BP Banka, managing director of PT Ispat Indo, Indonesia's largest private sector steel company founded by Indian tycoon Lakshmi N Mittal, talks about the state of Indonesia's economy post the recent round of Bali bombings, fuel price increases and since President Susilo Bambang Yudhoyono, also known as SBY, took office.
Do you think SBY has been doing a good job in office?
Banka: SBY seems to have taken the most bold and correct steps during his first-year tenure. I see Indonesia going in the right direction as far as his presidency is concerned. As a result, this could help prevent the country from falling into economic crisis.
As a specific example, SBY did a good job of preparing the public for his fuel price rise initiative. It was clear from the very small number of demonstrations before and after the fuel price increase that people generally understood and accepted the price hike. He got full support from almost all sectors, except from the PDIP, which is the former President Ibu Megawati's party.
Those recent fuel subsidy caps restored investor confidence in the nation's finances - do you think that confidence will continue or was it just a short-term reaction?
Investors' confidence has increased and will continue to rise. The strength of the rupiah has improved and it should continue to improve. As a result, the fiscal deficit will improve, which will make funds available for other developments. As for the Bali bombing, it has had very little effect on investors' confidence and things were normal in Bali immediately after bombing.
But what about inflation?
Given the increase in the price of fuel, obviously inflation will rise as well. But both industries and consumers will adjust to this new situation. In fact, many new initiatives for cutting unproductive consumption (in terms of encouraging businesses and people to be more energy efficient) are unfolding, which is a good sign.
As for interest rates, given that the US Fed is continuing to increase rates, and there is likely to be inflation in Indonesia, and the difference of the swap between the Indonesian rupiah and the US Dollar, BI may have to raise interest rates even further (than the proposed 11% increase).
What other steps should the government take to make Indonesia more investment friendly?
The foremost step the government needs to take for investors' confidence to improve is to change the mindset of the legislative and the executive members of the government. The mindset should be that any 'X' individual (legislator or executive) is not doing an obligation to the investor by giving a license or sorting out a problem or coordinating assistance for a project but that it is needed in the interest of the country.
Furthermore, the government should develop a one-stop service or reduce the timeframe required to start a business. It should also be more clear about its rules and develop a cooperative relationship between federal and provincial departments. Once the government starts moving in this direction, many things will improve by themselves.
