Interview: Edward Soeryadjaya
What are some of the biggest challenges that need to be overcome for the economy to move forward?
EDWARD SOERYADJAYA: The immediate priority is to reverse the continuing trade deficit, while the long-term challenge is to attract foreign investment. Exports have mostly been dependent on natural resources, which have experienced a downturn for the past several quarters. Without greater investment to spur the level and variety of exports, the trade deficit will not be erased.
Short-term solutions via monetary policies will not be able to solve the fundamental issues of our economy. Rather, what we need is foreign direct investment, which can drive economic growth. However, we first need to educate our stakeholders and the public about foreign investment and ownership. There can be good and bad foreign investment. Good investment is that which targets manufacturing and is export-oriented, or that which generates multiplier effects such as for roads, power, ports and other infrastructure. On the other hand, bad investment includes short-term money placed in the stock exchange or investments that erode natural resources and have limited multiplier effects. For instance, while thousands of tonnes of copper and gold were extracted from Papua, infrastructure and education remains underdeveloped in that region.
Sustainable foreign investment will boost our competitiveness by creating new jobs, increasing employment, developing infrastructure and nurturing a better workforce. Furthermore, the cost of doing business can be reduced, which, in turn will attract more investment. Over time, wages will rise and the economy will gain momentum from higher domestic consumption.
How are external factors affecting fiscal performance and what can Indonesia do to support growth?
SOERYADJAYA: While the health of the US and EU economies is concerning, as together they constitute just under half of the global economy, China and other Asia-Pacific countries are currently on an upward track. There are alternative ways for Indonesia to grow besides through the influence of the US, as has been the case for some years now. Indonesia can prove itself to be dynamic and robust with its Asian neighbours, such as China, Japan and South Korea.
For the long term, the government should embrace the concept of an integrated economy, which calls for non-conflicting policies and a joined-up approach to economic planning. For instance, the newly implemented ban on the exporting of certain unprocessed metallic ores from Indonesia means that exporters of such materials must first refine and process the ores into higher grades. That is a fine policy; however, there has been a lack of integrated planning for the required supporting industries and infrastructure to build the smelters, including supply of gas, power, roads, ports and human resources. Red tape and site issues need to be ironed out. With an integrated approach, all related ministries and stakeholders can work together and remove the hurdles, including huge numbers of permits at different levels of government, land usage for the infrastructure and development of the fields, and incentives for reinvestments of the pre-tax earnings.
In what way can oil production be increased, and how do domestic energy companies see the current investment landscape?
SOERYADJAYA: Indonesia’s demand for energy, especially in the medium to long term, is going to rise significantly. With priorities given to domestic operators, the government is hoping to see more multiplier effects created through oil and gas earnings. The government is taking steps to reduce red tape, in particular at the exploratory stage. Increased domestic financing for the development of reserves on proven fields is also under way. Limited infrastructure in remote areas including roads, power supply and ports remains a challenge. Many industries could develop and improve markedly if there were better roads, trains and organisational structures in place. Investment in this area could create positive spillover effects for the wider economy.
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