Thu, 01 Oct 2015

Indonesia’s new trade minister found a good example of the dangers of protectionism in an unlikely place: the armor-plated car of the country’s president.

Officials had trouble bringing in the bulletproof tires needed for President Joko Widodo’s vehicle because of import restrictions passed by the trade and industry ministries in July. Minister Tom Lembong took over the trade portfolio in August and this week revoked the rule, which was also disrupting the mining and aircraft industries.

“It’s a perfect example of a misguided policy because it was intended to quote unquote protect the local tire industry, ” said Lembong in an interview Wednesday at a cafe in an upscale Jakarta mall. “Well, guess what, our tire industry is already world class. We export something like $1.5 to $2 billion a year of tires. ”

The policy whiplash underscores the tug and pull of protectionism that has characterized the presidency of Widodo, better known as Jokowi. After months of ad-hoc policy announcements by government agencies that made it harder for companies to hire foreigners and trade goods, the president is now adjusting dozens of rules to improve industrial competitiveness and business certainty.

Beef Quotas

Harvard-trained Lembong is at the forefront of the effort to identify which ones to ease. The country will remove quarterly beef import quotas in favor of annual ones, and simplify the “byzantine and laborious“ procedures for importing aircraft parts, he said. Lembong has also exempted gas exports from a rule requiring letters of credit, and is scrapping a requirement for Indonesian-language labels on goods before they can enter the country.

“This is something that we are not going to do halfheartedly, we have to go all-in,” Lembong said. “We have to admit the thicket of licences has been created over decades and it’s going to take some time to dismantle this incredible overgrowth of permits, licences and reporting requirements.”

Still, the former private equity investor backs efforts to make sure imports don’t hamper the development of local value-added industries. He also sees the need for short-term “emergency” steps he says are needed to fix a current-account deficit, which has caused the rupiah to plunge.

‘So Lazy’

“We are such a fertile country with a lot of land and plenty of fresh water and abundant low-cost labor. Does it make sense we are importing so much foodstuffs?" he said. “There are good imports and bad imports. Sometimes we get so lazy it’s easier often to import than to take the long-term view and build local industries.”

Failure to build local capacity to process raw material could also undermine Indonesia’s ability to take advantage of China’s eventual recovery, according to Lembong, who says he’s more positive on the Chinese economy than most.

“If the Chinese economy recovers we have to make sure the structure of our industry is catered to it,” he said, referring to the opportunity to sell consumer products like furniture, garments and footwear rather than raw materials. “When China recovers it will be a very different kind of economy than what it was three or four years ago.”

Making it easier to do business in the country could help nurture new industries, but change won’t be quick, he said.

“You are trying to turn around the policy regime but it’s like turning around a super tanker," he said. “It’s doable. The focus now is in the field, it’s focused on the real practical burdens and annoyances that enterprises, business owners and companies face.”