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APINDO | APINDO Warns the Government about Indonesia’s Slowing Growth
Momentum

APINDO has taken steps to remind the government of Indonesia’s loss in growth momentum and the need to stake steps to address this increasing trend. At a press conference in May 2013, Chairman of APINDO Sofyan Wanandi pointed to the key economic issues of rising fuel prices, a decrease in Indonesia’s investment rating, a current account deficit, inflation and employment regulation issues.

While supporting the rise in fuel prices, Sofyan lamented the slow pace of the government in making the necessary decisions regarding fuel price hikes which is encouraging speculation and fuel hoarding. A quick decision is also required to address the issue of the budget deficit as swelling fuel subsidies will further increase the deficit by 3.8%.

According to new data released by the Directorate General of Taxation, tax revenue as of 30th April 2013 was only 269.33 billion RP or 25.84% of the target for the year. Compared with the same period last year, this is only a 9% rise. "Our fiscal situation is increasingly unhealthy and a bad signal to would be investors. The Government needs to make serious efforts to increase tax revenues. If the problem is left unchecked, our economic growth momentum could be lost "said Sofyan.

Sofyan also highlighted further signals that an economic slowdown had occurred. In the first quarter of 2013, the Indonesian economy grew 6.02%; lower than the same period last year which stood at 6.3%. According to Sofyan, one reason is weakening purchasing power due to inflation which has been relatively high during the first quarter of 2013 at 2.43%. This is of key importance as domestic consumption is still the main source of growth for the Indonesian economy.

In addition, Sofyan pointed out that the downgrade of Indonesia by rating agencies such as Standard & Poor's who relegated the country from positive to stable should not be taken lightly. The downgrades are a warning to the government that the country has failed to take full advantage of the momentum of economic reform. Another ratings agency, Moody's Investors Service, also threatened to reduce Indonesia's debt rating if the government does not reduce fuel subsidies. "It is a rebuke to the government's continued policy of fuel subsidizing. If the government fails to reduce fuel subsidies then it is diverting potential funds for infrastructure development " said Sofyan.

Reform is also required in the field of employment. He alluded to the results of a recent report that found that many KPPOD Regulations have not served to improve the welfare of workers. According to the findings, KPPOD regulations only regulate the licensing and levies imposed on employers rather than provide incentives for increasing labor productivity. "Welfare is not only the responsibility of employers but also the government at both the central and local level. Regulation should support the creation of a conducive business climate and an increase in labor productivity; not increase the burden placed on employers" said Sofyan.

APINDO also welcomed the government’s plans to revise Presidential Regulation No. 36 of 2010 known as the Negative Investment List (DNI). However, Sofyan noted that preparation of the DNI should be directed towards achieving high growth and accelerating development for Indonesia. According to Sofyan, the preparation of the DNI must pay attention to issues such as competition, ability, and industry linkages. APINDO also proposed that local entrepreneurs should play a bigger role in service and retail distribution.

APINDO - 2013

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)