Apindo: Government Needs Structural Reform To Improve Indonesia's Business Climate Efficiency And Predictability

JAKARTA - The Indonesian Employers' Association (Apindo) admits that business actors again emphasize the importance of the government continuing structural reforms as a strategic step to increase efficiency and predictability of the business climate and investment in Indonesia. This is becoming increasingly relevant considering the current economic challenges, including policy uncertainty that affects Indonesia's competitiveness in the region.

One of the main concerns is Indonesia's Incremental Capital Output Ratio (ICOR) which is still high, indicating that investment efficiency in Indonesia is not yet optimal. Just so you know, Indonesia's ICOR figure as of 2023 is still at 6.33 percent, much higher than the ICOR of ASEAN countries which are in the range of 4-5 percent.

ICOR is a macroeconomic parameter that describes the ratio of capital investment or capital to output, using the investment.

"We believe the government understands the aspects that need to be improved through structural reforms. However, the implementation of these steps must be accelerated to ensure that Indonesia remains competitive," said Chairman of the Indonesian Employers' Association (Apindo), Shinta Widjaja Kamdani to the media, in Jakarta, quoted Monday 16 December.

Not to mention Shinta added, the government needs to review regulations that can make it difficult for business actors, such as the increase in Value Added Tax (VAT), excise, and others. Although the big agenda aims to withstand the potential for widening the deficit, its success is very dependent on market performance and growth in the performance of the formal business sector/real sector.

"If the market performance and performance of the real sector are not stimulated or facilitated to be higher than the current position, the reform agenda will not create the output of increasing the desired government revenue. Instead, it can further burden market performance and economic growth is getting more suspicious (lamban)," concluded Shinta.

In addition, after the cancellation of several labor articles in the Job Creation Law, there have been concerns among business actors and potential investors regarding policy certainty, especially regarding the minimum wage. Although the decision of the Constitutional Court (MK) is respected, the government is expected to immediately create certainty regarding the minimum wage, so that the policy does not become an unexpected burden for business actors and potential investors who want to enter Indonesia.

"It should also be understood that this wage issue will affect the absorption of labor in labor-intensive sectors, such as garment and shoe companies, which have prepared a work budget for next year based on old regulations. When sudden changes related to wages, they can interfere with their operations, and even risk employment," he said.

"This policy also needs to be responded to wisely by the government, thus providing an efficient, competitive, and predictable business climate for business actors," added Shinta.

Shinta continued, Apindo also called on the government to carry out structural reforms in various strategic sectors, such as:

Trade: The government needs to provide certainty on import regulations and reduce export costs to encourage competitiveness in the international market.

Finance: The government needs to expand access to funding for business sectors in need, especially labor-intensive sectors and MSMEs.

Infrastructure and logistics: The government needs to reduce barriers to the distribution of goods and services to increase business efficiency.

"Efficiency, competitiveness, and predictability are important elements needed by domestic and foreign business actors to support economic growth. With the right reforms, the government can improve the trend of economic slowdown and attract more investment to come to Indonesia," he stressed.