Indonesia on Tuesday announced a second package of economic stimulus measures in three weeks, increasing efforts to lure investment, prop up the battered rupiah and revive growth in Southeast Asia's largest economy. The new measures include cutting the number of permits needed for mining exploration and for establishing a business in an industrial economic zone. The government will also remove value-added taxes for ships, planes and trains.
"This is a signal to the people and to the neighbouring countries that Indonesia is a country that is friendly to investors," Cabinet Secretary Pramono Anung told reporters at the presidential palace. Investor sentiment towards the world's fourth most populous nation has soured, with President Joko Widodo struggling to implement much needed reforms, partly due to rifts in his own party and squabbles among government agencies.
The first instalment of the stimulus package, announced on September 9, had little impact on markets. Business executives said authorities need to take bolder steps to bolster growth. "What we need to do now is to turn over negative perception, business pessimism to optimism. And that requires support from monetary policy," said Hariyadi Sukamdani, chairman of the Indonesian Employers Association, adding that the central bank should cut its benchmark interest rate despite a weakening rupiah.
After the first package was announced, chief economics minister Darmin Nasution said Indonesia's "negative list" barring foreigners from investing in some sectors might later be revised. On Tuesday, no changes were announced. Indonesia's stock index has fallen 21 percent this year, while the rupiah has weakened nearly 16 percent, making it Asia's second worst-performing currency after Malaysia's ringgit. The rupiah hit a 17-year low of 14,730 to the dollar on Tuesday. The first package of measures streamlined dozens of overlapping trade and industry regulations, simplified the permission process for "strategic projects" and eased rules for foreigners opening bank accounts in foreign currency.
One part of Tuesday's package says the time needed to get an investment permit for business in an industrial estate will be cut to just three hours, from far longer. David Sumual, economist at Bank Central Asia, said it's unclear how effective moves to speed permit approvals will be "since people in the field may not be ready". He also said he had hoped for an announcement on a tax amnesty programme or reduced corporate taxes "because that will be more helpful". On Monday, Indonesia media quoted a minister saying Indonesia plans to cut corporate income tax to 18 percent from 25 percent next year. Indonesia had annual growth of 4.67 percent in the second quarter, the slowest pace in six years.
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