In this webinar, Mr Septian Hario Seto explains Indonesia’s government efforts to pushing investment amidst the Covid-19 and potential areas for future investment. Mr Richard Borsuk discusses the importance of foreign direct investment to the country’s economy and the potential challenges of the omnibus law in Indonesia.
INDONESIA STUDIES PROGRAMME
Friday, 28 August 2020 – ISEAS – Yusof Ishak Institute hosted Mr Septian Hario Seto, deputy of investment and mining coordination at Indonesia’s Coordinating Ministry for Maritime Affairs and Investments, to discuss the government’s efforts in pushing investment amidst the Covid-19 pandemic. Journalist Mr Richard Borsuk discussed and highlighted important issues that might challenge the investment in the country. ISEAS Senior Fellow Dr Siwage Dharma Negara chaired the session.
Mr Seto began with an overview of the Covid-19 pandemic in Indonesia and its impact on the business. He showed graphs of Covid-19 cases and its spread across the archipelago. Active cases occurred in six major provinces: Jakarta, East Java, Central Java, South Sulawesi, West Java, and South Kalimantan. Mr Seto believed that a high recovery rate –with more than 50% in 32 provinces— shows a positive result in Covid-19 mitigation. While the Covid-19 pandemic creates disruption and fundamental shifts in doing business in the country, he stated that it also contributes to the rise of the digital economy. Mr Seto argued that inflation remained subdued, indicating weak demand in the economy. In view of this, the government has been encouraging people to increase consumption.
Laying out the major reform planned by the Indonesian government to attract investment during the pandemic, Mr Seto mentioned several priority measures. First, to pass the omnibus law. The bill is currently in a discussion between the government and parliament, engaging the labours and business sector. Mr Seto believed that this bill will improve the overall investment climate by simplifying regulations and licensing processes. The bill is also expected to reform the labour regulation, which has hindered job creation. Another bill is aimed to reform the taxation system. Second, to boost government spending and investment. In response to the pandemic, the government has targeted a bigger fiscal deficit, amounting to 6% of GDP, this year. However, once the economy has recovered, it is determined to return to its traditional fiscal deficit target of 3%. Third, to expand social safety nets. The government has distributed allowances in stages for the targeted community to support their consumption.
Mr Seto then explained two important areas of investment that will create fundamental changes in Indonesia’s economy. The first area is the development of the downstream industry, especially the nickel processing industry. With its large nickel resource, Indonesia has the potential to develop a lithium battery industry. Mr Seto mentioned that given Indonesia’s strategic location, it could offer competitive logistical costs for the nickel-based industry. The second potential area is the biodiesel industry. The implementation of mandatory use of biodiesel has reduced Indonesia’s dependency on fossil fuel. Answering the critics on deforestation due to the land conversion to produce biodiesel, Mr Seto cited President Jokowi’s decision to impose a moratorium on the issuance of new licenses of palm oil plantation.
In response, Mr Borsuk suggested the government to be more open towards foreign direct investment (FDI) and pay more attention to the implementation progress. He also warned that the omnibus bill now before Parliament, which was drafted quickly, is not guaranteed to pass as there is significant opposition to it from labour unions. And if the labour section of the bill is watered down to placate critics, the legislation might not fulfil its goal of helping attract more foreign direct investment. Additionally, Mr Borsuk highlighted that an ineffective institutional data bank, including lack of database management for social assistance as well as overlapping regulations, have reduced the effectiveness of the Covid-19 mitigation measures. Lastly, Mr Borsuk mentioned long-time issues concerning investment policy that needs to be anticipated, including the issue of nationalism as well as a large number of state-owned enterprises in the country.
Around 60 attendees, including government officials, diplomats, business people, bankers, researchers, students, journalists, and members of the public, joined the forum. Mr Seto fielded questions from the audiences on various issues, including the government’s strategy to assure the safety of foreign investors amidst the coronavirus transmission, data transparency in Indonesia’s decentralised governance system, the beta version of omnibus law, the development of special economic zones, and the prospect of new capital.