Gita Wirjawan, Minister of Trade and Chairman, Investment Coordinating Board (BKPM): Interview

Interview: Gita Wirjawan

What progress has been made in attracting investment in the regions and in added-value industries?

GITA WIRJAWAN: We are seeing investment flourish as our strategy to shift Indonesia from a resource-based economy to a value-added one has begun to bear fruit. As a reflection of this strategy, foreign direct investment (FDI) destined to value-added industries has reached its highest ever level. In 2010 FDI was close to $17bn, and of that only $2.2bn was in the mining sector, representing a much smaller percentage compared to 2009. In terms of allocation, a larger percentage of the FDI received – 33% in 2010 compared to 18% in 2009 – has been deployed outside Java, thus contributing to a more equal distribution of investment. This achievement has to a large extent been accomplished thanks to a reinforcement of the relationships with regional leaders and a strengthening of communication mechanisms, conducted primarily trough fieldwork activities in all 33 provinces.

How has BKPM addressed conflicts arising from the issue of overlapping regulations between the central government and regional government?

GITA: Part of our job in this matter is to act as an intermediary between government agencies when they are involved in regulatory conflicts. Very often our participation in these disputes is orientated to help them understand the fact that most of these so-called overlaps are simply misinterpretations of existing laws or regulations. In many instances these situations were resolved simply through an exercise of communication between the central and the regional governments. Regional leaders who have demonstrated their capability to engage in meaningful dialogue have benefitted the most in terms of increased investment.

How should tax incentives and tax holidays be applied? Should these policies be universal?

GITA: Tax incentives shape investors’ perceptions of Indonesia and will help us attract further FDI into the country. However, they cannot be used indiscriminately and should only be applied only in certain situations, and under careful scrutiny, when you are confident that the incentive will act as catalyst to realise the actual investment. Additionally, when choosing the sectors in which to apply such incentives, it has to be determined whether the type of investment will add value. For instance, does it bring a higher degree of technology to the country? We have to work very closely with the Ministry of Finance to create a universal policy and try to avoid working on a case-by-case basis.

However, we must also be realistic; over the last 30-40 years our nation has not been able to provide attractive fiscal incentives. Therefore, we advocate working on a year-to-year basis, creating incentives for specially selected sectors and monitoring them to see whether or not the incentives attract new investors effectively. If they prove to be useful in this instance, then the logical next step is to universalise these incentives and promote them to legislative status.

What specific advancements have been made to the private-public partnership (PPP) mechanism to improve investment in infrastructure projects?

GITA: We are approaching the execution of PPPs by specifically promoting a select number of projects every year and making sure that they each step in the process is successfully completed, from pre-qualification to bidding and financial closing. We are currently working on the 2x1000 MW Central Java Coal Fired Power Plant, the Soekarno-Hatta Airport – Manggarai Railway, the Umbulan Spring Water Supply System and the Tanah Ampo Cruise Terminal. While there have been many improvements to the PPP model over the past year, we are still pushing for a more simplified regulatory framework for PPPs. We know this will be a long process, but we have to take a long-term view and ensure that we implement clear guidelines, since investments within capital-intensive industries, such as infrastructure development, require a high degree of clarity and stability.