Thomas Lembong, Chairman, Indonesia Investment Coordinating Board: Interview

Interview: Thomas Lembong

How can Indonesia continue attracting investment?

THOMAS LEMBONG: Investors make their decisions based on future trends rather than current snapshots, so it is important to improve our long-term outlook. I am confident that Indonesia is moving towards modernisation, rationalisation and internationalisation, and will continue on this trajectory in the coming years. There will certainly be setbacks, but it’s becoming increasingly clear that Indonesia is steadily making progress. For example, in 2017 Standard & Poor’s (S&P) restored Indonesia to investment grade for the first time in 20 years. Over the last two decades we enjoyed a massive commodity boom, with our GDP rising from $250bn per year to $1trn per year, and as a result S&P decided to upgrade our rating. This speaks volumes of our achievements so far, and we will continue to strive for economic reform, while also maintaining momentum in deregulation and the modernisation of regulations.

Some emerging opportunities to further boost foreign direct investment and total investment include the emergence of the tourism sector as a strategic priority, and the opportunities offered by China’s One Belt, One Road initiative. I believe that this is the largest infrastructure programme in the world for this generation. President Joko Widodo’s administration is determined to make the most of our participation in this initiative in order to drive investment across the economy.

Currently, what are the major obstacles to investment in the country?

LEMBONG: I have identified five main obstacles to investment. The first is related to regulations: excessive regulation and lengthy licensing procedures are compounded by constantly changing regulations, which are often poorly conceived and misguided. This is the biggest issue for investment by far. Second are tax-related issues, such as the fact that our tax revenue depends heavily on the manufacturing and financial sectors. We need to broaden our tax base and lighten the burden on these two areas. This is an aspect of the tax system that we need to update. Third is a labour-related issue, regarding the difficult and expensive processes required to obtain work permits for expatriates. Fourth are land-related issues, such as acquiring building permits, as this can take months or even years in some cities. Lastly, there is the issue of infrastructure in addition to the rising dominance of state-owned enterprises in infrastructure development. We need to create more space and opportunities for private sector participation across the board.

What steps are needed to deregulate the economy?

LEMBONG: We need to tackle more fundamental issues, including our policy-making process. Today, ministers tend to sign regulations that come as a surprise, and as a result these are often revised and then cancelled. President Widodo is now pushing for regulations to be promulgated through many public consultations and a transparent process, so that when laws are implemented they do not come as a shock. Additionally, the quality of regulations will be higher and will incorporate broader input from all stakeholders. Public consultation is merely a formality at the moment. An overhaul of the policy-making process could be quite revolutionary, and it should address the issue of unstable and constantly changing regulations.

How is the private sector developing tourism?

LEMBONG: Tourism is one of the top industries for private sector participation, as it requires consumer-oriented thinking to make leisure destinations attractive. Moreover, privately owned projects are led by investors who ensure that they are realistic and bankable. Tourism is a prime example of where you need end-to-end thinking; the chain is only as strong as its weakest link. You can have beautiful resorts, but without proper infrastructure, they will not succeed. Private investment is needed to create prosperous tourism destinations.