Economic Policy Package

KOMPAS/WAWAN H PRABOWO

Coordinating Economic Minister Darmin Nasution (second left) announces the government’s 16th economic policy package on Friday (11/16/2018) at the Presidential Palace in Jakarta. Darmin, accompanied by Bank Indonesia Governor Perry Warjiyo (left) and Trade Minister Airlangga Hartarto (right), said the government had renewed its economic policies to address the challenging global condition, marked by uncertainties and pressures.

The government has issued its latest economic policy package for strengthening the resilience and competitiveness of the national economy in the face of domestic and global challenges.

The government’s 16th economic policy package, issued last week, aims to reduce the current account deficit and prevent further decline of the rupiah in the medium to long terms. The package comprises three policies on a corporate tax holiday, relaxing the negative investments list (DNI) and increasing foreign exchange from exports, especially natural resources.

With the policy package, the government intends to accelerate growth in direct investment. Ninety-five business sectors have been removed from the DNI to allow up to 100 percent foreign ownership. These sectors include printed fabrics, nature tourism, oil and gas construction, offshore drilling, cigarettes, dry rubber, art galleries, finished pharmaceutical products and medical equipment.

The expansion of the corporate tax holiday to include the agricultural, plantation and forestry products sectors is expected to drive the rural economy. Meanwhile, the tax holiday for digital, computer and cellular phone businesses is hoped make Indonesia a reliable player in Industry 4.0.

Every time the government loosens its regulations on foreign investment, the public usually questions the government’s partiality for developing local industries. For foreign direct investment to have positive impacts on the country, support from raw materials and supporting businesses is necessary. These businesses should not see investment destination countries as mere markets. They should strengthen the countries’ human resources capacity and technological skills. On the other hand, foreign investment is often seen as a source of capital, technology transfers and market expansion.

We are trying to understand the government’s various efforts in strengthening national economic resilience, including this latest economic policy package. The rupiah’s exchange value has declined since April 2018 and dipped below Rp 15,000 per US dollar, before bouncing back to Rp 14,594 per US dollar last Friday. The rupiah’s decline is caused by the current account deficit, as spending on international trade of goods, services, factor income and monetary transfers has been larger than revenues.

The issuance of the 16th economic policy package has also raised questions on the policies’ effectiveness. President Joko Widodo said that he believed civil servants at various levels of government did not yet fully support his administration’s efforts to accelerate direct investment.

Therefore, a comprehensive review of our economy would be good. Several economists have said that the main challenge to our economy is its inefficiency, as shown by our incremental capital output ratio (ICOR) of more than 6 percent. This means that growing our economy requires high investment costs, especially when compared to other emerging economies. This indicates that we need to boost national productivity so we can respond to domestic and global challenges.