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Indonesia has become an increasingly attractive investment destination, with foreign direct investment (FDI) showing an upward trend amid a global economic downturn.
Thanks to the government’s success in coping with the COVID-19 pandemic and anticipatory measures against the global economic turbulence, Indonesia has managed to retain strong economic fundamentals, controllable inflation and a record state budget surplus of Rp106.1 trillion.
It comes as no surprise, therefore, to learn that Indonesia’s economic performance has shown a consistently positive trend in the post pandemic era, indicating an economic recovery.
Bank Indonesia (BI) forecasts that positive economic growth will continue until next year, with strong household consumption, exports and investments acting as the driving force of the country’s gross domestic product (GDP). In addition, Indonesia's position as Group of 20 president this year further strengthens the national economy.
"The presence of the G20 plays an important role in encouraging dialogue, cooperation and coordination in policy responses for global economic recovery," said BI deputy governor Dody Budi Waluyo to the G20 Communications and Media Team on Wednesday (9/11/2022).
The meeting of G20 leaders at the Bali summit later this month, he said, would provide guidance and market confidence for future economic prospects and financial system stability. BI also believed that public consumption would remain strong, even though it was restrained by the increase in fuel oil (BBM) prices.
Market participants hope that holding the G20 Summit will have an impact on the entry of foreign investment into Indonesia. Investment performance is expected to increase its contribution to the country’s GDP for the next three years.
"What we hope is that this meeting will have a significant impact in the medium-long term with the entry of investment into Indonesia," said University of Indonesia (UI) economist Fithra Faisal Hastiadi, to the G20 Communications and Media Team on Thursday (11/10/2011).
Statistics Indonesia (BPS) revealed recently that Indonesia’s economic growth in the third quarter of 2022 was recorded at 5.72 percent year-on-year (yoy). That exceeds the 5.44 percent yoy growth rate recorded in the second quarter and 5.01 percent yoy in the first.
The relaxed pandemic restrictions at home and higher prices for key export commodities in global markets have benefited the domestic economy this year.
Meanwhile, Indonesia’s annual inflation rate fell to 5.71 percent in October of 2022 from September's near seven-year peak of 5.95 percent, lower than market estimates of 5.99 percent.
While the country’s economy is predicted to grow further by the end of this year, Indonesia has also made incredible progress when it comes to infrastructure, business licenses, legal certainty, political stability and security, factors that business people and investors value highly.
Communications and Informatics Minister (Kominfo) Johnny G. Plate said that the administration of President Joko “Jokowi’ Widodo and Vice President Ma’ruf Amin strived to ensure equal infrastructure development in the country’s remote areas and spurred the acceleration of development in various villages to boost economic activities across Indonesia.
According to Minister Johnny, within the last seven years of the Jokowi-Ma’ruf administration, 1,540 kilometers of toll road sections have been built and the construction of 29 airports with nine supporting facilities is targeted to be completed in 2023.
“Irrespective of the COVID-19 pandemic and the geopolitical challenge in Ukraine, 227,000 km of rural roads have been built to date, supported by 1.3 million meters of bridges throughout Indonesia to facilitate community economic activities,” said Minister Johnny in a press conference on the infrastructure development at the Kominfo Office’s Media Center, Jakarta on Sept. 20.
“The Indonesia Forward Cabinet, led by President Joko Widodo, carries on with the development of infrastructure that the previous governments had pioneered. The infrastructure development is being conducted at an accelerated speed by maintaining the balance between the budget for social protection for vulnerable communities through various programs and state budget incentives,” he said.
In the area of infrastructure, the government also focused on developing and constructing information and communications technology infrastructure, the digital sector on the downstream side.
Minister Johnny said that the development of the digital sector on the downstream side was targeted to ensure that connectivity could be developed comprehensively.
“The government has accelerated the development of digital infrastructure comprehensively in areas across Indonesia from the upstream to downstream sectors,” he said.
The entire development of the digital infrastructure is aligned with the direction that President Jokowi has given to speed up the expansion of access, increase digital infrastructure and provide internet services in Indonesia, according to Minister Johnny.
Minister Johnny pointed out that infrastructure could be developed simultaneously but “based on schedule because Indonesia is a large archipelagic country,” he said.
He explained that the information and communications technology infrastructure on the upstream side was being developed with the installation of a 459,000-km optical fiber network on land and under the sea.
Minister Johnny said that the strong digital infrastructure pillar would serve as a foundation for the growth of other pillars, including Digital Government, Digital Economy and Digital Community.
According to Minister Johnny, the government will also start to develop the National Data Center (PDN) or “Government Cloud” in Bekasi and Batam.
Apart from infrastructure development, the government has also walked the talk with respect to political stability and security, legal certainty, licenses and bureaucratic reform.
To ensure political stability and security, the government prioritizes its activities in, among other things, strengthening democracy, civil freedom and political rights, preventing terrorism and political social conflict, and protecting Indonesian citizens abroad.
On the legal certainty aspect, the government’s activities are focused on ensuring quality law enforcement and effective corruption prevention and eradication.
Structural reform
Despite the COVID-19 pandemic, which hit Indonesia in March 2020, the government continued to carry out various structural reform agendas. Regulations hampering the ease of doing business were scrapped, while, at the same time, ensuring increasingly easy procedures for business and investment.
In his welcoming remarks at the rolling out of the risk-based Online Single Submission (OSS), President Jokowi explained that the efforts were able to make the business climate in Indonesia more conducive.
“We want our business climate in our country to become increasingly conducive, providing ease for micro, small and medium enterprises [MSMEs] to embark on their business, to enhance investors’ confidence in opening as much employment as possible, which can provide a solution to the issue of the increasing number of unemployed people as a result of the pandemic,” he said.
According to World Bank’s report in 2020, Indonesia ranked 73th of 190 countries in terms of the ease of doing business. This means that Indonesia is in the category of being easy when it comes to business license procedures.
License reform, which ensures integrated, fast and simple business permits, has become “an instrument that determines our competitive edge in attracting investment,” Jokowi said.
As the political stability and security, legal certainty and bureaucratic reform continue to make headway, it is no wonder that Indonesia has turned into an investment-friendly destination.
“The political stability that Indonesia is enjoying has allowed all parties to collectively cope with big challenges and gear Indonesian people toward positive development,” said Minister Johnny.
Currently, Indonesia is hosting the one-year-long Group of 20 presidency, with the G20 Leaders’ Summit to take place in Bali on Nov. 15-16.
Through the G20 presidency, Indonesia has proven to be a country able to ensure economic resilience and to withstand the crisis.
With Indonesia’s investment climate becoming increasingly friendly, business people, executives and investors alike are optimistic about Indonesia’s future economic prospects.
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