Indonesia is hoping for additional inflows worth $10 billion from pension funds and other institutional investors over the next two years following Standard & Poor’s upgrade of its credit rating to investment grade, President Joko “Jokowi” Widodo told Reuters.
The government will also ease foreign ownership restrictions on certain industry sectors in August, Jokowi said in an interview at the presidential palace in Jakarta on Monday (03/07).
For the first time in almost 20 years, Indonesia is rated investment grade by all three major rating agencies after S&P on May 19 raised its outlook to ‘BBB-‘ from ‘BB+’, matching the ratings already awarded by Fitch and Moody’s.
The upgrade was “very important” because it would encourage more capital inflows and reduce borrowing costs, said Jokowi, a former Jakarta governor who was elected to lead Southeast Asia’s biggest economy in 2014.
“Now the pension funds look to Indonesia,” he said, adding that some of the money will go into the country’s stock and bond markets. “After that the companies here can take and invest to the real sector, to the infrastructure, to the factory.”
While growth in Indonesia’s gross domestic product has slowed from a peak of more than 6 percent several years ago to around 5 percent due to a commodity downturn, its vast domestic market is still seen as an engine of growth.
Foreign companies have complained that vested interests are blocking them from gaining more access to the country of 250 million people, at a time when neighbours such as Vietnam are actively courting investment dollars.
Jokowi, who often points to his background as a former furniture exporter to show that he understands the language of business, said he is committed to keeping Indonesia’s economy open and competitive.
Warning Against Protectionism
Jokowi’s government has introduced 15 economic stimulus packages since late 2015, including the easing of foreign ownership restrictions on dozens of business sectors such as tourism, transportation and movie theaters last year.
“We will revise again the negative list of investment in August in some sectors,” Jokowi said, referring to the list of sectors that are partially or fully closed to foreigners.
He declined to say which sectors would be opened up.
Transport Minister Budi Karya Sumadi said last month that the government was considering easing rules on airport operation services. Foreign ownership in that sector is currently capped at 49 percent.
Trade openness will be high on Jokowi’s agenda when he travels to Hamburg, Germany, to meet other world leaders at the G20 summit later this week.
Jokowi said he would have a bilateral meeting with US President Donald Trump, whose administration had put Indonesia on a list of 16 countries to be reviewed over trade surpluses with the world’s largest economy.
“On international trade, going back to trade protectionism can result in trade war, which we must avoid,” Jokowi said. “Open economy is very important for us.”