Attracting FDI Post Covid-19 by Simplifying Indonesia’s Regulatory Framework

Abstract

Restrictions to control Covid-19 spread have put immense pressure on international trade and investment. Global trade is predicted to fall by 13 – 32%, while foreign direct investment (FDI) may sink even deeper with estimates ranging between 30% and 40%. • Global value chains (GVC) are reorganising to reduce dependence on China. Southeast Asia can attract a share of these relocations, but Indonesia is relatively unattractive to foreign investors due to its highly complex regulatory environment. • To simplify the regulatory landscape, the President proposes an Omnibus Bill, but its reach is limited. Moreover, it requires 400 new implementing regulations, which are supposed to be drafted within an ambitious one-month deadline, and it may lead to thousands other regulations. • Instead of rushing the reform, the President and his cabinet should focus on improving the quality of these implementing regulations by allowing 3-6 months for research and public consultations. • The President should also exert discipline on ministers by attaching simplification standards to budget allocations. A mapping of the regulatory framework should support the targeting and monitoring of reforms. • In the longer-term, it is necessary to revise Article 8 of Law 12/2011 on the establishment of laws and regulations, which bestows regulatory authority to a broad range of government agencies. The Law should also stipulate periodic regulatory reviews to abolish laws and regulations that have become irrelevant or inapplicable. Show more