World Economy

Indonesia Removes 35 Industries From Negative List

Indonesia Removes 35 Industries From Negative ListIndonesia Removes 35 Industries From Negative List

Indonesian stocks led Asia’s big economies, ahead 10% in dollar terms through March on the MSCI Index, as President Joko “Jokowi” Widodo took the investor-determined reformer crown from Indian Prime Minister Narendra Modi after a cabinet shakeup and deregulation package. He brought in a well-known private equity executive as trade minister, and removed 35 industries from the “negative list” barring foreign participation.

In the last quarter of 2015, high-profile transport infrastructure projects were unblocked and plans were also set to cut port handling and power station licensing times. International companies still await clarification on previously prohibited sector entry especially in services, and logistics may improve with faster cargo and energy permit processing but the period required still lags neighbors, ATimes reported.

The government announced that direct investment commitments tripled in January-February to $27 billion in the wake of the president’s moves, but they may not be realized to reach his post-election 7% annual GDP growth target without policy execution and bolder competitive vision and repeat India’s disappointment pattern.

In 2015 economic growth was below 5% for a five-year low, the rupiah fell 10% against the dollar, and foreign investors trimmed one-third ownership in local government bonds as well as equities. FDI was essentially flat in hard currency terms and the budget deficit veered toward the 3% of GDP statutory limit with a public spending spree. Inflation was outside the 5% upper target level with depreciation, inviting central bank tightening.

  Consumption Surge

The main positive macro features were a steady 5% private consumption increase and one-third drop in the current account gap to under 2% of GDP with import compression. The administration’s early initiatives to establish a “one-stop” approval shop and mobilize $500 billion in infrastructure allocation by end-decade generated meager results, so the president promoted a dozen separate liberalization and fast-track actions to recover momentum and offset flailing headline performance.

Official and private economic growth forecasts have been lifted this year to over 5%, and inflation is in the 3-5% target zone allowing the central bank to reduce rates on consecutive occasions to less than 7%.

Along with stocks local bonds have rallied, with the benchmark yield below 8%, and foreign investors have added holdings with domestic pension and insurance funds now obliged to raise their government paper exposure to one-fifth of assets.

However, banks remain wary of lending as the non-performing ratio, particularly for longstanding personal and commodity firm borrowers, may reach 4% this year, according to rater S&P, the only of the big three agencies not yet to assign sovereign investment-grade status.

Credit growth has not returned to the previous double-digit pace pending further economic diversification into manufacturing and services like tourism and e-commerce for new relationships, and future imposition of a deposit rate cap that will squeeze margins.