Friday, August 28, 2015

Series of Indonesian ministerial regulations damage country’s international reputation and harm investor confidence

                                     Jokowi Slaps Down Minister on Press Freedom Threat

Forcing rescission of harsh new restriction could mean welcome liberalization

Indonesia’s President Joko Widodo headed off a potential firestorm of international criticism on Thursday when he forced the home ministry to rescind harsh new regulations that would have restricted the activities of visiting foreign journalists in the country.

The new rules, apparently issued without consulting the president, were reminiscent of the harsh restrictions under the authoritarian Suharto regime and were sharply criticized by rights groups and the Jakarta Foreign Correspondents Club.

The president’s quick action to head off a press freedom crisis and rein in the actions of a ministerial outlier could also set an important precedent. After a series of ministerial regulations that have damaged the country’s international reputation and harmed investor confidence, the president could be fighting to grab the stick away from officials who often act on their own.

“This may be a watershed moment. These officials never apologize for their actions, no matter how damaging,” said a senior Western business leader. “I hope Joko is finally taking charge.”

The Home Affairs Minister Tjahjo Kumolo issued a rare climbdown, almost unheard of for Indonesian cabinet ministers.  On the same day, the government signaled that a new set of incentives will soon be issued to try and lure wary investors into the country. Also in recent weeks, two courts have unwound trumped up charges against two international school teachers and dismissed a $125 million lawsuit that might have put their school, the prestigious Jakarta Intercultural School, out of business.

That case was watched closely by investors and diplomats who feared that a powerful local developer was attempting to use false sex abuse charges to grab the high-value real estate the school owns.

With a recent cabinet reshuffle that brought more liberal voices into the administration, international investors are hoping that the president, known as Jokowi, will also act swiftly to ease bureaucratic restrictions on foreigners and remove roadblocks that have made the country seem unwelcoming to investors.

“It’s perception and it’s not good,” a senior government official said this week, according to a western business leader. “We have lost the perception battle with investors. How do we get it back?”

Over the past two to three years, rising nationalist rhetoric, matched in some cases with actions restricting foreign room to navigate the Indonesian economy, has caused deepening concern among the multinationals. In 2013, Muhammadiyah, the nation’s second largest mainstream Muslim organization, used the Constitutional Court to overturn the nation’s upstream oil and gas regulator, a blow to multinational energy companies. Muhammadiyah has declared a “constitutional jihad” campaign to reverse decades of laws and regulations liberalizing the economy.

In April of this year the Constitutional Court ruled in favor of Muhammadiyah on a judicial review that overturned a 2004 Water Law that leaves soft drink bottlers, water companies and even privatized city water providers with no legal basis for the permits they rely on to do business. Numerous lawsuits have already gone after private companies on the basis of the ruling and potentially any private company using water for industrial use could be at risk until a new regulation is in place.

The press regulation in question, a circular sent out to regional administrations nationwide, demanded that foreign journalists and their local crews obtain permits issued by the Foreign Affairs and Home Affairs ministries before being allowed to report in the country. It also obliged foreign journalists to report their activities and acquire permits from all relevant levels of government, from the municipal or district level to the provincial level.

“The letter clearly implies disobedience of a president who is open to foreign coverage, as well as suspicion of the press and civilians,” Poengky Indarti, executive director of the rights group Imparsial, told local media on Thursday. “It will also lead to less investment and tourism income.”  The rescinded circular, she said, “goes against President Joko Widodo’s position of welcoming foreign journalists covering Papua and other regions in the country.” 

In a prepared statement, the Jakarta Foreign Correspondents Club said that the “continuation and expansion of restrictive state policies on visiting journalists is a sad reminder of the authoritarian Suharto regime, and a stain on Indonesia’s transition to democracy and claims by its government that it supports a free press and human rights.”



  1. Impending meltdown catches Jokowi and Cabinet unprepared
    The signs are familiar and worryingly reminiscent of the financial meltdowns Indonesia suffered in 1998 during the Asian financial crisis and in 2008 during the US subprime loan crisis.

    President Joko "Jokowi" Widodo and his Cabinet should be fully on guard for three major storms threatening the Indonesian economy: the free-fall of the rupiah and stocks, plunging oil prices and the deepening of China's economic slowdown.

