OBG Talks to Joko Widodo

Interview: President Joko Widodo

What have been the key achievements of your administration during your five-year tenure?

JOKO WIDODO: Since 2014 my administration has accomplished many notable achievements. Amid challenging global economic dynamics, such as the US-China trade dispute and the consistent low oil price environment, Indonesia’s economic growth has seen a constant upward trend, with a growth rate of some 5.17% in 2018, according to the latest estimates. And, in response to the recurrent US Federal Reserve rate increases resulting in investors’ capital outflows from many emerging economies, including Indonesia, our central bank has worked diligently to proactively increase the interest rate, which eventually contributed to the stabilisation of the rupiah at the end of 2018. Moreover, my administration has managed to keep the inflation rate below 4% since taking office, further underlining the strength of the rupiah. Whereas Indonesia’s economic growth was previously in decline, my administration has ensured that economic growth is inclusive and beneficial for every Indonesian. For example, our national poverty rate decreased to a single-digit figure of 9.66% in September 2018. At the same time, Indonesia’s unemployment rate has decreased from 5.94% in 2014 to 5.3% in 2018. These positive developments also correlate with a decrease in income disparity. Wherein zero denotes perfect equality, Indonesia’s Gini coefficient has decreased from 0.4 in 2014 to 0.38 in 2018.

How would you describe your administration’s economic and fiscal policy priorities?

WIDODO: First, my administration has been working hard to ensure the success of our country’s human resources. A qualified workforce constitutes the core of any productive economy, which is why our country’s next medium-term objective is to foster human capital development, particularly through vocational training. Our workforce must be healthy, have access to education and possess the required skills to support industries’ needs. Furthermore, we must empower Indonesians who wish to become entrepreneurs by laying the foundation for an economy that is conducive to entrepreneurship. Second, we are seeking to optimise state revenues by increasing our tax rate and by optimising the management of Indonesia’s rich natural resources and assets. In addition, my administration has focused on improving and maintaining the quality of our state expenditures and on-target subsidies by injecting capital into productive areas, particularly infrastructure, education and health. Lastly, we also initiated policies for financing efficiency and sustainability by keeping our debt ratio, current account deficit and trade deficit in check. These policies, along with the exploration of creative financing, for example through the public-private partnership (PPP) scheme, have allowed us to decrease our primary balance deficit.

In what ways can foreign investment ensure continued and balanced economic growth in Indonesia?

WIDODO: It is pivotal for Indonesia to remain an attractive investment destination to enable continuous growth for our economy. While foreign investment must be made in accordance with prevailing laws and regulations, my administration has in fact simplified the permit process for private sector companies through the launch of an online, single-submission licensing system. In addition, various economic policy packages have been established and continue to be monitored, all of which aim to strengthen investment and boost productivity. These improvements to the existing investment framework have already begun to show positive results. For example, Indonesia’s ranking on the World Bank’s ease of doing business index has improved substantially from 120 in 2014 to 73 in 2019.

My administration has been eager to attract foreign investment to Indonesia for a variety of reasons. Not only do we want to attract investments that will create jobs for our people, but we have also been looking to attract investment that will improve Indonesia’s regional and global competitiveness and help boost our country’s export industries. Moreover, we welcome investments that will enhance our state revenues, including in sectors related to foreign exchange. We have also been preparing for the Fourth Industrial Revolution and have launched a roadmap to help drive breakthroughs in various sectors, particularly in chemicals, electronics, automotive, textiles, and food and beverage. Lastly, we are strengthening our digital infrastructure to support Indonesia’s digital economy which, we believe, is where the greatest potential lies for the future. Indonesia already has the highest number of unicorn companies (start-ups valued at over $1bn) in ASEAN, and we have worked hard to ensure the emergence of new tech start-ups is supported from the regulatory side. However, I would re-emphasise that to become more productive as an economy, we must develop our country’s human capital as well as stimulating foreign investment.

Given the National Medium-Term Development Plan (RPJMN) 2015-19, what are the key financing and investment targets in the short to medium term?

WIDODO: To utilise some $359bn of investments that have been required for the implementation of infrastructure objectives within RPJMN 2015-19, my administration has pursued creative financing schemes such as PPPs and non-government budget investment projects. We believe that these financing mechanisms will be important in tackling the financing gap and achieving our development targets. Since 2014, my administration’s key focus has been to improve Indonesia’s connectivity through infrastructure projects, and the results have been remarkable. From 2015 to 2018, we have prioritised a number of strategic infrastructure projects and have, among others, completed the construction of 55 dams, irrigation networks for more than 860,000 ha, 782 km of toll roads and close to 3400 km of roads. Moreover, my administration has increasingly involved the private sector in infrastructure financing to help encourage diversified fund sourcing. In order to achieve our investment targets, we will certainly continue to build infrastructure to improve Indonesia’s competitiveness. However, other key financing and investment targets over the next few years will further focus on human capital development and the adoption of new Fourth Industrial Revolution technologies, specifically for value-added sectors that will strengthen our digital economy.

To what extent is trade liberalisation among regional peers beneficial to the domestic economy?

WIDODO: Today is the era of collaboration because no country can live on its own. Collaboration between countries, notably within regions and among neighbours, is crucial to ensure that our economies move forward together. Take Indonesia’s role in ASEAN as an example, as currently about 20% of our country’s total exports are destined for other ASEAN member countries. Moreover, trade liberalisation among regional peers is not only beneficial for big companies, but also for small and medium-sized enterprises (SMEs). Through the introduction of various financial incentives, my administration has been working to improve the export capacities of SMEs. As a result, while SMEs have traditionally focused on the local market, they are now becoming increasingly export-oriented, particularly within the ASEAN region. Fellow ASEAN leaders have also made particular progress with regards to the implementation of sustainable development goals, ensuring that growth remains inclusive across the region. Aside from trade liberalisation, which is benefitting all members of ASEAN, my administration has also been advocating advanced post-disaster cooperation, especially as our regional geography is prone to natural disasters. Cooperation in general, therefore, is beneficial not only for our own economy, but also for the domestic economies of countries within the region.