Indonesia’s economy remains disappointing

Sri Mulyani Indrawati previous tenure ended in defeat, however, when she appeared to be chased from office because of a feud with Aburizal Bakrie, a tycoon-turned-politician. She insists that Jokowi is determined to combat corruption, reduce poverty and spread prosperity beyond the main island of Java, but she says she is not “naive” about the political difficulties involved. That Jokowi appointed her, given the feathers she has ruffled, is heartening. But her return is also a reminder of how reform efforts in Indonesia sometimes end.

WHEN campaigning for president in 2014, Joko Widodo said that he could make the Indonesian economy grow by 7% a year—a rate it regularly attained in the 1980s and 1990s but has not reached since. Alas, Mr Joko, known to all as Jokowi, has not met his target. This year the economy looks set to grow by about 5%, just as it did in 2014.

There is no doubting the potential of Indonesia, an archipelago of 13,500 islands that stretches 3,330 miles (5,360km) along the equator—the distance from London to Afghanistan. Its economy is the biggest in South-East Asia by far, bigger than those of Britain or France on a purchasing-power-parity basis. It is home to 261m people, half of whom are younger than 30.

Yet realising this potential has proved tricky of late.

Jokowi’s answer is to improve infrastructure and deregulate, in order to attract investment and speed job creation. Early last year he scrapped expensive petrol subsidies, to allow greater spending on health and education as well as big investments in infrastructure. He has also produced more than a dozen packages of reforms intended to trim red tape and raise competitiveness. Critics say they are too scattergun—street vendors, the postal service, customs procedures and the minimum wage are but a few of the topics dealt with—but there is a lot that needs fixing. Indonesia was among the world’s ten most-improved economies in the World Bank’s latest “Ease of doing business” rankings, released in October, rising 15 places in a year. That still left it 91st out of 190 economies.

Jokowi’s reforms have not been as bold as many hoped. Earlier this year, while revising the “negative investment list” of 350 industries that are completely or partially closed to foreign investors, he eased limits on 35 but increased them on 20. Stiff tariffs imposed on imported consumer goods in 2015 remain in place, even though the minister responsible for them has been sacked. Non-tariff barriers to trade proliferate: the latest to have foreign firms fretting is a law requiring all food, beverages, cosmetics and medicines sold in the country, along with the machines used to make them, to satisfy stringent halal-certification rules set by the ministry of religious affairs.

Optimists point to the appointment in July of Sri Mulyani Indrawati as finance minister. The 54-year-old economist earned a reputation as a committed reformer during a previous stint as finance minister under Susilo Bambang Yudhoyono, Jokowi’s predecessor, in 2005-10. She says she wants strong public finances to be the “backbone” of the president’s reform drive. The government had to announce $10bn in spending cuts in August to prevent the deficit from breaching the legal limit of 3% of GDP. Yet decreasing government spending is one of the reasons the economy is slowing. She has vowed to follow a tax amnesty, which has raised a useful $7.5bn so far, with a relentless campaign against tax evaders—a policy she pursued with gusto the last time she was in the job.

Ms Mulyani’s previous tenure ended in defeat, however, when she appeared to be chased from office because of a feud with Aburizal Bakrie, a tycoon-turned-politician. She insists that Jokowi is determined to combat corruption, reduce poverty and spread prosperity beyond the main island of Java, but she says she is not “naive” about the political difficulties involved. That Jokowi appointed her, given the feathers she has ruffled, is heartening. But her return is also a reminder of how reform efforts in Indonesia sometimes end.

This article appeared in the Asia section of the print edition under the headline “Back in business”