    The memory of the 1998 crisis came alive as the rupiah nose-dived for several days last week, reaching near 14,000 to the US dollar, its lowest level since February 1998.

    Bank Indonesia (BI) has been trying hard to halt the drop, but so far to no avail. Several regulations the central bank has issued to contain the rupiah slide - obliging exporters to deposit their receipts in domestic banks, requiring the use of rupiah for domestic transactions, lowering the minimum dollar purchases without underlying transactions from $100,000 to $25,000, offering more attractive deposits to attract excess rupiah liquidity - are trivial measures whose effects can only be marginal.


  2. BI's ability to execute major policy decisions has been restricted. This is because domestically it faces three conflicting objectives - stimulating growth, containing inflation, arresting the rupiah slide - that cannot be coped with simultaneously. It is as if BI is handcuffed, and external forces now control the fate of the rupiah.

    For BI, its fight against the rupiah depreciation has been hard and costly. Its reserve shrank by $8 billion between February and July 31 because of its intervention in the market.

    The rout in the Jakarta Stock Exchange (JSE) continued as investors resumed their stock sell-off more ferociously last week as they sensed that the fallout from China's slowdown would be worse than anticipated. As of August 21, the Jakarta Composite Index (JCI) had slid 16 per cent for this year and had tumbled 21 per cent from its peak in April.

    The market turmoil has wiped out nearly 800 trillion rupiah of market capitalisation in the JSX since June. Without any changes in sentiment, the JCI could be heading toward 4,100, a level not seen since September 6, 2013.


  3. Meanwhile the falling oil price hasn't yet hit bottom. After rising slightly in previous months, prices slumped to $40 per barrel last week, the same level as April 2009. Only 15 months ago, oil prices hovered around $100 per barrel. The massive oil glut continues, as Saudi Arabia, the biggest producer, and American shale oil producers are still pumping aggressively.

    The name of the game is defending market share. With its huge financial resources, Saudi Arabia could afford to undercut American producers. Meanwhile Iran, its main political rival, will see its oil flow back to the market once sanctions are lifted following its nuclear deal with the US and other countries.

    Is the $40 per barrel price sustainable? Western Canadian crude, a heavier oil that's more difficult to refine, is currently trading in the $20 range, triggering speculation that $15 per barrel is not impossible. All this puts into question the government's 2016 budget, with its projected revenue of 85 trillion rupiah from duties on $60-per-barrel oil.

    Mystery sometimes creates fear. The financial market has been gripped by investor fear over what is really happening in China. The Chinese economy has been sluggish and the authorities have responded with simulative monetary and fiscal measures. Stock trading rules have been made more flexible in a bid to prop up the plunging prices.


  4. And as if that wasn't enough, Beijing has resorted to substantial yuan devaluation. Does this indicate that China's actual growth slowdown and crisis is deeper than widely believed? How reliable are China's statistics? If the suspicions are proved true, the effect will be more serious for developing economies, like Indonesia, whose exports are largely dependent on Chinese demand.

    As the fate of major currencies is in the hands of the US Federal Reserve, the world is anxiously waiting for a signal on whether the Fed will indeed raise interest rates in September as anticipated. But signals from the Fed have been mixed. Minutes from its latest meeting reflected a split whereby some members felt that the strengthening of the US economy warranted an interest increase, while other members cited the negative effect of the rate hike on the world economy.

    Until the Fed gives a clear indication on the timing of its rate rise, currencies all over the world - including the rupiah - will fluctuate wildly.

    Those developments portend another sort of crisis that could exact a heavy toll for the Indonesian economy.


  5. To face the impending economic crisis, Indonesia needs a solid, well-functioning bureaucracy that can generate creative and bold policies. As a businessman, President Jokowi is fond of "out of the box" solutions and in fact has suggested his ministers find creative ways to address many problems.

    Unfortunately his Cabinet is not the kind he had envisioned. His ministers' actions do not reflect a harmonious orchestra under a strong conductor. The recent spat between the newly appointed Coordinating Maritime Affairs Minister Rizal Ramli and Vice President Jusuf Kalla has poisoned the environment within the Cabinet, ruining any prospect of solidarity among ministers and preventing the creation of the unified teamwork needed in the face of this impending crisis.

    Winarno Zain is a commissioner at a publicly listed oil and gas services company.