post 2nd Nov 2017
State-owned electricity company PLN has obtained Rp 16.3 trillion (US$1.20 billion) of syndicated loan from banks and non-banks. It was a scheme that combined conventional and sharia financing – the conventional scheme contributed Rp 12 trillion and the sharia scheme contributed Rp 4.3 trillion – with a 10-year term.

Manufacturing

'Middle consumer segment shifts to lower-value goods' The Jakarta Post 2nd Nov 2017
The increased cost of living during a stagnant business period has forced middle-class consumers to purchase cheaper goods to meet their daily needs, fast-moving consumer goods leader Unilever said on Wednesday.