Muhammad Jusuf Kalla, Vice-President, Republic of Indonesia: Interview

Interview: Muhammad Jusuf Kalla

What policy measures are needed to protect Indonesia from external macroeconomic shocks?

MUHAMMAD JUSUF KALLA: Indonesia has historically been highly dependent on its trading partners, such as China and Europe. It is time to increase the internal strength of the economy. The domestic market should be one of the main drivers of economic growth in the country. We are now prioritising the development of the domestic market through strengthening sectors such as agriculture and manufacturing. This process will be aided by both infrastructure development and foreign direct investment (FDI). As a group, ASEAN member states should be able to work more efficiently. This will help us to reduce our imports in areas such as agriculture.

There are four main obstacles: the financial sector, infrastructure, logistics and bureaucracy. We are pushing for all four of these things to be improved at a much more rapid pace. The more-developed countries need a competitive industrial base. If they are going to compete, they have to focus on the lowest cost per unit. Indonesia is well positioned to serve this need. We are also working to make ourselves even more efficient through infrastructure development, which should further attract FDI.

In addition, we have the ASEAN Economic Community. When this gets up and running in 2016, it will mean more cooperation and more competition. Right now, it is about seeing who will take advantage of the integration, and who will make themselves the most efficient. Also, efficiency has much larger effects in bigger markets. If you make Indonesia more efficient, the size of the country increases the payoff of that improvement.

To what extent have the recent stimulus packages helped stabilise the economy?

KALLA: In our packages, there are certain things that will be implemented in the short term, such as certain deregulations, and some that will be implemented over one or two years, including taxation and tax holidays in some areas. So far we have had good responses to these moves. For instance, with our programme to streamline licensing at the Indonesia Investment Coordinating Board, we have seen more companies being registered and shorter processing times. To process eight or nine licences currently takes only three hours, whereas before it used to take months. Step by step, we are reducing the burden of this bureaucracy.

Concerning the tax amnesty, we are set to open up further through foreign exchange reforms. Many Indonesian businessmen have money overseas, but because the economy here is stronger than in many of these countries, we are asking the business community to bring the money back and invest. This is why we are working to implement this amnesty. We hope to have new laws passed through the parliament and believe that this will bring back foreign holdings. With taxes at a reasonable 3%, we think that significant investment will result from this.

What is your assessment of the evolution of the maritime strategy in Indonesia?

KALLA: The maritime strategy involves two things: sea transport and marine resources. Our policy regarding fishing is very strict, and we are very rigorous about stopping illegal fishing. This is to protect the incomes of people working in fishing and related industries. On the transportation side, we subsidise many ships to ensure that goods have similar costs in other areas outside of Java. The maritime toll road is aimed at balancing the costs between Java and the other islands. This is the same for airlines, where we are introducing more licences to fly to more islands. We are also working on better ways to exploit our sea-based resources, and we are re-evaluating offshore licences to leverage our mineral resources.