In this webinar, Dr Reza Siregar, Dr Cyril Noerhadi and Mr Anton Gunawan discussed the background to the Indonesia Investment Authority’s establishment, its objectives, and role as well as how it is expected to work.
INDONESIA STUDIES PROGRAMME & REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Wednesday, 10 March 2021 – ISEAS – Yusof Ishak Institute hosted a webinar on “Indonesia’s Omnibus Law and Sovereign Wealth Fund (SWF)”, delivered by Mr Anton Gunawan, Lead Adviser on Economics, Finance and Inclusion Thematic Area, PROSPERA, Dr Reza Y. Siregar, Special Advisor to the Minister at the Coordinating Ministry of Economic Affairs, Republic Indonesia and Dr Darwin Cyril Noerhadi, Board of Supervisor, Indonesia Investment Authority (INA). Mr Manggi Habir, ISEAS Visiting Fellow, moderated the session.
The webinar commenced with a historical background of the Omnibus Law and Sovereign Wealth Fund (SWF) by Dr Siregar who discussed the short-, medium- and long-term challenges faced by Indonesia. The short-term challenges include creating 2-3 million quality jobs for fresh graduates and unemployed citizens and addressing the budget deficit and current account deficits. The medium- and long-term objectives include avoiding the middle-income trap by having economic growth of 6-7% per annum as well as the projected decline of the youth demographic in 2040. Dr Siregar shared that, historically, Indonesia’s economic growth engine comes from increasing domestic consumption. However, this reached its limit in 2015. After the 2008 financial crisis, the Indonesian government observed that an investment growth of at least 8-9% would be needed to drive economic growth by 6-7%. Dr Siregar added that the Indonesian government also sought ways to increase private investment in infrastructure such as through the implementation of 16 policy reform packages in 2015 and the 2016 Tax Amnesty. However, these measures did not reduce the burden of meeting regulations nor lead to a manner of sustainable investment. As such, the Omnibus law was established as a means to decrease regulation obesity towards infrastructure investment and to significantly reduce overlaps of regulations across different ministries, levels and industries. This was done in the hopes of meeting four main objectives: an increased ease of doing business, a simplification of investment requirements, an enhanced competitiveness in the labour market and a boost towards Micro-, Small- and Medium-sized business sectors.
The webinar was then handed over to Mr Gunawan who further explored the history of private investment in infrastructure in Indonesia. From the infrastructure investment flow and GDP data from 1995 to 2020, Mr Gunawan explained that investment in infrastructure remained relatively constant over the years with most of investments coming from the government and State-Owned Enterprises (SOEs). During President Yudhoyono’s governance between 2005 to 2015, there was a push towards inviting private investment in infrastructure from both foreign and domestic businesses, including a big infrastructure summit in 2015. These efforts, however, were not very successful due to a lack of interest in most of the infrastructure projects. Subsequently, during President Widodo’s administration, the push was directed towards equity investment in SOEs instead to advance more infrastructure projects. Mr Gunawan also outlined the government budget deficit which had been increasing before 2019 and has since worsened due to the COVID-19 pandemic. Lastly, Mr Gunawan highlighted the importance of good governance in the investment and fund management process by citing some examples of past cases of mismanagement in pension funds and insurance companies.
Dr Noerhadi then outlined the structure of the Indonesia Investment Authority (INA) which is a commercial entity borne by law to attract investment capital. The selection committee was established in 2020 by different ministers with the Supervisory Board consisting of five members and the Board of Directors consisting of four members, along with three other Executive Members. In comparison with SWF models from other countries such as Norway, Singapore and India, Indonesia’s SWF model is closer to that of India’s where the Indonesian government matches private investment at a 49:51 ratio. INA also has some unique features set up by law including full authority in investment decision-making, engagement in suitable partnerships with domestic or foreign business or international governments, flexibility to adopt investment policies from other countries and the ability to implement solvency policies.
The webinar concluded with the speakers answering several questions posed by the moderator and audience. Some of the questions included the manner in which currency rates or the method of withdrawing investment in INA will work, maintaining the balance between attracting Foreign Direct Investments (FDIs) towards infrastructure and other areas of development, as well as the regulation and improvement of infrastructure development by INA.