To secure the growth it needs, Indonesia must resist its protectionist
urges
AS YOU DRIVE (or more
likely, sit and stew in traffic) in any of Indonesia’s big cities, you may see
dozens of cyclists in green helmets and jackets zooming past your car windows.
They are clad in the uniform of Go-Jek, an Indonesian e-commerce firm. Its name
is a play on ojek, the Indonesian word
for the country’s omnipresent motorcycle taxis. Its app, launched in January,
lets users call a driver for a ride or a delivery. Since then the company has
seen, in the words of its young founder, Nadiem Makarim, “crazy growth”.
Indonesia is in the midst of an e-commerce startup boom, and no wonder. It
is the world’s fourth-largest mobile-phone market, with more SIM cards in use
than there are people. Two-fifths of its 255m population—half of whom are under
30—have a smartphone. But the very success of this boom hints at a broader
failure. The e-commerce sector is vibrant in large part because the government
has not yet worked out how to regulate it. Indonesia’s attitude towards
business has in general been hostile. Its labour laws are rigid. To start a
business takes an average of 47 days, compared with four in Malaysia and 2.5 in
Singapore.
During the long global boom in
commodities, firms were obliged to tolerate such red tape, but that no longer
holds. Indonesia exports crude oil, natural gas, palm oil, rubber, gold and
tin, and is especially rich in coal. Its main commodity exports tripled in
value between 2000 and 2010, says Rodrigo Chaves, the World Bank’s country
director for Indonesia. As exports boomed, so did the economy. But the value of
commodity exports has fallen by more than half from their peak. Bambang
Brodjonegoro, Indonesia’s finance minister, laments that coal—which accounts
for 11% of exports—now fetches just $50 per tonne, against $150 in 2011.
In the decade to 2014 GDP grew by an
annual average of 6%, but the commodity bust has slowed the economy. Last year
it grew by just 4.8%, the slowest rate since 2009. This year is unlikely to be
much better: the 2016 budget sets a GDP growth target of 5.3%. But compared
with many other commodity exporters Indonesia is getting off lightly.
The value of the rupiah, Indonesia’s
currency, against the dollar has fallen by a hefty 30% since mid-2013, but has
been stable recently, and other emerging-market currencies have fallen even
more steeply over that period. Despite the weak exchange rate, inflation has
mostly remained within the central bank’s target range of 3-5%. The main impact
of the rupiah’s fall has been to curb imports, helping limit Indonesia’s
current-account deficit to around 2% of GDP last year in the face of weaker
export earnings. A prudent fiscal policy during the boom years has allowed for
a modest fiscal expansion to offset the effects of weak exports and investment.
Public debt is just 26% of GDP.
The trouble is that GDP growth of around
5% is far below the 8% which the World Bank says Indonesia requires to create
jobs for the 2.5m people entering the workforce each year. Indonesia must
reform its economy to capitalise on the dividend from a young and growing
workforce. As Mr Chaves cautions, “no country became rich after it became old.”
Indonesia will never function as
seamlessly as Singapore; it is too big, diverse and fractious. But the size of
its domestic market gives it an advantage over smaller countries in attracting
foreign investment. Encouragingly, it has a track record of liberalising its
policies in troubled times. When its “command socialism” collapsed in the
1960s, it opened resource sectors to foreign investment; when oil prices fell
in the 1980s, it developed its capital markets and relaxed restrictions on
foreign ownership; and after the Asian financial crisis of 1997-98 it abolished
many import controls and tariffs.
To his credit, Jokowi realises that
Indonesia cannot lift its long-term growth rate if the economy remains reliant
on extractive industries; it needs a broader range of manufacturing and service
industries. If new enterprise is to flourish, Indonesia must support local
entrepreneurship and woo, rather than merely tolerate, foreign business.
Last April the president told an
audience at a World Economic Forum conference in Jakarta that investing in
Indonesia would bring “incredible profits”. On his maiden trip to Washington,
DC, last October he brought along an entourage of entrepreneurs and
businesspeople, and said he was interested in joining the Trans-Pacific
Partnership—a free-trade agreement that would commit his country to significant
economic liberalisation.
Tom Lembong, who took over as trade
minister last August, has promised a more liberal approach to economic policy:
a regulator’s job, he says, is to “ensure order and get out of the way”, and
protection “is for children, the elderly and the vulnerable…not for adults, and
certainly not for companies”. Such pronouncements mark a welcome shift. Hans
Vriens, who runs a consultancy focusing on South-East Asian businesses, says
Indonesian policymakers “have generally viewed foreign investment as a zero-sum
game—if the foreigners have it, something is wrong and we have to take it
back—instead of thinking, as Singapore does, about how we can thrive together.
As a result, many investors have given Indonesia a miss, despite its size.”
Go-Jek, an Indonesian e-commerce firm
offering rides and deliveries, has seen “crazy growth”
Jokowi has done his bit to improve the
business climate. At the beginning of last year he launched a one-stop service
for licensing businesses, which cuts out the need to spend days dashing from
one ministry to another. And since last September he has unveiled a series of
measures to help business, including easing some onerous regulations, cutting
industrial energy tariffs, streamlining licensing procedures for firms on
industrial estates and providing tax incentives to invest in special economic
zones. Mr Bambang says that under Jokowi the average number of days needed to
open a power plant has declined from 900 to 200 (“still short of international
standards”, he concedes). The government recently revised its “negative
investment list” of sectors in which foreign ownership is banned or restricted,
fully opening up the rubber, film and restaurant sectors, among others.
The government’s spending plans have
become more ambitious. Soon after taking office, Jokowi’s administration began
rolling out programmes to provide poor Indonesians with government-funded
health care, free schooling for 12 years and tertiary education for students
accepted into university, as well as a scheme to provide each of Indonesia’s
15.5m poorest households with a cash transfer of 200,000 rupiah ($14.37) a
month.
