In­done­sia turns to man­u­fac­tur­ing to counter com­modi­ties slump

The Pak Banker - - MARKETS/SPORTS -

At a fac­tory sur­rounded by tow­er­ing steel mills on the west side of In­done­sia's Java is­land, Ger­man en­gi­neer­ing gi­ant Siemens is ramp­ing up pro­duc­tion of steam con­densers, tur­bines and other spe­cial­ist parts to fit out power sta­tions across the world.

The plant, a small re­pair shop 30 years ago but now cov­er­ing the area of six soc­cer pitches, is a rare man­u­fac­tur­ing suc­cess that In­done­sian Pres­i­dent Joko Wi­dodo needs more of, as he tries to spur eco­nomic growth in the re­source-rich ar­chi­pel­ago amid tum­bling com­mod­ity prices.

In pur­suit of that goal, Wi­dodo last week lib­er­al­ized dozens of sec­tors of the econ­omy in what one min­is­ter called the big­gest open­ing to for­eign in­vestors for 10 years. It was the lat­est pol­icy move to im­prove com­pet­i­tive­ness and stim­u­late growth in South­east Asia's largest econ­omy, which last year ex­panded by 4.8 per­cent, the slow­est since 2009 and well below a 7 per­cent tar­get.

So far, Wi­dodo, a for­mer fur­ni­ture ex­porter, has lit­tle to show for his push to­ward man­u­fac­tur­ing.

Growth in the sec­tor has lagged the over­all econ­omy since he took of­fice in late 2014, and last year there were de­clines in out­put of ma­jor prod­ucts in­clud­ing cloth­ing, tex­tiles and elec­tri­cal equip­ment.

Tom Lem­bong, once a Wall Street banker and now Wi­dodo's trade min­is­ter, said turn­ing things around would not be easy. "We re­al­ize we've fallen very far be­hind," he told Reuters, point­ing to creaky in­fra­struc­ture, patchy power sup- plies and slow progress on free-trade pacts to prise open Western mar­kets.

"We're chang­ing di­rec­tion af­ter 10 years of drift to­ward nar­row na­tion­al­ism and pro­tec­tion­ism."

The govern­ment has ac­cel­er­ated re­forms, in­clud­ing cut­ting bu­reau­cracy, pro­mot­ing spe­cial eco­nomic zones and boost­ing spend­ing on in­fra­struc­ture projects like ports and roads.

It has also sig­naled greater open­ness to for­eign trade by stat­ing its in­ten­tion to sign the Trans-Pa­cific Part­ner­ship, a U.S.-led trade pact, in what some see as a sign lib­er­als are win­ning the ar­gu­ment over In­done­sia's eco­nomic fu­ture. Trade tar­iffs, lo­cal-con­tent re­quire­ments and other re­stric­tions are still com­mon, but Lem­bong said the ben­e­fits of free trade were now rec­og­nized more widely.

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