Indonesia central government had set a goal to achieve economic growth at seven percent a year in order to create more than two million job fields. Yet the rate of Indonesia economic growth in 2014 was only slightly above five percent. In fact the economic growth in 2014 was lower than in 2013. The slowdown of world economic growth was claimed as the cause of the economic growth drop. Yet the problems of low of Indonesia economic growth is not only caused by world economic circumstance, it is also caused by the problems of domestic investment regulations. According to Indonesia vice president, Mr. Jusuf Kalla, there are three main obstacles which cause the investment in Indonesia still low.
First, the infrastructure has yet to support economic growth. Bad infrastructure causes high cost to distribute goods. Many places in Indonesia still have bad infrastructure particularly in eastern of Indonesia. That’s why the price of some goods in eastern Indonesia more expensive than other places in Indonesia. Central government has set the improvement of infrastructure as the main priority. Consequently, Indonesian government reduced subsidies for fuel oil in order to finance the improvement of infrastructure.
Second, the interest rate of loan is too high. Although Bank Indonesia, the central bank of Indonesia, has lowered the benchmark rate by 0.25% to 7.5% in February 2015, the interest rate of loan in Indonesia is still too high. Particularly in the economic circumstance like today, interest rate of loan must be set lower than at the moment in order to stimulate real sector to grow. However, the cause of high interest rate of Indonesia is because of Indonesia is not at investment grade by some credit rating organizations. In term of investment, high risk means high return, that’s why Bank Indonesia still set the interest rate at the high level, 7.5%. If the Bank Indonesia lowers the interest rate, the exchange rate of Rupiah to US Dollar may fall sharply, and it will cause detrimental effects to Indonesia economic.
Third, the process to get licenses of investment in Indonesia is still long-time and spending much money. There are too many bureaucracies in Indonesia and licenses to start a business. For instance, a small business with sales less than Rp.10 billion a year must have at least three licenses. If government can cut the licenses for micro and small business, it is believed the economic growth of Indonesia may grow significantly.
To sum up, in 2014, economic growth of Indonesia was lower than the economic growth a year earlier. Besides of the cause of the drop of Indonesia economic growth is slowdown of the world economic growth, there are three main barriers of investment in Indonesia, i.e. bad infrastructure, high interest rate, and too many bureaucracies. Central government still work so hard to solve these problems in order to achieve seven percent of economy growth.
