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Indonesia needs to further reform its investment regulations so it can attract more foreign investors amid changes in global trade trends, experts have said.
The shift in global trade trend as a result of the COVID-19 pandemic, trade conflicts between the United States and China and growing nationalist sentiments could lead to a rise in investment outflows from major economies such as China to developing countries, they said.
Indonesia should further reform its investment regulations so that it can attract foreign companies that would want to further diversify or relocate their investments from China due to the change in global trade trends, said Center for Indonesian Policy Studies’ (CIPS) researcher Andree Surianta.
“This pandemic has highlighted Indonesia’s economic vulnerability. Indonesia needs to push its regulatory reform agenda. While the omnibus bill is a good start for reform, we shouldn’t stop there,” he said in an online discussion on Wednesday.
The Investment Coordinating Board (BKPM) previously reported that the country’s foreign direct investment (FDI), which accounted for 46.5 percent of total investments, had fallen by 7 percent to Rp 98 trillion (US$6.56 billion) in the January to March period from the fourth quarter of 2019.
Andree criticized the government’s reform agenda, which relies on the omnibus bill, saying that the bill did not address the main issue of increasing numbers of ministerial regulations hampering foreign investments.
According to CIPS data, the government has issued 15,008 ministerial regulations since the Asian financial crisis of 1997, many of which have hampered investment activities, especially foreign ones.
“While the omnibus bill revokes 283 articles inside laws and 935 law articles, it is not enough,” he said.
The House of Representatives is currently deliberating the omnibus bill on job creation, which will remove a number of regulations seen as hampering investment activities.
Besides focusing on regulatory reform, the government is also urged to prepare for a shift in global trade in a post-pandemic world, said HSBC Indonesia president director Sumit Dutta.
“In a post COVID-19 world, I think there will be three main trends in the global economic system, which is the push toward automation, economic nationalism and diversification by large companies,” he said.
Sumit said Indonesia could capitalize multinational companies’ “China plus one” strategy, where large corporations are looking for a backup plan outside of China to ensure their production continuity once a major crisis such as COVID-19 occurred in the country.
“If we look at Indonesia, its macroeconomic indicator is showing a good sign with a high foreign reserve and a stable political system. If we can make changes in Indonesia’s regulation, the country could ramp up its growth in the next three to five years,” he said during the discussion.
He also urged the government to ensure the survivability of small and medium enterprises (SME) and control the debt level of state-owned enterprises (SOE) to ensure a solid economic recovery.
“I hope the SOEs can manage their debt and all of their obligations because Indonesia’s reputation could be affected if one of the companies goes belly up,” he said.
SOE Minister Erick Thohir recently said that Indonesia’s national flag carrier Garuda Indonesia had been severely affected by the pandemic and was struggling to pay its obligations.
Garuda Indonesia issued a $496.8 million global sukuk on June 3, 2015, which is due to mature on June 3 with an annual return of 5.95 percent, according to the company’s financial report released in September last year.
Another major SOE, steelmaker Krakatau Steel, has been struggling to pay its debts even far before the outbreak hit the economy.
In January, Krakatau Steel received approval from its creditors to restructure loans totaling $2 billion by, among other changes, rescheduling repayments to 2027 in order to revive its business.