Fri, 26 Jun 2015

JAKARTA, Indonesia—A cabinet shake-up is coming and could bolster the Indonesian government’s economics team as it struggles to reverse a downturn in Southeast Asia’s largest economy, Vice President Jusuf Kalla said Friday.

“We’ll change [to create] a better team” after evaluating all ministers, Mr. Kalla said in an interview.

Pressure has been building on President Joko Widodo to shake up his cabinet as his programs to revive the economy falter. Mr. Kalla said the government was wrestling with problems such as administrative snags that have hampered the distribution of budgeted funds and lack of progress on major construction projects, as it tries to convince foreign investors to fund the projects that Indonesia can’t launch on its own.

Mr. Kalla, a wealthy businessman and longtime fixture on the political stage, declined to say when a cabinet shuffle would happen. However, advisers to Mr. Widodo, who took office last October, and members of his coalition have said it could happen in July after the Islamic holy month of Ramadan.

Indonesia’s near $900 billion economy had been among the world’s fastest-growing in recent years and analysts have said that it could join the ranks of the world’s largest economies in coming decades.

But growth has slipped to its lowest level in more than five years, and Mr. Widodo’s team, in place for almost eight months, has failed to arrest the fall. Indonesia’s stock index recently hit its lowest level in more than a year, wiping out all gains made since Mr. Widodo’s election. Lackluster corporate earnings were partly the cause, along with waning confidence in the president’s ability to shepherd his team to quickly implement his program.

Mr. Kalla acknowledged the economy was a problem, and said one of his and the president’s priorities is to speed up spending on stalled infrastructure projects that are expected to inject billions of dollars into the economy. He pointed to a new law that makes it easier for the state to acquire land -- a long-standing sticking point for projects ranging from power plants to factories. The new rules are set to pave the way for a Japanese-funded $4 billion power plant to proceed after years of delay, Mr. Kalla said.

As falling global oil prices cut into Indonesia’s oil-gas revenue, and tax collection so far coming up far short of targets, the government is working to attract more foreign direct investors. Mr. Kalla said that many companies “don’t need more incentives” to invest in Indonesia, pointing to the large population and low labor costs that attract consumer companies and manufacturers. He said the government is trying to address old problems of acquiring permits for foreign workers, improving the roads and access to electricity, and helping to clear land.

Mr. Kalla said a recent push to require foreign workers to learn the Indonesian language was an example of poor coordination among ministries and while restrictions on some foreign job seekers might be acceptable, they shouldn’t apply to those investors or professionals.

In the case of the oil-gas industry, where exploration is at a standstill and major projects by the likes of Chevron Corp. are only inching forward, Mr. Kalla said the government’s primary goals were studying new rules for cost recovery and ensuring legal certainty across industries.

Major oil companies have long argued that Indonesia lacks incentives to develop projects in the deep water and remote environments that are home to Indonesia’s largest remaining oil and gas fields. Mr. Kalla said talks for Chevron’s $12 billion, ultra-deepwater gas project—the first in Indonesia—are now moving forward after the project was sidelined last year.

Indonesia has been ambivalent in efforts to attract foreign investment in recent years, depending heavily on it but also wary of investments that could stifle the rise of its own industries. Mr. Kalla said he supported moves to boost local industry by creating barriers to foreign companies, such as a recent call by the president to ban the import of ships to benefit local shipyards.

“This is one thing that any country should do,” he said.

Mr. Kalla dismissed talk of a fractured relationship with Mr. Widodo, a major concern of markets in recent weeks. He said he and the president agree “90%, 99%” of the time, meeting multiple times some days.

Mr. Kalla and Mr. Widodo have disagreed on issues ranging from the running Indonesia’s football association to whether a law concerning an antigraft body needs revising. Mr. Widodo also faces a troubled relationship with his own party, led by former President Megawati Sukarnoputri, compounding concerns that political infighting is part of what is holding the economy back.

Mr. Kalla has fewer powers than he did during an earlier stint as deputy to former President Susilo Bambang Yudhoyono from 2004 to 2009. Then, he played a greater role in running economic ministries and had more power to appoint senior officials. Pundits say Mr. Kalla’s growing power was one reason Mr. Yudhoyono dropped him from a re-election bid in 2009.

Mr. Kalla said he had no complaints about his current role. Mr. Widodo “is very active, it’s good. I don’t need [to be] more active” publicly, he said.

An adviser to Mr. Widodo said a cabinet shuffle was expected to bring virtually all political parties into government, including Golkar, the nation’s third-largest party, which was once led by Mr. Kalla. Political analysts say that could strengthen Mr. Kalla’s position.

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