The Indonesia economy has struggled for some time. They’ve certainly had more problems than other countries in Southeast Asia.

At the beginning of 2015, nation’s rupiah currency fell to its lowest level since the Asian Financial Crisis in the late 1990s.

Indonesia then set a target of 7% GDP growth by 2017. The key levers which will apparently be used to meet this target are through increased infrastructure spending and greater foreign investment.

However, despite some positive steps toward recovery, the Indonesia economy didn’t even come close to this target.

In fact, they’re set to grow much slower for quite some time. This brought up concerns that the government’s plans are not being put into action quickly enough.

With all that said, the current economic policies consist of three steps:

 

First Step: Get Rid of Bureaucracy

  • Boosting competitiveness through deregulation.
  • Strengthen law enforcement.
  • Helping business confidence.
  • Improving licensing procedures.
  • Increasing service quality.
  • Improving tech services.
  • 89 of 154 regulations will be reviewed to eliminate duplication and add coherence.
  • Permit simplification.
  • Reducing the number of irrelevant regulations which hamper competitiveness.

 

Second Step: Boost Infrastructure

  • Accelerating the procurement of government goods and services.
  • Permit simplification.
  • Completion of spatial layout and land supply.
  • Resolving barriers and legal protection.

 

Third Step: Revitalize Indonesia’s Property Market

  • Increasing investment in the property sector through…
  • Opening up greater investment opportunities in the real estate market.
  • Issuing a policy to encourage housing construction, particularly for low-income people.

 

The first changes already came into effect. Indonesia announced they will provide tax relief to exporters on the interest earned from deposits in local banks.

Policy-makers plans to provide the impetus for a stronger economic future for the country with new tax rates and a wider policy package.

The new tax rates will be based on two things. Namely, whether the proceeds from exports are converted into rupiah along with the length of time they’re kept in a local bank.

Previous taxes on interest income were 20%. However, the new tax rates on interest earnings are as follows:

  • 10% for deposits held one month.
  • 2.5% for deposits held up to six month.
  • 0% for deposits held longer than six months.

Furthermore, exporters will get an even more generous tax reduction if they convert proceeds into rupiah. In this case, the rates will be as follows:

  • 7.5% for deposits held one month.
  • 5% for deposits held three months.
  • 0% for deposits held six months.

Each of these three steps should greatly aid the Indonesia economy. Quality infrastructure, economic openness, and low levels of bureaucracy are all things investors look for when choosing to invest abroad.

But the question is: when will they finally lead to higher growth for Indonesia’s economy?

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an accomplished stock trader and property investor in Thailand, Cambodia, and many other places. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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