Indonesia plans 'Big Bang' opening of economy to foreign investment
President Joko Widodo on Wednesday unveiled plans for a "big bang" loosening of restrictions on foreign investment in nearly 50 sectors of the economy to encourage competition.
Joko's proposal, which will ease rules in the e-commerce, retail, health care and movie industries, is the most far-reaching yet in a string of stimulus packages rolled out over the past six months to arrest a slowdown in growth.
Southeast Asia's largest economy which has been growing at its slowest pace in six years because of falling commodity prices and cooling growth in major trading partner China.
But Joko told Reuters in an interview at the presidential palace he was very optimistic that growth would rebound to 5.3 percent this year after a slide to 4.8 percent in 2015.
His trade minister, Thomas Lembong, told Reuters that the sweeping changes planned for the so-called 'Negative Investment List" signaled a greater openness to foreign investment and would partly prepare the country for free trade agreements, including eventually the Trans-Pacific Partnership (TPP).
"We are seriously considering deregulation across the board, but focusing on e-commerce, health care, and creative industry," Joko said ahead of a cabinet discussion of the proposals.
"There are 49 sub-sectors [that will be affected] so in my opinion this is the big bang."
Thomas said separately that retail was also among the sectors that would be opened up under the plan.
He said there would be an opening up to some degree in each of the 16 main sectors in the negative investment list, which include agriculture, forestry, energy, communication and transport. In some cases this would raise the limit on foreign investment stakes in companies from a minority to a majority.
The health care push which would open hospitals, clinics and laboratory services to foreign companies could bring a sea-change in a country where at present foreign medical professionals are not allowed to practice.
History of protectionism
Indonesia has a long history of protectionism, and powerful vested interests have often stood in the way of trade and investment from abroad. The last revision to the negative list was done in 2014 and was seen by many as less investor-friendly.
Joko said that, so far, he has not faced any political backlash or resistance to deregulation steps he has taken.
"For me competition is very important," he said. "If we have already launched our deregulation, the bureaucracy and the system must follow the new rules."
Joko's meteoric rise from furniture businessman to president of the world's third-largest democracy — and the first to come from outside the political or military establishment — was widely seen in 2014 as a watershed moment for Indonesia.
Supporters had predicted that the former governor of Jakarta would root out corruption, promote people based on merit rather than connections and create a vibrant economy.
Instead, as economic growth sagged last year, critics said he seemed out of his depth at times and struggling to get around politicians determined to preserve the status quo.
A cabinet reshuffle last August, which brought experienced technocrats into his team, set a new tone. Since then Joko's administration has rolled out nine stimulus packages cutting red tape, offering tax breaks and loosening regulations.
The president said there were two prongs to his growth strategy: deregulation to create competition, efficiency and better services, and infrastructure development.
His government struggled last year to disburse funds for roads, ports and power stations and many critical infrastructure projects were hamstrung by bickering ministers and red tape.
However, data released last week showed that investment growth picked up in the last quarter of the year thanks to rising public spending.
The central bank spurred growth prospects further last month by cutting interest rates for the first time in 11 months. Joko said he would like to see rates even lower but said he could not force the hand of an independent central bank.