Indonesia remains on track to hit 6% growth this year, second only to China in the Asia Pacific region. Expanding consumer class and domestic consumption remain the backbone of growth while foreign investment continues to pour in. The Investment Coordinating Board (BKPM) reported foreign investment has grown by 22.9% for 2012’s last quarter and expects a 23.3% growth in 2013.
But the Government should not rest on its laurels. In its quarterly analysis, the World Bank hints that Indonesia’s growth may slow down if the Government fails to tackle regulatory problems. The World Bank is not alone in sounding warnings. The Fraser Institute ranks Indonesia the least attractive place for mining, citing opaque regulations and nationalist policies.
Unfortunately there are a number of examples of such policies, including restrictions on agriculture and horticulture import that have inflated foodstuffs prices and caused a WTO dispute before being tempered. The proposed banking law, if enacted per the latest draft, will force the banking regulator to consider a bank’s economic contribution to the nation before approving its shareholding structure. Meanwhile, Bank Indonesia recently penalized exporters for failing to repatriate export earnings through the regulated channels and threatens to step up sanctions for persistent recalcitrance. Finally, nationalistic overtone that colour oil and gas negotiations will help the nation miss its target oil production, leaving the nation’s balance of payments burdened with oil imports and government finances hamstrung by the, albeit reduced, fuel subsidies.
Nonetheless, there are also welcome developments with the Ministry of Energy and Mineral Resources (ESDM) in the process of reregulating the mining licensing framework and completing mining maps. Concession overlaps and overwhelming local government authority to issue and revoke mining permits were the two main sources of regulatory uncertainties.
Whether these policies arise out of genuine, if misimplemented, concern to address underlying problems or a mere attempt to woo the electorate ahead of the 2014 election remains debatable. What is certain is the fact that Indonesia continues to grow despite government interventions. If the Government is serious about sustaining growth, it needs to temper populist nationalism with commercial realism that is truly beneficial to the nation.
Corruption eradication is an area that should receive mixed reviews. On the one hand, the KPK should be praised for arresting serving high-ranking politicians and officials as well as securing conviction against private sector actors. On the other hand, there is an increasingly worrying trend by other institutions to prosecute on weak, unsubstantiated grounds.
Regulatory uncertainties arguably also take its toll on government efficiency. As officials have to constantly ponder whether due process is followed, they will have less time and appetite to make bold decisions or take initiatives.
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