A section of a toll road is seen alongside farm land in this aerial photograph taken in Medan, North Sumatra, Indonesia. (Photographer: Dimas Ardian/Bloomberg)

U.S. Says Indonesia Forgoing Billions of Dollars in Investment

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(Bloomberg) -- Indonesia is forgoing billions of dollars on offer from American companies eager to invest in Southeast Asia’s biggest economy, U.S. Ambassador to Indonesia Joseph Donovan said.

As the U.S. tries to arrest a deteriorating trade balance with Indonesia, which last year found itself in President Donald Trump’s cross-hairs, Donovan has also rejected complaints of increasing American protectionism. Indonesia had made significant progress on macroeconomic stability, improving the business environment, education and infrastructure, yet more must be done to encourage trade as well as foreign investment, he said.

“Those that caution the United States about being trade protectionist, I would respectfully suggest that they look at their own markets and they might find a good deal of ingrained protectionism there," he said in an interview on Feb. 14 in Jakarta.

Indonesian officials such as Finance Minister Sri Mulyani Indrawati have consistently criticized the protectionist tone sounded by Trump, who last year accused a host of nations, including Indonesia, of potentially abusing their trade relationship with the world’s biggest economy. Since then, the U.S. trade deficit with Indonesia has worsened to $13.3 billion from $13.2 billion in 2016, according to the U.S. Census Bureau.

“The current protectionist language is definitely going to create concern about whether globally there will be a setback in the progress that has been made over the past three decades," Indrawati said in an interview on Jan. 30.

Indonesia’s economy has been growing at about 5 percent. At the same time, however, the government has been struggling for revenue to fund Widodo’s ambitious infrastructure plans.

Oke Nurwan, director-general of Foreign Trade at the Trade Ministry, did not respond to questions about protectionism. He said Indonesia had made progress in terms of ease of doing business and was seeking to better manage imports, as well as targeting export growth of 11 percent in 2018.

Donovan said the U.S.’s average tariff rate was less than 3 percent and half Indonesia’s average applied tariff rate. Despite the imbalance, he said trade in goods between the two nations had increased last year by about 7 percent to approximately $27 billion in bilateral terms, with U.S. exports to Indonesia increasing about 14 percent. 

Indonesia must do more to encourage foreign businesses to invest and trade, he said, adding that the U.S. wants to see more access granted to American companies, particularly in the agriculture sector, including dairy, cotton, soybean, fruit and vegetables. 

"Indonesia is leaving billions of dollars on the table right now in the field of power generation by not following through on offers by American companies," he said, declining to reveal any specifics.

It’s Not About China

Ekoputro Adijayanto, the chief of the Indonesian Planning Ministry’s Centre for Private Investment, said a number of U.S. private equity firms had shown interest in Indonesia, including one that’s "seriously looking" to invest in greenfield power generation. But there also appeared to be a "Trump effect," he said. "He’s trying to lure investors in the U.S. to invest back in America, make America great again."

"China is a bit different from other countries," Adijayanto said. "Instead of us going there, they are coming here. Many Chinese companies are coming to our office."

Figures show that in the space of three years, the U.S. has lost significant ground to China in terms of foreign direct investment in Indonesia. Last year, direct investment from the U.S. was worth $2 billion, according to the Indonesia Investment Coordinating Board, while Chinese foreign direct investment was $3.4 billion.

"It’s not a competition between America and China," Donovan said. "What I look for are opportunities for American businesses to compete on a level and fair trade ground here. Rather than look at China, what I’m interested in doing is helping American businesses to do more here."

Donovan said Indonesia must maintain the pace of economic reform established under President Joko Widodo and "stand up to protectionist voices who advocate for special interest under the guise of nationalism". He cited Indonesia’s local content regulations -- which saw Apple Inc.’s market access curbed before the company built a domestic research facility -- as "a real deterrent" to foreign participation in the Indonesian economy.

"It’s important to recognize that these companies have options. They can choose to be here, they can choose to be elsewhere in Asean, they can choose to be elsewhere in the world," he said.

©2018 Bloomberg L.P.

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