The current economic policies of Indonesia seek to achieve prosperity, macroeconomic stability, high economic growth, improved investment climate and legal certainty, as well as competitive infrastructures for development.
At the same time, the government overhauled Indonesia’s financial and banking sector. It also continues to cleanse its society and its bureaucracies of the taint of corruption. Monetary policies were consistently directed at achieving a medium-term inflation target.
Meanwhile, the restructuring of the banking sector continues to ensure stability and enable it to serve as a strong financial intermediary focusing more and more on the growth of urban and rural economy.
Fiscal policy in Indonesia is aimed at fiscal resilience and sustainability, while serving as an instrument of economic expansion. Determined to make investment the engine of its economic growth, the government of Indonesia is accelerating the realization of approved investments, strengthening the rule of law and setting up a business-friendly legal infrastructure.
The Indonesian government intends to apply equal and favorable treatment to every single investor - either a national or an international investor. Indonesia is also currently overhauling its labor regulations to reduce the rigidity of the labor market, while improving the welfare of labor and protecting their rights. The government has also simplified its tax laws and regulations to reduce distortion and red tape. In addition, it is establishing a clearer tax dispute mechanism and revamping customs procedures to improve service and eliminate corrupt practices.
To rationalize the cost of doing business anywhere in Indonesia, The government makes sure that the local laws and regulations of the regional governments are comply with the national laws and regulations — especially those on taxation. The government tries to achieve a clear division of powers between the central and regional governments in the areas of budgetary expenditure, infrastructure management, implementation of economic and social policy and ensuring free internal trade between regions. Those measures of economic reforms make Indonesia more attractive to foreign investors.
Government-Private Partnerships
At the same time, the government of Indonesia is taking vigorous steps to enhance the partnership between government and private business. With such a partnership in place, government institutions benefit from the management skills, financial acumen and entrepreneurial spirit that they can imbibe from the private sector.
On the other hand, the government provides a favorable environment for the private sector as it engages in economic activities that redound to the welfare of the people. Thus, the partnership between the government and the business community leads to sustainable development.
Initiatives for Business Sector
Indonesia has taken three major policy initiatives to promote the business sector’s involvement in development: First, it has set up a strong legal basis for reducing uncertainty. Second, it has eliminated major regulatory barriers that discourage free competition. And third, it has established a market-based pricing policy. On top of these, these strategies are for creating a favorable investment climate
Achievements
The economic rewards of these reforms are evident: Growth has been picking up steadily and reached 5.6 percent in 2005. The government projected to achieve an average of 6.6 percent growth in the next five years. Income per capita has returned to pre-Asian Crisis level, at USD 1500. Investments are increasing at a rate of 11 percent a year. Indonesia now has made its recovery from the Asian Crisis. It has completed its “consolidation phase” and now moving into a “growth phase.” This condition was accomplished largely by safeguarding Indonesia macro economy.
Agribusiness Investment Opportunity
Indonesia is the largest archipelago in the world to form a single state, consist of five main islands and some 300 smaller archipelagoes, totaling about 17.508 islands and islets of which about 6.000 are inhabited. Its five main islands are: Sumatra about 473,606 sq km in size, Java 132,187 sq km, Kalimantan 539,460 sq km, Sulawesi 189,216 sq km, Papua 421,981 sq km. The land of Indonesia is fertile for agriculture and forestry. In addition, the country is also rich in mineral resources like oil, natural gas, copper and so on.
Considering the soil fertility and huge size of Indonesia’s land, it is no wonder that agriculture and forestry-based-products are the sources of living of about 60 percent Indonesian people. New paradigm has been currently adopted to develop agriculture, namely by developing a business system from downstream to upstream. Policies and programs having been introduced by the Government to encourage investments on agribusiness. Following are some example of projects on agribusiness that offer opportunities for investments.
Arabica Coffee Industry
Bengkulu Province on the Island of Sumatra has been designated by the government as a priority area for the development of Arabica coffee plantations. This is due to the fact that the highland soil in Bengkulu is very suitable for this type of coffee. The area proposed for development is in the Kabupaten Rejang Lebong, at an altitude of around 1,100 m above sea level. The total area planned for conversion to coffee plantations is 4,500 ha, consisting of 1/3 nucleus area and 2/3 plasma area which can be developed in a partnership scheme with the existing smallholders in the area. The plantation project has prioritized the conversion of both not yet developed hillside and mountain terrain, as well as terrain which is presently is planted with Robusta crops. The proposed processing industry project would produce roasted, soluble and instant coffee with a product capacity of 3000 tons per annum. Confectionery products are also an additional output with a proposed capacity of 200 tons per annum.
Cashew Nut
South Sulawesi is well known of the producing and exporting cashew nuts. Both land and climate conditions are suitable for cashew fruit plantation. Cashew nuts productions are supported by the provincial/regency government to be one of the key commodities. The potential location is in Maros Regency.
Cultivation of Large Shrimp
Large shrimp represents the superior commodity, and it has to be developed through cultivation. To support the business, high technology with good management and environmentally friendly vision is required. Both local and international market demand high production of the shrimp.
Fishing Complex Industry
Fishing complex industry will be developed in Banten Province. There will be two big locations, namely Tanjung Panto for small fishery fleets and Binuangeun Fishery Port in Kabupaten Lebak, for medium to bigger fishery fleets. The aim of this industry development is to strengthen the existing current market.
Marine Aquaculture
Natuna Island, located in Riau Province, is where the government plans to develop marine aquaculture involving local fisherman. In the first year, a pilot marine aquaculture farm is being set up. The project will be operated with an estimated production of 2 tons per year. Within six years, it is estimated to be possible to be developed with a target production of around 600 tons per year.
Palm Trees
The Siak Regency covers an area of 8881.56 km2 stretching from Minas down to the eastern coast of the central part of Sumatra that is characterized by the vast spread of lowlands. The groups of horticulture commodities that can be developed in Siak region are: coconut, palm trees, rubber, coffee, sago, and others. In 2001, the amount of the palm trees’ production as the main commodity has reached 315,862 tons of Crude Palm Oil (CPO).