Moody’s : GoI – Announcement of economic policy package signals renewed emphasis on reform, a credit positive

Chart by Moody's

Anushka Shah, AVP – Analyst, Sovereign Risk Group, Moody’s Investors Service Singapore Pte Ltd.

On 15 June 2017, Indonesia (Baa3 positive) announced its 15th economic policy package since September 2015, but the first since November 2016. The launch of the package is credit positive, since it signals a resumption of policy reform to improve the investment climate, following the pause since late last year.

The prior fourteen packages helped to strengthen the business environment and headline GDP growth — factors which supported our recent change in the outlook on Indonesia’s rating to positive from stable. However, there had been a lull in the government’s reform agenda, coinciding with a build-up in divisive politics surrounding elections for Jakarta’s governor earlier this year. The seven-month between policy packages underscores the continued close linkage between politics and policies.

Political hurdles and regulatory complexities posed a key bottleneck to effective policymaking early in President Joko Widodo’s term in office, but progress on reforms has indicated some headway in working around these barriers. The announcement of the latest policy package suggests that the economic reform agenda has not been derailed by political considerations.

The package seeks to provide business opportunities for national logistics providers and to improve their competitiveness by streamlining and simplifying regulations, reducing operating costs, and reducing the number of prohibited and restricted goods at ports. It also aims to strengthen the Indonesia National Single Window, an existing electronic service that facilitates customs clearance through an integrated platform.

Over time, the measures will help to reduce overall logistics costs, and support the development of domestic firms in the sector. Indonesia ranks 63rd on the World Bank’s Logistics Performance Index, which compares 160 countries on six aspects of trade logistics, below other Baa-rated peers, including India (Baa3 positive) at 35th, Thailand (Baa1 stable) at 45th, and Slovenia (Baa3 positive) at 50th.

List of Policy Package 

  • 9 Sept 15     Improving National Industry Competitiveness
  • 29 Sept 15   Easing Permit Requirement and Simplify Export Proceeds Requirement
  • 7 Oct 15      Boosting Investment, Spurring exports, maintaining people’s purchasing                     power
  • 15 Oct 15    Simplifying Wage Formula and Expanding Loans for Small Business
  • 22 Oct 15    Improving Industry and Investment Climate Through Tax incentives and                     Deregulation of Sharia Banking
  • 5 Nov 15     Stimulating Economic Activities in Border Areas and Faciliting Strategic                         Commodities Avaibility
  • 7 Dec 15     Stimulating Business Activities in labor-intensive industries Nation-wide                       Through Incentives in the Form of Accelerating Land Certification Process                     for Individuals
  • 21 Dec 15    Resolving Land Acquisition Disputes, Intensifying Domestic Oil Production,                    Stimulating Domestic Parts and Aviation Industries
  • 27 Jan 16     Accelerating Electricity Generation, Stabilizing Meat Prices and Improving                    Rural-urban Logistics Sector
  • 11 Feb 16    Revising the Negative Investment List and Improving Protection for SMEs
  • 29 Mar 16    Stimulating National Economy Through Faciliation to SMEs and Industries
  • 28 Apr 16    Improving Indonesia’s rank of Ease of Doing Business
  • 24 Aug 16   Low Cost Housing for Low-Income Communities
  • 10 Nov 16   Roadmap for E-commerce
  • 15 Jun 17    Roadmap to Improve Logistic

Sources: Bank Indonesia