The Institute of Public Affairs (IPA) is an Australian think-tank with a focus on economic and political freedom. In operation since 1943, it has long taken an interest in the emerging markets of its immediate Asian neighborhood. Last week it published this 15-page report entitled¬†Innovating Indonesian Investment Regulation: the need for further reform, examining Indonesia’s progress and politics since the Asian Financial Crisis of the late 1990s.

Indonesia is symptomatic of the challenges facing developing countries” and “a model for governance reforms”, the report claims. Economic progress has been stunning in the past decade, after the full restoration of democracy and a succession of market liberalizations. GDP growth is currently at 6.5% per year, there was only minimal exposure to US and European markets during the financial crisis, and foreign direct investment (FDI) has flowed in, particularly from Singapore. Further reforms in 2007-09 opened up more sectors to foreigners and saw a scramble to invest in mining and energy, among others.

While the report claims all this is a good foundation for growth, further liberalization and continued vigilance is needed to compete with other Asian countries and improve Indonesians’ livelihood. The oft-heard transport and infrastructure inadequacies are addressed. Government ownership requirements are still a hindrance to FDI, while increasingly assertive local administrations contribute to unpredictability with new licences, taxes and conflicting regulations. Foreign investors in Indonesia’s future will need a clearer understanding of their obligations and further signs of the national government’s commitment to reform.

source: Institute of Public Affairs