Jokowi says his administration’s
health-care programme now covers 88m people, but it already faces a huge
shortfall. The government has wisely used savings from cutting fuel subsidies
to fund extra capital spending. But the budget deficit still widened to 2.8% of
GDP, perilously close to the legal limit of 3%. If public spending is to
increase further, the government will need to raise more revenue.
That will not be easy. Most workers and
employers pay little or no tax. Mr Bambang estimates that only 27m of
Indonesia’s 255m people are registered taxpayers, and in 2014 just 900,000 of
them paid what they owed. Much of the fault lies with Indonesia’s Byzantine tax
system. The country’s tax inspectors are poorly paid, which makes them easier
to bribe. Last year Indonesia collected just 82% of its targeted tax revenue,
leaving it with a tax-to-GDP ratio of around 10%, compared with around 13-15%
for its ASEAN neighbours and near 40% in western Europe.
Government officials claim that they
want to broaden the taxpayer base, but big companies say that they are being
squeezed harder by the taxman because they are an easier target. A steady
stream of new protectionist rules suggests that other business-bashing
instincts still hold sway. A law requiring that by 2017, 30% of all parts for
smartphones and tablets sold in Indonesia must be locally made took effect last
summer. Last August limits on cattle imports sent beef prices soaring.
Revisions to the negative investment list eased restrictions on 30 sectors but
boosted them in 19 others. Indonesia’s bureaucracy, complains one foreign
businessman, remains “oriented towards control rather than facilitation”.
Where there has been reform, it has not
always been well implemented. The one-stop shop for licensing might save a bit
of time, but many business folk say that the rules are confusing. Licences are
still cumbersome and onerous. Shell, for instance, has around 80 service
stations in Indonesia, mostly around Jakarta, for which it needs around 1,500
permits—for safety, water, fire protection, site use and so forth—that must be
renewed annually. That takes dozens of people to manage.
Investors often complain that the
welcome message from the president has not reached his ministries or local
governments, or has arrived too late to prevent confusing about-turns. Go-Jek
got a fright in December when the transport ministry declared that “services
that demand payment using a private vehicle are not legal.” A day later Jokowi
publicly chastised his transport minister and rescinded the ban. Other sectors
have seen similar flip-flops, giving the impression of a chaotic administration
with no clear policy direction.
Yet this has already begun to change
following several cabinet reshuffles, and may improve further as the government
settles in. And in one important regard, Indonesia has taken a giant step
forward. Whereas past governments failed to invest adequately in
infrastructure, particularly outside Java, Jokowi has made the biggest push of
his young presidency in this field.
sumber: http://www.economist.com/topics/indonesia
My
opinion of the article is as follows...
In
this article explained that the Indonesian economy can be shot in the good
progress that is starting from a simple thing. From business who have creative
ideas, and can be an investment in a country that has a sale value.
Even
explained in the article that the Go-Jek, an e-commerce company offering rides
and shipping Indonesia, have seen "crazy growth". The purpose of the
sentence that I catch is, Go-Jek the origin of simple business, but will affect
the country's economic growth.
Then
explained also that last April the President told attendees at a conference of
the World Economic Forum in Jakarta who invest in Indonesia will bring
"tremendous advantage". By investing would impact profits. In
addition, by investing course will improve the current value of the rupiah
weakened.
It
is inevitable that one of the problems in Indonesia because of the weak economy
in the rupiah, which also was mentioned in the article. Because we know that
the weakening of the rupiah would potentially be bad for the country's economy.
Many factors affect the problem. Rupiah including soft currency, ie the
currency that is fluctuating or depreciate, because the economy is relatively
less established his home country. A special characteristic of currency soft
currency is its sensitivity to economic conditions internationally. The
financial crisis, speculation in financial markets, and economic instability
could lead to the fall of the value of soft currency. In addition to in terms
of characteristics, other factors that influence is economic instability.
Performance Indonesia economic data, such as GDP (Gross Domestic Product /
Gross Domestic Product), inflation, and balance of trade, is also quite
affecting Rupiah. Good growth will bolster the value of the rupiah, whereas the
trade deficit increased to make Rupiah depreciated. Two sides of the trade
balance, import and export, are important here. This is why very important for
Indonesia to boost exports and reduce dependence on imported products.
The
government must make improvements to the Indonesian economy. The government
should increase investment in order to Indonesia no longer need to import to
meet domestic consumption needs. The government should give priority to
investment in the country to be funded by local investors and reduce reliance
on foreign investment. Import restrictions also need to be done in order that
the government domestic products can compete with foreign products. Expected
government measures could reduce Indonesia's dependence on other countries and
demand-exchange foreign country can be decreased so that the stability of the
exchange rate and the Indonesian economy can be maintained.
In
addition to the role of government, the community is also expected to play an
active role in maintaining the stability of the level of the country's economy.
For example, by reducing the consumption
of imported products to switch to using domestic products, active in helping to
empower UMKM community to increase the volume of domestic production in the
country, innovating in making products that can be exported to foreign
countries, saving resources to be allocated to the industrial sector in order
to products increase productivity, reduce transaction with foreign currency,
and much more so.
In
other words, each individual is actually able to reduce the impact of the
weakening of the rupiah. In fact, they contribute to improve the welfare of the
nation. Basically, the problem of weakening of the rupiah is a common problem
(state). So not only the role of government is required to overcome not only
the government or the blame. This state can improve from the smallest element,
is none other than the citizens themselves. Thus, all elements of the
population of both countries as well as partitions are parties interested in
maintaining and benefit from the stability of the rupiah. If awareness is
already created and entrenched, then Indonesia will be able to compete in all
aspects with other countries.
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