Jokowi is set to follow Trump’s deregulation agenda to lure in investment

Photo: The White House

Using US President Donald Trump’s deregulation efforts as a model, Jokowi is looking to boost Indonesia’s investment and create more jobs in the country.

Editorial

Indonesia’s two-term president, Joko Widodo, has told ministers that for every new regulation issued, they need to cut existing regulations. Jokowi reportedly informed ministers that inspiration for the initiative, designed to increase investment and create jobs, came from the Trump Administration in the US.

US Secretary of Commerce, Wilbur Ross, told Jokowi that the US president had signed an executive order in January 2017 that required ministers to revoke two existing regulations for every new regulation issued. 

Jokowi craves foreign investment

Creating jobs through foreign investment is one of Jokowi’s central goals for the next five years. Indonesia’s unemployment rate has proven resilient, sitting at 5.28% this year, only slightly lower than last year’s 5.34%.

For Jokowi, drawing foreign investment is crucial. During his victory speech earlier this year, Jokowi proclaimed, “no one should be allergic to investment.”

Despite being the largest economy in South East Asia, investment growth has been sluggish. Foreign direct investment (FDI) accounts for around a third of Indonesia’s gross domestic product (GDP). Jokowi sees a strong investment climate as an integral part of boosting national GDP.  

Regulatory uncertainty and complex bureaucratic processes present major obstacles to FDI flows. As a result, it is missing out on opportunities brought about by the ongoing US-China trade war, as Chinese investors scour the region for expansion opportunities abroad. 

33 Chinese companies have announced to expand production abroad, the World Bank reported. 23 are going to Vietnam and the rest to Cambodia, India, Malaysia, Mexico, Serbia, and Thailand.

There are several reasons why Vietnam is topping investors lists. In 2015, the country took an axe to outdated and stifling regulations in what was the biggest change to business regulations in the country since it allowed the ownership of private enterprises in 1990. The Vietnamese government opened up an additional 45 sectors to foreign investment and laid out an array of glittering tax and land incentives designed to lure in investors.

The Vietnamese government has seen returns on its deregulation efforts. The country has steadily increased its FDI inflow since 2015. In 2018, net inflows stood at 6.3% of GDP. Indonesia’s still languishes at 1.9%.

Deregulation will benefit the economy but could sacrifice environmental protections

When done in a calculated manner, deregulation is a valuable growth driver. However, an arbitrary one-in-two-out rule does not appear to be the most thought-out method.

Environmental groups are concerned that Jokowi’s goal to simplify regulations and laws that are hampering investment will strip away already scarce environmental protections. In the US, Trump’s approach to regulation has seen more than 85 environmental regulations axed.

According to Arie Rompas, a forest campaigner from Greenpeace Indonesia, “Some of the laws considered a hindrance to investment included those pertaining to the environment.” 

As the country continues to be plagued by forest fires set by businesses to clear land for plantations such as palm oil, it can ill-afford a further erosion of its environmental commitments.

After massive fires in 2015, the government implemented regulations from a moratorium on peatland clearing to banning companies from engaging in deforestation. However, the regulations have failed to stop businesses in engaging in such activities due to weak enforcement and corruption.

This year alone, 857, 756 hectares of land were razed and sent clouds of haze billowing across the region. The same businesses responsible for the 2015 fires were implicated in this year’s blazes.

The next five years will see an assault on environmental regulation

According to the NGO Mining Advocacy Network (Jatam), Jokowi’s presidential campaign was heavily funded by the mining and palm industries. Jatam’s research indicated that nearly 86% of US$4 million in donations for Jokowi’s campaign came from big mining and energy companies owned by Wahyu Sakit Trenggono, the treasurer of Jokowi’s campaign.

Moreover, several of Jokowi’s new cabinet members have business interests at odds with environmental protection.

Luhut Binsar Pandjaitan, the coordinating minister for maritime affairs and investment, has significant business holdings in the natural resource and agricultural sectors

Environmental groups have a strong message to the president. They seek to remind Widodo that the economy won’t grow on a damaged planet. If Indonesia wants to see sustainable economic growth, it must protect citizen’s access to clean air and water, an impossible task if environmental regulations are dismantled.

The push for deregulation is fair, and there is ample red tape to be trimmed, but it must be done while preserving environmental standards. The Indonesian public, along with environmental groups, will be instrumental in holding the government to account and forcing Jokowi and his ministers to focus on the millions of Indonesians that will see their quality of life deteriorate by the pursuit of investment at all costs.