The Indonesian president’s words were surprisingly steadfast and straightforward. Holding the attention of an arena with tens of thousands of supporters, Joko “Jokowi” Widodo seemed to be making threats.
“We must invite as much investment as possible to create jobs. No one should be allergic to investment… Anything that obstructs investment must be trimmed.”
Among his list of trimmable obstructions are civil servants, ministers, even entire institutions. Jokowi, if he follows through on his word, plans an overhaul of the legal and regulatory frameworks that have given investors, particularly those from overseas, headaches and driven them away for years. In fulfilling a primary campaign promise, he has indicated he’ll not only unlock the door to the investors lining up outside – his government will remove anything in their way under the banner of job and infrastructure growth.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
The word “investment,” however, is a divisive word in Indonesia. For environmental defenders and those without the luxury of capital in a country where half the population doesn’t have a bank account, it’s a word reminiscent of the extractive industries on which governments since Suharto have depended for growth (and campaign funding). Businesses, driven by the discourse of development, deployed across Indonesia’s 17,000 islands to make the country a top producer of many of the world’s most critical minerals and crops. Seeing the threat of returning to this, some had called Jokowi’s words worryingly similar to Brazilian President Jair Bolsanaro’s policies on tearing down the Amazon Rainforest in favor of extractive businesses.
“Investment used to be in the natural resources, most often into plantations of pulp and palm oil, and coal mining at the time,” says Yuyun Harmono, researcher with Indonesian environmental NGO Walhi. He recalled his reaction to Jokowi’s speech in July was disappointment. “That was the past. Now we might be moving on.”
Indonesia’s independence day brought with it what seemed like a clarification. Jokowi reified another election promise: His second term would be dedicated to focusing on education to bolster the country’s human resources. With a more reserved tone, he declared the nation’s higher education institutions should be world class to be able to prepare citizens for the “emerging” economy.
This will take record spending, he says. Under the Indonesian constitution, a fifth of the central government’s budget must be dedicated to education. But the education budget shows a decline in growth compared to the year before, rising just 2.7 percent to 505.8 trillion rupiah, or $35.5 billion.
It’s with these tools that Jokowi will try to achieve his country’s highest growth since he took office. His 2020 budget, released last week, plans for 5.3 percent growth, already moderated from his early calls for 7 percent growth, something advisers still say is unachievable without more foreign investment. After a presidency defined by stagnating growth, Jokowi seems to be aiming to balance the resource-rich investment boom with more equitable human resource development.
For some, especially foreign investors whose total investments saw no growth in the last five years, Jokowi’s stern words on investment were a sigh of relief. The election had passed without disruption to investments and could even signal a historic turn in their favor. For others, opening arms to investment is far from a guarantee that equitable job growth will result. Instead, it foreshadows a tilt toward valuing investment interests over concerns for the environment and inequality.
In the run up to the April elections, in which Jokowi scored a second term, international media buzzed critically on the potential impact that a Jokowi loss would have on investment. His opponent, Prabowo Subianto, promoted a campaign on hyper-nationalism. Jokowi in his first term sold the country to foreign investment, Subianto would remark often.
The fear was also that regardless of candidate, the uncertainty that marked Jokowi’s first term would continue, and realize into investors’ worst fears: That state-run companies would be prioritized, the lethargic bureaucracy would continue, and nationalistic policies would make Indonesia and its resources far less attractive. Jokowi’s nod to investors, as well as indications he would loosen labor restrictions and reduce corporate taxes, started to bring foreign money holders back to his side.
But whether seducing more investment is the right track is still up for debate. Critics have pointed out that the investment currency that has already poured into the country has not brought with it improvement to incomes on the ground. According to government statistics on job growth and foreign investment, increasing the latter doesn’t show a great increase in the former. Indonesian news website tirto.id calculated that when foreign investment was half what it is now, it created double the number of jobs per $1 million. Allowing even more may not show great growth.
The World Bank’s Ease of Doing Business Report placed Indonesia 73rd of the 190 countries assessed. Neighboring Malaysia, by contrast, ranked as the 15th easiest country to do business in, with Thailand 27th and Vietnam 69th. Cut Nurul Aidha, a researcher with Indonesian welfare research NGO Prakarsa, says improving the ranking depends on the entire investment climate, not just more money.
“If all the factors supporting investment aren’t present, then the benefits will only be for certain parties,” Aidha told The Diplomat. “Figuring out how locals will benefit must also be transparent, so that locals are pro-investment and provide positive sentiment.”
“We do have to have regulations that are conducive for investors, for example in the investment laws on land ownership rights. Because so far there have been many cases of investors abusing land ownership rights, harming the surrounding community. Negative sentiments from the community arise, which influences investment climate.”
Yuyun from Walhi isn’t sure supporting blanket human resource development makes sense. Schools in Borneo, for example, are telling students to go home because smoke from raging forest fires makes breathing impossible.
Emboldened by a larger majority in parliament and statutory limits that make this his last term, Jokowi does indeed have the power to implement overhauls of this scale and greater. But Indonesia’s economy can’t be determined only by Jokowi’s 2020 budget or a single speech. It’s likely, too, that Jokowi’s 23-minute speech was an attempt to speak directly to investors to offer reassurance of a healthy investment environment. And what better way to address the country’s independence day than emphasize that human resources will be a priority.
Unfortunately, the only way observers will be able to see whether this policy has been implemented will be if broad tallies of investment shoot up or education levels mushroom in years to come. What occurs in the thousands of government offices that issue business permits across the country will likely remain hidden.
Ian Morse is a journalist based in Sulawesi, Indonesia.