OBG Talks to Joko Widodo

Interview: President Joko Widodo

What are the government’s main priorities to make Indonesia more competitive?

JOKO WIDODO: Our focus remains on building infrastructure and implementing bureaucratic reforms, particularly by simplifying business processes. We want a more open and competitive economy. With this in mind, we recently removed several industries from the negative investment list, and we plan to remove more.

We have also launched the 16th economic policy package, which aims to further streamline licensing processes, and we will keep working to facilitate investment. Infrastructure is challenging, as we have to improve connectivity between 17,000 islands and 34 provinces. Even so, the development of infrastructure – especially seaports, toll roads, airports and power plants – is essential to fostering growth that is Indonesia-centric rather than Java-centric. We are working on this through flagship projects like the Trans-Sumatra toll road, which we expect to be ready by 2024, and several others aiming to improve inter-island connectivity.

Additionally, we are focusing on boosting power generation, with an initial plan to add 35,000 MW to the national grid by 2019. However, this target is based on a projected 7% annual GDP growth rate. I believe that adding 25,000-27,000 MW to capacity is more of an achievable target, given the current growth rate.

This administration’s attitude towards infrastructure is very different from previous ones: we take an integrated approach to ensure new projects fit in harmoniously with other planned and existing developments. With this in mind, we developed a new, adaptable business model, which was utilised in the light rail network in Surabaya, for example. We aim to make investment more attractive to private sector investors by ensuring they receive greater returns and better understand risks involved in investments. We expect the tourism sector in particular to benefit from increased investment; we have a goal to welcome 20m arrivals in 2019, and we want to develop 10 new Bali tourist destinations.

What is your assessment of the economy?

WIDODO: National economic development has been quite promising. Despite a global economic slowdown, weakening global commodity prices and a somewhat unfavourable geopolitical climate, the economy grew at an average annual rate of 5% over 2014-16, and rose to 5.01% in the first quarter of 2017, driven by improved export performance and increased investment.

Sustained economic growth, coupled with budget management improvements, continues to strengthen investor confidence. The World Bank ranked Indonesia as one of the top improvers in ease of doing business: our ranking improved from 91st in 2017 to 72nd on the “Doing Business 2018” report. Standard & Poor’s upgraded Indonesia’s sovereign credit rating to investment grade. Fitch and Moody’s also changed the sovereign credit rating outlook from stable to positive, on the back of continued macroeconomic stability and resilience. This is the first time that Indonesia has earned an investment-grade rating from every major agency since the 1997-98 Asian financial crisis.

As a result of infrastructure and logistics improvements, as well as close cooperation between the government and the Bank Indonesia, the inflation rate was kept in check at 3.35% in 2015 and 3.02% in 2016. Consequently, purchasing power was maintained. Inflation control continued in 2017, so that until July and through the period preceding Eid al-Fitr, the realised inflation rate was sustained at 2.6%.

The number of people living below the poverty line also continues to decline. In March 2015 the number of people below the poverty line totalled 28.59m, and in March 2017 it had decreased to 27.77m. The government will continue to accelerate this reduction through innovative programmes on poverty alleviation and social protection. Inequality between the rich and poor has also decreased. This is evident from the Gini index, which dropped from 0.408 in March 2015 to 0.393 in March 2017. Moreover, the unemployment rate fell from 5.81% in February 2015 to 5.33% in February 2017. Measures to improve the budgeting process are also being carried out more comprehensively and will take into account a variety of perspectives.

From July 2016 to March 2017 the government also implemented a tax amnesty programme to increase state revenue, expand the taxation database and prepare Indonesia to enter an era of global information disclosure with the introduction of the Automatic Exchange of Information. The government will maintain a prudent debt management policy in order to benefit society as a whole. Despite an increase in debt financing over 2015-17, the debt- and deficit-to-GDP ratios have been kept under control; the debt-to-GDP ratio has remained under 30% and the budget deficit has stayed under 3% of GDP. The government will continue to reduce the primary deficit in order to maintain fiscal health and sustainability. This is a relatively small deficit figure compared to other G20 and emerging countries, and our relatively high economic growth demonstrates that the rise in debt financing has increased the scale and productivity of the national economy.

How can Indonesia increase its human capital?

WIDODO: We cannot achieve any of our ambitions without investing in our human resources, so that is exactly what we are doing. Our goal is to ensure that skill sets match opportunities available in the economy, and that citizens are prepared to work in emerging industries, including those in the digital economy. Indonesia already has a thriving digital economy, and we are working to further advance and compete on a global level. We aim to create 200 start-ups every year, and we are planning more entrepreneurship programmes to help develop the digital ecosystem. We are also investing heavily in improving core subjects that feed into these new industries, such as science and maths, while vocational training is well under way in areas like manufacturing. Furthermore, we aim to increase educational collaboration with our ASEAN partners, and we have already signed several memoranda of understanding to foster educational partnerships.

How can the government support equitable economic development throughout the archipelago?

WIDODO: The government is focused on equitable economic distribution. We want people who live in the border areas, outermost islands and isolated areas to feel the presence of the nation, to feel the fruit of development and to feel proud to be citizens of the unitary state of the Republic of Indonesia. Social justice must be manifested in the life of all Indonesians. The people in Aceh are entitled to enjoy the same services of education, health, sanitation and transportation as others across the country. We want people in Papuan borders to be proud of their homeland, because these regions have become the front porch of the country. We also want the people living in the mountains and hills to enjoy the same price of fuel and staple foods as their brothers and sisters in other regions. We hope people on Miangas Island can feel the presence of the nation through the Healthy Indonesia Card, Smart Indonesia Card, and Supplementary Feeding Programme for toddlers and pregnant women. We want the people on Rote Island to feel the benefits of infrastructure developments, improved connectivity and lower logistics costs.

Additionally, we want the quality of life of all Indonesians to increasingly improve. Although our Human Development Index increased from 68.90 in 2014 to 70.18 in 2016, we should not become complacent. We must continue reducing income disparity. I believe that with equitable economic distribution we will become more united. Just development will make us stronger in addressing global competition. No one is a second-class or third-class citizen anymore, because everyone is a citizen of the Republic of Indonesia. Everyone deserves equal benefits of development; everyone shares responsibility of collective work to build the nation.