He comes to the BKPM at a time of rapid change for trade and business in Indonesia, with a new draft investment law in the pipeline.
Some critics have said that Mr Lutfi came on board as the head of BKPM on Mr Yudhoyono’s coat-tails, having been a campaign adviser during the presidential elections. Mr Lutfi, however, prefers to be seen in light of his own achievements.
He is a self-made businessman who started an oil trading company at the age of 24. He later diversified into dealing with other commodities as well as starting a plant producing calcium hydrate, which separates copper from gold.
He then listed his company, Mahaka Group, of which he was the CEO and president. He has made forays into the media, owning Republika, a local daily newspaper, as well as launching a lifestyle TV station called Jak TV in Jakarta.
He is a former chairman of Indonesia’s Young Entrepreneur Organization and is a staunch supporter of small and medium-sized businesses and entrepreneurs in Indonesia.
Once he was appointed as the head of BKPM, he officially resigned as CEO and president from all his companies, although he continues to be a stakeholder in them.
Q What is the mandate of BKPM?
This is an institution that has been tackling the issuing of permits and licences for doing business in Indonesia. We co-ordinate investment-related activities. Almost all FDI has to go through this office, with the exception of the oil and gas sector and certain areas of financial investments.
Q Since BKPM is now under the Ministry of Trade, has its mandate changed and are there now limitations on what it can do?
A We are still a government-led organisation and under the constitution, my responsibility is to the president of the country. I report directly to the president. However, I need to co-ordinate the policies of this office with one of the economic ministries, although this has not been spelled out in the constitution. I am not too worried about this new mandate for BKPM and me. We still have our investment co-ordinating functions so that we can provide a safe haven for investing.
The only difference is that the approach will be different. From a top-down institution, it will become a bottom-up institution, especially with other ministries. I am looking to transform BKPM in the future to be more service-minded and service-oriented.
Q How would you transform BKPM?
Right now, the role of BKPM is more about the administration of investments rather than actively sourcing for investments. That role will be changed in the future and that is what I intend to do.
We also need to formulate a blueprint for the active solicitation of FDI. We are knocking on international doors at the moment. For instance, the president of Indonesia is going to sign the strategic investment action plan with the Japanese government when he meets [Japan’s] prime minister Junichiro Koizumi next week.
We are also planning to sign an economic partnership agreement with Malaysia. We want to be serious about working with investors.
Q Can you tell us more about the new investment law that is being drafted?
The new investment law is seen as a master umbrella for all investments in Indonesia. Under that umbrella, you can see equal treatment of international investors and local investors, which was different in the past. We also protect investments against nationalism and we want to look at ways to repatriate foreign funds and to create the right investment incentives, like tax holidays and tax breaks for new investments that qualify for such tax benefits.
The new [draft] investment law is supported by of all walks of life, from the state-owned enterprises to private businesses and the government sectors. I am hoping that it will be discussed in parliament by September this year. The other important thing for the new law is that it should simplify and expedite the processes of licensing and doing business in Indonesia.
And, more importantly, [the new law should] transform BKPM from an administrative routine government body to become more service-oriented. We want to be an ombudsman for investors, where we look on investors as our friends and their problems become our problems.
Q Do you expect to see a jump in FDI figures this year, compared to the declines of recent years?
For the first quarter of 2005, on a year-on-year basis, the economy has grown by 6.35%. (Many have said that part of this is consumption but that only accounts for 3.2%.) Half of the growth is attributed to those that have put money into the economy. Investment approval has grown year-on-year by 15% compared with last year. Exports have grown by almost 14%. FDI approval has almost doubled from $2.54bn last year to $4.94bn for the first quarter of this year.
Q Which sectors are creating this surge in growth?
Personal consumption is awesome. The number of cars sold the first quarter is 45% higher than last year. Energy and natural resources are another growth area, along with the construction sector. The cement sector grew by 8.8 %, electricity grew by 12%. This was unheard of in the past.
Q Which countries do you see as the most enthusiastic investors in Indonesia?
The most aggressive players are from Japan and China, followed by more traditional ones such as the US and Europe. Countries like India are still far behind, although FDI from India has been picking up lately.
Countries such as Singapore and Malaysia are also increasing their FDI commitments to Indonesia but are primarily into strategic mergers and acquisitions, not greenfield investments where we measure FDI contributions.
Q Has the regional autonomy issue worked against you as you try to attract FDI?
To be fair, immediately after the Asian crisis we had not seen problems of such proportions for more than 30 years. Purchasing power went down 80%. When you have markets like that, investors do not line up to come into the country. We faced a different political end change with the regional autonomy law in 2001. Regional autonomy does not present a problem to investors but the market was shrinking then and no-one wanted to come into a shrinking market.
But now the economy has sprung back to life. There are signs that Indonesians are increasing their savings in banks and the amount they borrow to jumpstart this growth is only 50%. So the lending-to-deposit rate ratio is only 50%. Indonesia’s lending rate from its GDP is only 20%. That means we have room to improve our capitalisation for investments locally, and that would also attract international investors.
Q Is economic growth being accelerated by political and policy changes in the present government?
For the first time in Indonesian history, more than 200 million people elected their president – in a country where elections were taboo. This is the democratisation process, and that is what will make Indonesia strong and resilient. In the past, we had not seen a government that was engaged with the people’s problems. For example, President Yudhoyono visited the [tsunami] crisis areas several times and even stayed in Nabire. That is how committed the present government is to its people.
Q What about the high levels of corruption and uncertainty in the legal system – is that changing?
These cases came about during the difficult post-crisis time for Indonesia. But, at the same time, we have seen Singapore Telecoms investing, and Temasek Holdings invested into our banks.
The government wants to be seen to be acting on its promises to combat corruption. And recently we have seen so many corruption cases that have been prosecuted and trialled. We also want a strong legal and judicial system in place. We are very serious about that.
The government also wants to get off the watch list of the top countries for money laundering. We are trying to be a very transparent democracy and a very open economy. In order to engage foreign investors, we need to be a low-cost producer and low-risk country; we intend to achieve both these goals in the near term.
We want to be more attractive to investors and we also want to be seen to be efficient compared with other countries in the region.