Foreign Investment Flows Strongly and the Indonesian Economy Strengthens During the Jokowi Era
By: Pradnya Sari )*
Since the beginning of his term as President of Indonesia in 2014, Joko Widodo (Jokowi) has made strengthening the national economy one of his top priorities. One way to achieve this is by encouraging foreign investment into the country. These efforts have shown significant results, with foreign investment continuing to flow rapidly, providing a positive impact on Indonesia’s economic growth.
Jokowi’s government has focused on policies that attract foreign investors from the start. Some key steps taken include deregulation, simplifying business permits, and strengthening infrastructure. Through the Economic Policy Package launched since 2015, Jokowi has attempted to cut regulations that hinder investment and create a more conducive business climate.
In addition, the government also introduced the Online Single Submission (OSS) which simplifies the licensing process for investors. This policy aims to speed up and simplify procedures that have been known to be complicated and bureaucratic. As a result, Indonesia is increasingly competitive in the eyes of foreign investors.
Head of the Investment Coordinating Board (BKPM), Thomas Lembong revealed that there are two sectors that are Indonesia’s saviors in gaining foreign direct investment (FDI). The two sectors are the processing industry and e-commerce. Thomas continued that in the first period of President Jokowi’s administration, his party recorded a strong flow of capital into e-commerce . Only in the last 3-4 years, FDI to unicorns , startups have jumped from almost nothing, now 15-20 percent of Indonesia’s total FDI every year. And Indonesia has become a host whose unicorns exceed the number of unicorns in Europe.
In addition, BI Senior Deputy Governor Destry Damayanti said that the total capital flow into the Bank Indonesia Rupiah Securities (SRBI) instrument until May 21, 2024 had reached IDR 508.41 trillion. From there, the foreign capital flow was IDR 142.9 trillion, or equivalent to 28.11% of the total outstanding or total SRBI purchases. From this data, it can be seen that the inflow from foreign countries is quite strong. Destry said that the total foreign capital flow into the SRBI instrument on May 23 increased from the record on April 21, 2024, which was only IDR 71.55 trillion or equivalent to 18.18% of the total outstanding.
In addition to SRBI, capital flows entering BI’s portfolio investment instruments include Bank Indonesia Foreign Currency Securities (SVBI) and Bank Indonesia Foreign Currency Interest (SUVBI), each totaling US$ 2.13 billion and US$ 257 million.
Destry ensured that the government will continue to optimize various pro-market instrument innovations both in terms of volume and attractiveness of yields, and supported by strong domestic economic fundamentals, to encourage foreign portfolio inflows to the domestic financial market. Optimization of pro-market monetary instruments will also continue to be carried out to strengthen the effectiveness of policy transmission in ensuring inflation remains under control and the rupiah exchange rate remains stable.
Until now, the realization of foreign investment (PMA) has shown an increasing trend, from the first quarter of 2015 worth IDR 82.1 trillion to IDR 204.4 trillion in the first quarter of 2024 or a jump of 148.96%. The data on the realization of PMA and PMDN investment excludes investment in the upstream oil and gas sector, banking, non-bank financial institutions, insurance, leasing, home industries, and micro and small businesses. Meanwhile, the exchange rate used is US$ 1 = IDR 15,000, in accordance with the assumptions in the 2024 State Budget (APBN).
The increase in investment realization also absorbed a lot of Indonesian workers (TKI). Throughout the first quarter of 2024, the investment was able to absorb 547,419 TKI. This figure excludes foreign workers who also work. The absorption of labor is in line with the realization of investment in the manufacturing sector which reached IDR 161.1 trillion, or 40.2% of the total investment in the first three months of 2024. This value is not much different compared to investment in the infrastructure and services sector of IDR 169.2 trillion or 42.1%. Meanwhile, investment in the primary sector was IDR 71.2 trillion (17.7%).
This strong influx of foreign investment has had a significant impact on Indonesia’s economic growth. During Jokowi’s administration, Indonesia managed to maintain economic growth in the range of 5%, despite global challenges such as trade wars and the COVID-19 pandemic.
The increase in foreign investment also contributed to the increase in foreign exchange reserves, the stability of the rupiah exchange rate, and the decrease in the unemployment rate. In addition, the influx of foreign capital has strengthened Indonesia’s position as one of the largest economies in Southeast Asia.
The Jokowi administration has marked a significant phase in Indonesia’s efforts to strengthen its economy through foreign investment. Through appropriate policies and a strong push for infrastructure development, Indonesia has succeeded in attracting global investors and achieving tangible benefits for the economy. By maintaining this momentum, Indonesia has the potential to continue to grow and develop as a more resilient economic force in the future.
)* Financial Analyst of Bahana Securities Institution
