INDONESIA’S NEW PATH: Promoting Investment, Nurturing Prosperity

A summary of key findings from “Indonesia’s New Path: Promoting Investment, Nurturing Prosperity” a special report by Paramadina Public Policy Institute highlighting policy challenges and recommendations from major US companies to help increase investment and support economic growth.

General Business Environment – Cross-sector challenges• Consultation and discussion between the business community and officials in

formulating policy can enable better coordination, implementation and understanding of new legislation and regulations. Ultimately this helps unlock high-value foreign investment. This would contribute to a robust, transparent and effective policy making process in line with the new government’s goal of creating a more efficient, open and transparent government.

• A streamlined permit process using an on-line system would allow for greater efficiencies and avoid duplicating efforts.

• The 2012 Land Acquisition Law, if widely used and understood, can make vital infrastructure projects go more smoothly. Best practices under the law should become benchmarks.

Oil and Gas• Contract certainty is vital for Indonesia’s oil and gas sector to ramp up slumping

production and investment to meet Indonesia’s growing energy needs. • There is a need to avoid criminalization of Cost Recovery regulations and to have

greater certainty in the execution of terms under Production Sharing Contracts (PSCs).

• Companies are anxious to see decisions made on 23 existing Production Sharing Contracts that are up for renewal soon. This would help the government achieve its policy objectives or realizing energy security and a more sustainable energy supply.

Extractive Industries• Policies that allow companies to reasonably consider the viability of domestic

smelters across different minerals would be welcomed as a way to increase investment and certainty in the sector. Negotiations over additional royalties in lieu of smelter construction could bring economic benefit to Indonesia.

• Developing a clear “One Map Policy” for all permits and all levels of government across the country would reduce the problem of overlapping permits and create more legal certainty for investors.

• A detailed and clear environmental waste regulation would also mitigate the chance of differing interpretations and make it easier for operators to comply with the regulation.

Fact Sheet on Special Report

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INDONESIA’S NEW PATH: Promoting Investment, Nurturing Prosperity

Information Technology• The IT sector needs more clarity on a regulation to create a local “industry” to

understand what is implied in the requirement. • The Indonesia Broadband Plan 2014-2019 is a positive step toward an IT eco system. • Clarification on the requirement to localize data centers is needed for planning purposes

across many industries. There is concern that the regulation could be a burden for small and large companies.

Consumer Goods• If the national government helps to see that local laws and regulations are better

harmonized with national laws it can help simplify a range of processes needed for business operations.

• Under the new Halal Law the government may wish to harmonize Indonesian standards with common practices in the region, using other countries’ best practices as a benchmark.

• The government may consider reviewing a decree on Extended Producer Responsibility for consumer waste to take into consideration local conditions and benchmarking against policies in ASEAN.

Financial Services• The new government wants to build up the domestic financial sector and it needs to

consider how foreign investors can help Indonesia achieve this goal. In insurance, for example, foreign ownership is limited to 80 percent, a higher figure than in other countries in the region. With insurance take up still fairly low, keeping foreign ownership limits attractive can encourage growth across the entire financial sector.

• Expediting the single identity system, or e-KTP, can help banks and financial institutions expand credit and growth. The e-KTP initiative should also be enabled to “receive” cash and handle electronic payments. The new government should make the e-KTP initiative a policy priority.

Agriculture• Investment in the agriculture sector needs to be encouraged by not overly limiting the

equity size of foreign investment. • The new Food Security Agency needs enough capacity to create a reliable food

information system based on the best available data to avoid disruption of food supplies. This would contribute to greater food security for Indonesia.

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Fact Sheet on Special Report