Jakarta (Bloomberg) – Indonesian President Joko Widodo vowed to implement a wave of reforms to attract foreign investment as he looks to unleash the potential of South-east Asia's biggest economy during his second term in office.
In an interview at his Jakarta office on Friday, the President – commonly known as Jokowi – pledged to quickly lower corporate taxes, ease stringent labour laws and lift curbs on foreign ownership in more industries. Emboldened by a landslide election win in April, the President insisted he had a mandate to push key reforms through Parliament.
"I know better the problems," Mr Joko said, adding that "many young people" would fill his Cabinet in a reshuffle in October. "Because this is my last term, I have no burden. I have nothing to lose."
Following a bitter election campaign that saw violent street protests, Mr Joko is pushing to bolster economic growth to protect against risks emanating from weakening global demand. Lower taxes may help Indonesia compete with regional rivals like Vietnam and Thailand in luring companies seeking to relocate businesses from China as it spars with the US on trade.
Indonesia's economy grew about 5 per cent in recent years, well short of the 7 per cent Mr Joko targeted ahead of his first term. Already, projections for growth for this year and next year have been downgraded, presenting the President with an early test before he is sworn into office in October.
In the interview, Mr Joko said he would improve worker skills, overhaul the bureaucracy, increase revenue and build infrastructure "faster" in the next five years. He will widen the number of industries open to foreign investment, saying those in need of outside capital included petrochemicals, manufacturing and labour-intensive sectors like textiles, garments and footwear.
Mr Joko said he may seek approval from Parliament next month to lower the corporate tax rate to 20 per cent or more starting in 2021. Indonesia currently has a corporate tax rate of 25 per cent, compared with a standard rate of 20 per cent for Thailand and Vietnam and 17 per cent in Singapore. The country's top individual tax level is 30 per cent, more than the highest 22 per cent Singapore levies on its residents.
The President also stressed the need to overhaul the nation's labour laws, long criticised as an impediment to both foreign and domestic investment, as Indonesia competes with countries like Thailand and Vietnam. He added that he has already consulted the country's unions as well as Parliament.
While Mr Joko was returned to office with an increased majority, the election aftermath saw the deadliest political violence in Jakarta in two decades after runner-up Prabowo Subianto's supporters took to the streets to protest. Mr Joko has since sought to unite the country and reassure foreign investors, who were already sitting on the sidelines awaiting the outcome of a long presidential race that officially began back in September.
On Friday, Mr Joko also dismissed concerns that political Islam was on the rise in Indonesia. "Indonesia is moderate Islam, modern Islam, tolerant Islam," he said. "I'm not worried about that."
He touted his administration's efforts to cut the poverty rate and rein in inflation while also building new airports, toll roads and seaports. His second term would see more investment in village infrastructure, like small roads and bridges that could help farmers access markets, he said.
While the government still wanted growth rates of more than 7 per cent, external conditions made it difficult, he added. An interest rate cut wouldn't automatically boost growth even though it would stimulate private sector activity, he said.
"Now there is a trade war, low commodity prices, then global economic growth," Mr Joko said. "We must be realistic."