Interview: Agus Martowardojo
How strong is the correlation between Indonesia’s economic fundamentals and investment capital?
AGUS MARTOWARDOJO: The Indonesian economy is stronger than ever. Economic growth is primarily supported by an improvement in domestic consumption and solid rise in exports, which has lead to an increase of investment. The government supports fiscal health by maintaining a budget deficit at a level below 2% of GDP, while boosting tax collections by increasing tax potential and improving compliance. On the expenditure side, the budget is directed to decrease unemployment and poverty levels through higher levels of capital spending. Indonesia’s moderate deficits, strong nominal growth and an effective appreciation of the currency led to a steady reduction of public debt, specifically foreign debt, with net general government debt dramatically falling to 26% of GDP in 2010 from 89% in 2000.
In line with the above improvements, international ratings agencies have upgraded Indonesia’s sovereign rating to Ba1 (Moody’s), BB+ (Standard & Poor’s) and BB+ (Fitch). The country attracted strong capital inflow from foreign direct investment and portfolio investments in 2010. Going forward, we intend to improve governmental and judicial transparency to ensure that foreign and domestic investors find our bureaucratic standards aligned with international best practices.
How will you raise debt to plug the budgetary deficit?
MARTOWARDOJO: We are improving government debt securities management to develop a deep, active and liquid bond market in Indonesia. To pursue this target we are strengthening the primary and secondary bond market by enhancing methods of issuance, developing trading platforms, maximising the function of primary dealers and diversifying government securities instruments. These actions are being supported by an effective communications plan, which is helping us to improve coordination with our main stakeholders while broadening and strengthening our domestic base of investors. Our financing strategy is to focus on the domestic market to support our budget needs. Global issuance – especially Islamic bonds, or sukuk– is complementary to our budget and it is important not only to create a benchmark in the market, but to also increase our financing and investor base. In our first global sukuk issuance, 30% of the investors came from the Middle East.
What can the ministry do to help the private sector and state-owned enterprises access financing to address infrastructure developments?
MARTOWARDOJO: The government supports private and state-owned companies and aims to gain domestic and international investors’ trust to work together in the creation of public-private partnerships (PPPs) to develop all necessary infrastructure projects. To do so, we have established two new companies to support infrastructure funds: Sarana Multi Infrastruktur (SMI) and Indonesia Infrastructure Finance (IIF). SMI has been operating since 2009 with Rp1trn ($120m) in start-up capital and was allocated the same sum again 2010.
IIF, a subsidiary of SMI, was established in 2010 with contributions from the International Finance Commission, the Asian Development Bank and Deutsche Investitions und Entwicklungsgesellschaft.
The government has also established Penjaminan Infrastruktur Indonesia (PII) to act as a guarantee fund to secure infrastructure projects. PII was funded by the government with an initial capital of Rp1trn ($120m), which will be extended to Rp3.5trn ($420m) in 2011.
We will expand its capital to help it meet the increasing demand for guarantee coverage from PPP projects.
What is the “non-discrimination principle”?
MARTOWARDOJO: The no-discrimination principle concerning fiscal incentives in Indonesia mandates equal tax treatment and facilities for foreign enterprises. Companies will not be discriminated against based on who owns their capital. It must be noted that the principle will be applied so long as a company fulfils the requirements necessary to obtain those incentives.
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