Indonesian strategy:9th stimulus package disappoints

Event

The Indonesian government has announced the 9th instalment of its ‘stimulus’measures, anticipation of which may have contributed to the JCI’s 73 pointrally yesterday. Unfortunately, the announced measures have disappointed,continuing a recent trend of successive instalments becoming less and lessimpactful, which suggests the government may already be running out ofpolicy ideas. In addition, major necessary reforms (e.g. labour market reform)continue to be omitted from the agenda, while updates on the progress withimplementation of past measures (which remain slow in our assessment)continues to be absent. We believe we are approaching a point of investor‘stimulus package fatigue’, where future stimulus packages will be greetedwith growing disinterest, with focus transitioning towards execution/results.

Impact

Limited tangible measures: The latest policy package centres around (1)the financial strengthening of PLN through the provision of guarantees andequity capital injections, as well as stipulated targets to simplify permits, landavailability, and resolve legal issues (without clarifying how this will be actuallybe done, or measures to resolve the underlying systematic causes of theseissues); (2) increasing beef imports to address spiralling beef prices; (3) lowerpostage fees for businesses to levels in line with households (an extremelytrivial reform to say the least); (4) improved electronic payments and digitalmonitoring of port goods (something already occurring in many instances);and, (5) a mandatory requirement to use rupiah in all transportation activities.

Beef import ‘reforms’ a roll-back of recent policy missteps: The mosttangible short term measure is a stated intention to increase beef imports tostabilise spiralling beef prices. Not mentioned, however, was the fact thattighter import restrictions were implemented only very recently, triggering anew wave of food price inflation in January. This experience highlights thatdespite promising rhetoric about de-bureaucratisation and a push towardsmore open trade, this rhetoric is not, in fact, precluding the continuingimplementation of countervailing policies by mid-level bureaucrats in practice.

No amendments to the negative investment list: In addition, notable by itsabsence was any amendment to Indonesia’s negative investment list (NIL),which had been previously targeted for inclusion. We discussed in our recent2016 strategy outlook piece that major revisions to the NIL were by far themost tangible thing – along with labour market reform – Indonesia could do toactually improve the investment climate, as opposed to merely give theappearance of doing so. Unfortunately, the omission of an NIL revisionsuggests local interests have successfully resisted such an adjustment (whichwould entail increased competition from foreign interests). Instead of tangiblereforms, minor ‘tinkering around the edges’ continues to be preferred.

Outlook

Investors have recently (once again) bought into the idea that Jokowi isbeginning to unleash radical growth-enhancing reforms, much as they did inearly 2015. However, on-the-ground realities remain very different frompodium-level rhetoric, with the primary issue being the wide gulf in incentivesand mentality between Jokowi and his inner circle (Lembong, Nasution, Luhut,etc.), who ‘get it’, and the vast bulk of Indonesia’s remaining political andbureaucratic apparatus, which is still wedded to the ‘old’ way of doing things.