The Indonesian economy, now worth almost US$900 billion in nominal terms, has been among the world’s fastest-growing in recent years. However, economic growth has significantly declined and now stands at the lowest level in half a decade.
Indonesia’s main stock index has had its gains since President Joko Widodo’s election wiped out, with the IDX Composite at its lowest level in over a year. This trend has mainly been caused by disappointing corporate earnings and waning confidence in the president’s ability to bring about the quick change that was promised.
Vice President Jusuf Kalla says that problems are still caused by administrative snags, lack of progress on major construction projects, and inefficient distribution of budgeted funds. Additionally, Indonesia is only marginally successful in persuading foreign investors to fund projects which Indonesia cannot launch on it own, says Kalla.
Kalla acknowledges that the Indonesian economy is suffering. Therefore, it is a top priority of the president to speed up spending on stalled infrastructure projects. Such actions, it is hoped, will inject billions of dollars into the economy.
With falling global oil prices cutting into Indonesia’s oil-gas revenue, and tax collection so far coming up far short of targets, the government is also increasing its efforts to attract more foreign direct investment, says Kalla. This could prove profitable in the long-term.
According to Kalla, foreign companies “don’t need more incentives” to invest in Indonesia — a large population and low labor costs attract businesses and manufacturers. However, the government has to address old problems of improving infrastructure and access to electricity, acquiring permits for foreign workers and helping to clear land.
Especially the oil-gas industry is of vast importance to the resource-rich nation. Recently, however, exploration has come to a standstill and major projects by the likes of Chevron Corp. are only advancing slowly. Major oil companies have long argued that Indonesia lacks incentives to develop projects in the deep water and remote environments that are home to the nation’s largest remaining oil and gas fields.
The government’s primary goals to address those issues are studying new rules for cost recovery and ensuring legal certainty across industries, Kalla said. It is well-heard news then, that talks for Chevron’s US$12 billion, ultra-deepwater gas project are now moving forward after stalling in 2014.
Despite increasing efforts to attract more foreign direct investment (FDI), the president and his advisers remain ambivalent in efforts. The country is depending heavily on foreign help but does not want to risk stifling the rise of its own industries. In an effort to make his intentions clear, President Widodo recently boosted the local shipyards industry by banning the import of ships.
Whether recent efforts by the president will carry fruits or not, only the future can tell. For now, the pressures on Widodo are increasing. A cabinet shake-up, the president hopes, will help revitalize the struggling economy. Kalla declined to say when a cabinet shuffle would happen. However, advisers to Mr. Widodo, who took office last October, and members of his coalition said it could happen in July after the Islamic holy month of Ramadan.
An adviser to Mr. Widodo said a cabinet shuffle was expected to bring virtually all political parties into government, including Golkar, the nation’s third-largest party, which was once led by Kalla.