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Indonesia: Procedural Simplification as Development Incentive

(Feb. 29, 2016) Indonesia’s President Joko Widodo, speaking on February 22, 2016, advocated building the country’s infrastructure and decreasing regulatory obstacles as vital to Indonesia’s economic competitiveness. The issue of competitiveness in the region is especially important, he said, now that Indonesia is part of the ASEAN Economic Community. “This is the era of competition among countries. … The period of 2015-2030 is critical in our infrastructure development as we have to compete with our neighboring countries,” Widodo added. (Ayomi Amindoni, Infrastructure, Deregulation Key to RI Competitiveness, Jokowi Says, JAKARTA POST (Feb. 23, 2016).) In line with this general policy, the Indonesian government has announced that it will make simplified administrative procedures available.

Banking Sector Incentives

Indonesia’s Financial Service Authority has announced that it will offer incentives to banks that lower their interest rates; a regulation on the matter is due to be drafted within three or four weeks. The incentives will include simplification of the procedures for gaining approval for opening branches and for expanding the products offered by the banks. According to the Authority’s chairman, Muliaman Hadad, the interest rates offered by banks depend on their costs of funds and operations. “As the cost of funds is getting lower, we must push more on efficiency. Currently, commercial and business loans have a high interest rate. We will introduce them [incentives] in stages.” (Anton Hermansyah, Indonesia’s Regulator Prepares Incentives for Banks Offering Low Interest, JAKARTA POST (Feb. 22, 2016).)

The Authority has not issued any rules that cap deposit interest rates, although another government agency, the State-Owned Enterprise Ministry, has ordered state-owned lenders to reduce the rates they pay as interest on deposits for clients who are also state-owned companies. Indonesia’s stock market experienced a prompt sell-off of shares of state-owned banks on February 19, 2016, in response to this policy announcement. (Id.)

Infrastructure Incentive

On February 22, 2016, the Indonesian Investment Coordinating Board (BKPM) announced that it has concluded an agreement to broaden the variety of infrastructure sectors in which investors can qualify for a simplified, three-hour licensing service. The service consolidates eight separate licensing and other administrative procedures. The agreement is in the form of a memorandum of understanding between the BKPM, the Ministry of Energy and Mineral Resources, the Ministry of Public Works and People’s Housing, and the Ministry of Transportation. (Ayomi Amindoni, Govt Expands 3-Hour Permit Issuance for 4 Infrastructure Sectors, JAKARTA POST (Feb. 22, 2016).)

The sectors eligible for the simplified, rapid procedures are transportation, public works, energy, and communications. Investors in those areas will no longer have to meet the requirements of investing a minimum of Rp100 billion (about US$7.4 million) and having at least 1,000 employees before they can use the three-hour service. Those requirements were in place when the three-hour service was initiated in October 2015. Even before this broadening of its availability, as of February 18, 20 companies had made use of the streamlined procedure. (Id.; BKPM Launches 3-Hour License Processing, JAKARTA POST (Oct. 27, 2015).)

The ability to facilitate investment in important industries in a rapid manner is one of the keys to improving Indonesia’s competitiveness in the region, according to Widodo. He noted that “[i]f other Southeast Asian countries can do everything fast, Indonesia should be able to do so, or it will be left behind.” (Khoirul Amin & Tassia Sipahutar, No More Business as Usual:President, JAKARTA POST (Feb. 23, 2016).) Indonesia is now ranked lower than a number of its competitors in the region in ease of doing business, according to the World Bank. It is listed as 109 out of 189 economies, behind Malaysia, Singapore, Thailand, and Vietnam. (Id.; “Indonesia,” Country Tables, DOING BUSINESS 2016: MEASURING REGULATORY QUALITY AND EFFICIENCY 208.)