Source: AWSJ, 8 December 2014
The new leader of the world’s fourth-largest nation promised to move aggressively to lower barriers to investment and overcome decades of unmet potential that have left Indonesia lagging behind more dynamic Asian nations. In his first interview with a Western news organization since taking office Oct. 20, President Joko Widodo, popularly known as Jokowi, spoke at length to The Wall Street Journal of streamlining the bureaucracy to spur foreign investment, fixing creaking infrastructure that has choked development, and defending maritime resources by sinking foreign boats taking fish illegally.
Last month, Mr. Widodo earned applause from economists by pushing through a controversial rise in the price of subsidized fuel prices, freeing up billions of dollars for infrastructure projects. His next step, he said, beginning this month, will be to shake up the state-owned electric company that has a monopoly on electricity distribution across the archipelago nation.
A senior adviser said this would include a partial or total replacement of the company’s board. Mr. Widodo said a onestop national office to speed up processing business permits would be opened in January to shorten the time from as long as a year to a few weeks–a personal priority for him as a former businessman who struggled to start a successful furniture-exporting company.
Taken altogether, Mr. Widodo is proposing to transform Southeast Asia’s largest economy, which currently ranks 114 out of 189 countries in the World Bank’s ease-of-doingbusiness survey and has trouble attracting more of the value-added industry and export-oriented manufacturers it needs to diversify an economy largely dependent on exports of coal and other commodities.
He has asked ministers to study offering tax holidays and other incentives to attract new investment and said that in “competitive” situations where neighbors have won billion-dollar investments from under Indonesia’s nose, he would make be ready to make a deal.
Hon Hai Precision Industry Co., or Foxconn, has cited land prices and tax issues as reasons it hasn’t set up shop in Indonesia, while a maker of BlackBerry phones opted for Malaysia due to a lack of tax incentives, infrastructure and skilled workers, according to Indonesia’s investment agency.
The country has unsuccessfully courted Samsung, which has billions of dollars in investment in Vietnam.
“Why not?” said Mr. Widodo, who speaks halting English but is crystal-clear about what he wants, having spent much of his first overseas trip last month courting investors to make up for his country’s limited domestic funding sources.“If you bring money, and [if] in my calculation it gives benefit to my country and my people, please.
“Our national budget is very limited, so we need investment, we need investors, to boost our economic growth, to build our deep seaports, to build our airports,“ he said.
But Mr. Widodo faces strong headwinds. The nearly $900 billion economy is growing at its slowest pace in five years amid weaker demand from China for Indonesia’s exports of raw materials. Indonesia has yet to build up a manufacturing sector to wean itself off dependence on high commodity prices.
Mr. Widodo is rock-star popular among ordinary Indonesians, but parliament remains firmly in the control of a coalition led by Mr.Widodo’s defeated opponent for the presidency, former general Prabowo Subianto. Twenty-eight of Indonesia’s 34 provinces are controlled by parties opposing Mr. Widodo, and a decentralized system of governance means they often operate beyond the reach of the president.
Mr. Widodo suggested that his control over the national purse strings would help him with regional leaders. “When they follow our vision, we give [them] more budget,“ he said. “If not, we can decrease the budget.“ He said that he had successfully worked with opposition-controlled bodies in his roles as mayor of Solo and governor of Jakarta, and would do so again, with popular support giving him the edge.
The secret to success, he said, would be frequent control or checking of progress and that the power of his new office would help. “When I was a mayor, when I was a governor, I didn’t have intelligence,” he said. “Now, I have intelligence.” Previous governments, from the decades of dictatorship by former general Suharto to the increasingly stable democratic administrations that followed his downfall in 1998, promised to modernize the sprawling country of some 18,000 islands.But they fell short on electrification and building roads, rail and ports.Foreign investment is low.
Health care and education levels among the 250 million population are among the lowest in Southeast Asia. Mr. Widodo said that he would break new ground by actually getting things done, meeting deadlines and stepping out from the Dutchbuilt presidential palace to maintain contact with ordinary people, whose adoring support he sees as his counterweight in dealing with parliament. “Always, I work with a deadline,” said Mr. Widodo, pointing to his decision to follow through on a campaign promise to raise fuel prices early in his term.
Making good on deadlines, he said, will convince cautious investors that his country keeps its promises. Mr. Widodo vowed to defend Indonesia’s maritime space in a region that has seen increasing friction between China and other Southeast Asian nations. On Friday, Indonesia sank three Vietnamese boats after detaining the crews and confiscating their fish. Mr. Widodo called the action a dose of “shock therapy.” He said Vietnam hadn’t been singled out and that tougher enforcement would be applied to vessels from all nations.
Next month, he said, Indonesia would start a coast guard. Vietnam has been silent on the sinkings and didn’t immediately respond to requests for comment. To fuel radical change in the course of his five-year term, Mr.Widodo said he needs almost $550 billion in investment. Some of that will come from the state coffers as he weans the country off subsidies, but private investors will need to play a central role, he said.
As well as casting himself as a man of the people, Mr. Widodo is strategically cultivating a persona as the first businessman president, a practical man who feels the pain and sees the opportunity of the private sector and will be an enemy of red tape to help investors and businesses thrive. Foreign investors, who pour billions of dollars into Indonesia each year, have been wary. In recent years, Indonesia has forced some foreign miners to cut their holdings in companies, declared certain sectors off-limits to foreign investment, and introduced age restrictions on foreigners working here.
A wave of criminal cases against companies like energy giant Chevron in what critics say are essentially contract disputes have created a sense that legal certainty is declining. A senior adviser said Mr. Widodo is keenly aware of the effect the cases are having on the business climate. If all goes according to Mr.Widodo’s deadlines, 2015 will be a busy year in Indonesia. This month, he begins reform of the state electricity company, and in January he’ll complete his one-stop investment shop.
By February, he promised to resolve land acquisition problems that have held back a massive power plant with Japanese partners in central Java for years. Freeing up that project would effectively mark the onset of his fiveyear plan to add 35,000 megawatts of electricity to a grid system that faces rolling blackouts across the country.
Mr. Widodo hopes to begin work on 11 of 30 dams that will be completed during his term, creating irrigation for more than a million hectares of land. That will help him with another goal: achieve self-sufficiency in several crops within three years. His ministers have been publicizing government goals: boosting the economy’s growth rate to 7% from around 5% by 2016 at the earliest, making Indonesia the world’s largest fish exporter, and reducing logistics costs by 20% in the next five years.
Economics Minister Sofyan Djalil told the Journal on Sunday he wants to revise the decades-old structure of contracts with oil and gas companies “as soon as possible,“ giving them more incentive to push a country that was once an oil exporter but is now a net importer into a new era of riskier exploration and production.