Interview: Prijono Sugiarto

How much is the revised economic outlook for Indonesia’s GDP growth affecting corporations’ growth projections and expansion plans?

PRIJONO SUGIARTO: A slowdown of Indonesia’s economic growth in 2013 was expected, following the subsidised fuel price increase, which sparked higher inflation and a 20% depreciation of the rupiah – due in large part to trade deficits. Despite this, I am confident in the medium- and long-term prospects of the country. On a global scale, the continued recovery of advanced economies such as the US will trigger higher demand in emerging economies, which will improve commodity prices and benefit Indonesian exports. Furthermore, Indonesia’s macroeconomic fundamentals are still sound.

Tightening monetary policy is expected to bring down inflation in 2014, and the trade balance has been improving over the past months. Indonesia also has a very resilient consumer market, and rising per capita income and a growing middle class make the country a very attractive market for longterm investments. All of these factors, coupled with a smooth presidential election in 2014, will usher foreign investment back into the country and boost the economy. Even with the tapering of US monetary policy, I believe Indonesia will be largely unaffected and that in the medium term foreign funds will return. Indonesia has actually only just started to enter its growth phase and will experience much more robust growth in the future. Thus, companies are capitalising on the country’s robust outlook and are continually accelerating expansion plans.

As the economy is driven by domestic demand, can Indonesian firms be encouraged to export in order to improve the country’s trade balance?

PRIJONO: Currently, Indonesian companies are not sufficiently encouraged to tap export markets due to factors including the lack of sufficient information on the export market, technological advantages that make their products unique and competitive pricing to compete against products from other emerging markets. To mitigate this, Indonesian firms need the government’s support to boost exports.

For Indonesian corporations to seriously consider the export market, we should look at incentives like subsidies, export insurance, and tax benefits for companies that build production bases and research and development facilities at home, while also exporting their products. A reduction in the cost of materials used to produce exported products through policy initiatives, including the reduction of import taxes and duties, would also be beneficial. The improvement of sea and airports, as well as other transportation infrastructure, would also reduce the logistics cost of exporting. Lastly, a competitive and stable exchange rate for the rupiah needs to be maintained in order to facilitate the interaction of local companies with the international market.

To what extent is the lack of infrastructure stifling the Indonesian automotive sector’s growth?

PRIJONO: From a regulatory perspective it is quite likely that regional governments may issue policies, such as limitations on car ownership, limitations on car and motorcycle use in certain areas or during certain hours, and electronic road pricing. This may impact the growth of the automotive sector in regions where automotive growth is exceeding the pace of road infrastructure expansion and causing severe traffic congestion. This is mainly being experienced in the greater Jakarta area and, to a lesser extent, in other large cities like Surabaya and Medan. There is room for improvement in infrastructure development across the country, particularly in toll roads as they relate to the automotive sector, which have increased a mere 778 km from 1978 to 2012. Thus, tangible growth in the nation’s infrastructure must go hand in hand with the growth of the automotive sector to support the full potential of the industry.