TEMPO.CO, Jakarta - The last time former Bank Indonesia governor Darmin Nasution involved himself with the government was in 2013. Yet when he did rejoin, it was straight towards an economic morass. This time around, he was made coordinating minister for the economy, replacing Sofyan Djalil. Darmin is new in the cabinet, yet he faces a daunting task: to ensure that Indonesia gets away from the global economic storm.
There is no questioning the impeccable record of Darmin, 66, as an economist. He once headed the Capital Market Monitoring Board and Financial Institute (BPPM-LK), the Directorate-General of Taxes, and most recently, his stint as governor of the central bank. Now, as coordinating minister for the economy, he took part in producing the first of three economic policy packages, which was announced last week by President Joko Widodo.
The main items of the packet is deregulation, law enforcement, business certainty and de-bureaucratization. Part of the 154 government regulations were revised in order to bring new energy to industry. Sorting out the different aspects of today's economy is certainly not an easy and quick task.
Darmin cited, as an example, the chaotic condition of the licensing process, which he said should be handled with caution, so the government takes the right step. "People say, 'Just withdraw the regulation, it'll go away.' That can't be done, because one regulation is tied to another. If we say, withdraw it, there could be another product blocked by it," he told Tempo reporters Tomi Aryanto, Retno Sulistyowati, Isma Savitri, Ayu Primasandi, Gustidha Budiartie and Aditya Budiman, at his office last week.
For how long will the economic package apply?
For major strategic projects, (results) will not immediately be seen. Because part of what we set up, must wait for government funding, although some don't need it. Take the policy on the fuel conversion for fishermen, from diesel to LPG (liquified petroluem gas), which is proving to be very efficient.
Which policy will have the fastest impact?
Some will be fast, others must wait for investment. It will be simultaneous, like a patient who is given a treatment but which results instead, in complications. In that case, coordination with the doctor (is important). Actually, our priority is industry and trade. So, we are not looking for the fastest (results), because that's not going to be found. But from there we will sort out the regulations.
The public's expectation will be linked to the stock exchange and the foreign exchange rate. Yet, you say none will have a quick impact.
Money is not part of the government's regulation, that's the domain of Bank Indonesia. If we interfere in regulating that, we will destroy the system. So please look at which ones come under the government's jurisdiction. The impact of our policies will be indirect.
If expectations keep plunging, wouldn't that be difficult to manage? No matter the cure, what can be done if the situation is already bleeding profusely? Are there clear regulations to prevent that, like limiting the purchase of US dollars?
That's already in the packet. The instrument is clearly outlined, we thought about it. It's not a government priority, because it's somewhat ironic. Basically, the regulations are aimed at discouraging the private sector to borrow from outside. If we do it too fast, and the loan is due, there will be deficit. So, we want that to be publicized first. Then, when we are ready to enforce it, we'll set the time to do it, because when the loans are due, the determinants will be what was previously agreed. If we do the calculations, if the loans due exceed new loans, there would be a deficit.
Why is the government policy focused on deregulation?
Today, our philosophy of licensing has been somewhat relaxed and that is clearly sorting out the genuine ones, which ones require conditions and standards, what should be the standards, the norms or method. This should be easier to control by the bureaucracy, which eventually will be changed into regulations. This move is understandble. There may be one original measure, but the repercussions may be many. People simply say, "Just withdraw the regulation, it will disappear by itself." That shouldn't happen, because eliminating one standard would be an even bigger mistake. This is because one regulation is tied to another. If we withdraw one regulation, there will be a product which cannot 'proceed' because it's blocked by another regulation. This is what needs to be further studied, and to be honest, at this point, we haven't reached there yet.
So what will be biggest change?
Government regulations, not laws. That's why I say we haven't entered the phase of changing the foundations of policies, because it's not the time yet.
Are there new regulations?
Yes, and one is on cooperatives. There was a suggestion to turn cooperatives into a professional business entity. Cooperatives have two traditional functions: economic and social. What we stress on is the economic function. There will be regulations on the accounting system and on shareholders meetings. Secondly, cooperatives will be open to capital (infusion). This will be attractive to small and medium-scale businesses, because they believe the strongest institution is the cooperative. If they are strong as an alternative source of funding and trading house, that would be good, particularly if they can become business partners, both domestically and abroad. If this alone can be developed, micro and medium-sized businesses can really move forward.
What percentage of the economy are cooperatives?
It's still small, and often regarded as a kind of a CSR (corporate social responsibility) type of institution, because its social function is emphasized. So, the (new) policy on cooperatives will be quite revolutionary.
What about the initial plan to regulate bauxite exports?
It's true there have been suggestions to relax the export of ores. They thought that the construction of smelters would need cash flow. If they are given incentives, for example 30 percent after the smelters that are built, in addition to land and building, they can export in certain amounts. Logically, it would help, but when we prepared the concept and we summoned the businessmen, they said 'no'. Why? They said because they were afraid it could run out of control. The fact is, on the ground, it can't be done and everthing would end up being exported. And if that was done, the construction of smelters would be neglected, because they would no longer have any advantage, because profits are only earned from exports. It certainly wouldn't be fair to those who built the smelter before. One businessman agreed and insisted on exporting, but he's not representative of the others.
If we were allowed to export, wouldn't our foreign exchange reserves increase? Hasn't this been considerd by the government?
It has been considered. They know how much money they can get out of it, how many millions of dollars. In fact, we had gathered the coordinates of everyone's smelters, from a satellite. But then the question came up on how we would control it. After we made a simulation of the situation, the conclusion was that it would be better not to take it up.
Based on calculations, would it be significant to deregulate bauxite exports?
According to calculations, it wouldn't be too significant but yes, it would be hundreds of millions of dollars, if it was compared to the high price at that time. Secondly, our calculations were not based on allowing the exports. But exports are allowed for those who already own smelters, at least 30 percent in addition to land and building. However, rather than risk more mess, it would be better to drop it.
Is it true it would go out of control, as claimed by the business commuity?
That's what the players said, because initially the policy was aimed at accelerating the construction of smelters. But if they refused the incentives, should we force it on them?
Read the full interview in this week’s edition of Tempo English Magazine
