It did not take long for Indonesia’s president, Joko 'Jokowi' Widodo, to break the ice with the British business community.
“I like British heavy metal music,” he told the dozens of business people that had gathered in London in April to get a glimpse of the man who promises to turn Indonesia into a modern 21st century economy. “Led Zeppelin, Deep Purple, Iron Maiden…” he continued.
Once he had the audience’s attention, he quickly shifted away from music to focus on the core message of his speech. “Many countries only face two options: to be open or be closed. For Indonesia, the right answer is to be open. That’s why we are deregulating.”
A successful businessman of humble origins whose political acumen won him the Indonesian presidency in 2014, Mr Widodo is developing an ambitious reform agenda to modernise an economy historically dominated by vested interests and foster economic growth to counter the commodity downturn.
“We rolled back a lot of protectionist measures that had been put in place in previous years,” says Thomas Lembong, a seasoned financial investor serving as trade minister.
Mr Widodo’s government passed 12 so-called economic policy packages to address a wide spectrum of elements hindering the development of the Indonesian economy – from red tape to high electricity tariffs – and introduce tax incentives for key industries.
The government also pushed through a long-awaited review of the Investment Negative List (DNI), liberalising some 35 sectors, but also adding 20 new ones, while leaving untouched restrictions in key industries such as mining, energy and big infrastructure.
“I believe the positive benefits will be felt by international investors, as well as local small to medium-sized enterprises and large companies,” says Mr Lembong.
The Indonesian economy grew by 4.92% year-on-year in the first quarter of 2016, which marked a slight increase from the 4.73% posted a year earlier, but fell short of the 7% target set by Mr Widodo as the commodity downturn and China’s slowdown weighed on major Indonesian exporters.
Projects in pipeline
On the other hand, the president has fired up foreign investors, who announced new greenfield projects worth a record $38.5bn in Indonesia in 2015, according to figures from greenfield investment monitor fDi Markets. However, the FDI inflow that eventually materialised in 2015 fell to $16.1bn from a record $21.8bn a year earlier, figures from Bank Indonesia show.
“The government approved 12 reform packages in only 18 months, now it’s just a matter of implementation,” says Reza Siregar, senior Asean economist at Goldman Sachs.
Execution will be key to realising the government’s infrastructure plan. Jakarta’s infamous traffic jams have become a symbol of the country’s poor infrastructure and, according to Mr Widodo, the government has now embarked on “the largest infrastructure plan in our history”. This entails the construction of 2600 kilometres of roads, 15 airports, 24 ports and 3,258 kilometres of railways, as well as feeding an additional 35,000 megawatts of installed capacity into the national grid.
“There is a clear need for active participation by private investors,” says Mr Siregar. “The government needs up to 9% of GDP through 2019 to finance infrastructure projects, but capital expenditure from fiscal sources is only 2% to 3% of GDP. The resulting gap has to be financed by private investment.”
Execution is struggling to live up to initial expectations, however, with a number of developments already behind schedule. Heavy metal drummers are renowned for their speed and timing. Mr Widodo will need both to keep up the pace of reforms and deliver on his promises.