Hatta Rajasa, Coordinating Minister of Economy: Interview

Interview: Hatta Rajasa

Which key reform measures will remove administrative hurdles and encourage private investment?

HATTA RAJASA: Our primary focus has been to address issues related to land and land acquisition. With this in mind, we have revised policies that deal with private participation in infrastructure development by clarifying the issues of unsolicited projects, provision procedures and the government’s role in land provision. We have also implemented three initiatives to support infrastructure. First, the government will provide support to mitigate land price risk in the construction of 24 toll roads. Second, we have prohibited commercial transactions that involve certain areas, to be determined by the government, in regards to the location of future infrastructure projects. Third, we are enacting a new law on land provision for public interest.

Infrastructure investors require a certainty and access to financing that matches the long-term return goals of their projects. Accordingly, we have increased the amount of money available to the land revolving fund, which will give investors the supporting funds to provide land for the 24 toll roads. We have also issued a policy of land capping to cover the risk of increasing land acquisition prices, as well as established the Infrastructure Fund to provide bridge financing that may be needed to support infrastructure developments.

Furthermore, Indonesia Infrastructure Finance was established with a clear mandate to deepen the funding market for infrastructure projects by providing truly non-recourse financing and focusing on the provision of mezzanine and quasi-equity-type instruments for infrastructure projects. We also established the Indonesia Infrastructure Guarantee Fund, which already provides guarantees on the government’s contractual obligations under power purchase agreements and toll road concessions. In addition, we provided non-funding support for infrastructure development, including a project development facility to support the central and local government in preparing various national and regional public-private partnership projects.

To what extent has decentralisation contributed to creating a more attractive environment for investment in Indonesia’s regional economies?

RAJASA: Decentralisation has created a more streamlined bureaucracy, with a larger role for local governments to provide laws and regulations that fit well with local conditions. It has also provided one-stop services for investments and licences and encouraged local governments to fully develop their territory, giving the private sector a wide array of opportunities to invest in the regions of their choice.

However, decentralisation in some regions has created additional obstacles to investment. A weak understanding of how to conduct regional governance and attract investment has led to a less friendly business climate in some areas. To address this we have held various discussions with regional governments, which will eventually lead to wiser governance at a local level.

In the making of the Master Plan for the Acceleration and Expansion of Indonesia Economic Development (MP3EI), provincial governors, mayors and regency heads were involved from the very beginning, so that they would better understand how to attract investment from the private sector and be able to identify local projects in their respective corridors within the MP3EI. With this backdrop, a better investment climate for private investors should be on its way.

How is the government creating added value in Indonesia’s downstream industries and addressing the lack of domestically produced materials?

RAJASA: We have created legislation designed to support our downstream industries and have taken various steps to ensure these industries have the energy supplies they need. Additionally, the MP3EI is designed to support these industries by reducing bottlenecks in laws and regulations; supporting the development of science, technology and human resources; and creating new laws and revising current laws dealing with the import of the raw materials needed to support them.