Policy Reform in Indonesia: Agenda and Challenges . Mohamad Ikhsan Advisor to Coordinating Minister for Economic Affairs Republic of Indonesia and Senior Research Associate at the Institute for Economic and Social Research University of Indonesia.
Advisor to Coordinating Minister for Economic Affairs Republic of Indonesia and
Senior Research Associate at the Institute for Economic and Social Research University of Indonesia
Presented at The First OECD-Southeast Asia Regional Forum: Peer Review Mechanism for Policy Reform
Hotel Nikko Jakarta, Indonesia
23-24 January 2007
No clear majority and expected to continue up to the next 10 year
Authority vis a vis responsibility
Financial crisis has limited the central government power.
Crisis increases government debt services cost and limit the power of central government
Most of regions rely on central government transfers.
Inducing regional government to take progressive and in many cases unnecessary new tax and retribution.
High debt also rises the country’s risks and degree of vulnerability.
Debt intolerance in Indonesia is about 35% of GDP. It implies focusing on reducing debt burden still the agenda over 1-2 years ahead.
Vulnerability in financial sector have forced the government to take another burden on contingent liability.
The crisis also reduced the ability of the state to up grade infrastructures.
Government spending on infrastructures reduced to only 3-4 % of GDP compared to 7% during the pre crisis timeSources of Uncertainties
Increase competition problems
Greater demand and output
Better risk x return
Structural and institutional reforms
Lower taxes and cost of capital
Quality of public spendingImproving investment climate
Reduce public debt/GDP
Increase public investment
Investment Law & Procedure
Tax & Custom Reform
Labor & Immigration
Cross Sector Strategic Policy Reform
Sector Restructuring, Corporatisation and Policy Reform
Regulation on natural monopoly & investment protection
Clear separation on the role of policy maker, regulator,
contracting agency, and operator
Coordination Monetary & Fiscal Authority
Financial Institution (Banking & Non Banking)
Capital Market and SOE Privatization
Three Policy Packages
Milestones For Improving problemsRegulatory Environment for PPP
KKPPI - Interministerial Committee for Infrastructure Development
Cross Sector - PPP
Presidential Regulation No.67 /2005 (Perpres 67/2005)
Project Development Facility - PDF
Minister of Finance Regulation No.38/2006
One important theme in these laws is the phasing out of the monopoly position of the SOEs in infrastructure services…..
Wider opportunities will be open up for private investments in railways, harbors and airports and other sectors.
Energy & Power
Road & Toll Road
Water & Sanitation
Investment Climate Improvement problems
Financial Policy Package problems
Strengthen the coordination between fiscal and monetary authorities
Launched June 2006,
as joint effort between GOI and BI
Strengthening banking institutions and policy on improving the performance of SOE Banks
Strengthening non bank financial institutions (insurance, pension funds, finance companies & venture capital firms)
Improving the liquidity, efficiency and integrity of the capital market
Clarify Government privatization policy direction