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[News] Challenging Next Five Years For Indonesia
Posted at: 29 May 2019

Planning officials estimated Indonesia required some US$350 billion in infrastructure financing from 2015 to 2019 and will likely need as much for the coming five-year period, with more than half expected to be financed from private sources.

Years of bad policy and nationalist pressures have steadily reduced upstream hydrocarbon exploration and production, pushing Indonesia, once a charter member of the Organisation of Petroleum Exporting Countries, closer to becoming a net oil importer.

Recent industry analysis suggests Indonesia must invest more than US$150 billion into exploration, gas distribution infrastructure and refinery capacity to slow production decline and meet growing demand. Without new investment, Indonesia could see its hydrocarbon production fall by another 20 per cent before 2024.

A second priority is to increase domestic mobilisation of resources and maintain a balanced borrowing portfolio between foreign and domestic sources.

At below 12 per cent, Indonesia’s tax ratio lags well behind that in neighbouring countries such as the Philippines, Thailand and Vietnam, all in the range of 16 to 18 per cent – product of the failure of successive Indonesian governments to formalise economic activity. Nearly two-thirds of the labour force works in the informal sector and pays no tax.

Despite notable improvements, Indonesia remains by regional standards a difficult place to invest. Protectionist regulations remain rampant. Foreign investors find it difficult to obtain visas for personnel. Labour rules make labour-intensive manufacturing non-competitive, with minimum wages increasing faster than worker productivity and severance arrangements so generous that investors are reluctant to hire.

Efforts to winnow down government limits on foreign investment in various sectors have made some headway. Indonesia must resist political pressures to limit foreign capital and technology in key sectors of the economy like hydrocarbon and mining, insurance and the digital economy.

(source: Channel News Asia)