Not Just Tax Holidays: The Conditions for PFII to Attract Global Investors

The Indonesian International Financial Centre (PFII) is considered insufficient if it relies solely on incentives to compete in attracting global capital. Legal certainty, institutional quality, and investor confidence are important factors for PFII to be able to compete with international financial centres such as Dubai, whilst also having an impact on the domestic economy. Suroto, Chairman of the Association of Strategic Socio-Economic Cadres (AKSES), said that PFII should not merely be an area for attracting foreign investment. The incoming capital flows need to create quality jobs, strengthen MSMEs, encourage technology transfer, and increase national economic productivity. Suroto said Indonesia actually has the capital to develop an international financial centre, ranging from its large domestic market, natural resources, demographic bonus, to its workforce. These factors are considered to be a differentiator for Indonesia compared to other global financial centres. “We must show that Indonesia has enormous potential. We are a G20 member, have a large market, abundant natural resources, and a demographic bonus. That should be PFII’s main strength, not just offering incentives,” Suroto said at the Indonesia Business Forum in Jakarta recently. The forum, which discussed the establishment of PFII, was also attended by Deputy Chairman of Commission XI of the House of Representatives Mohamad Hekal and Bank Permata Economist Josua Pardede. Suroto assessed that investment entering through PFII must also create a multiplier effect on the domestic economy. One aspect requiring attention is the involvement of MSMEs in the economic activities arising from the development of the financial centre. “MSME groups must receive a multiplier effect from PFII. We must not ignore its social impact,” Suroto stated. According to Suroto, investment also needs to be directed towards expanding quality employment and increasing human resource capacity through knowledge and technology transfer. Thus, PFII’s existence does not stop at increasing capital flows, but also boosts the competitiveness of the national business sector. Meanwhile, Chief Economist of Trimegah Sekuritas Indonesia Fakhrul Fulvian said that PFII’s ability to provide economic benefits will heavily depend on institutional quality, legal certainty, service standards, and the level of investor confidence. Fakhrul said Indonesia can adopt practices from various international financial centres by adapting them to domestic needs. The experience of several global financial centres shows that fiscal incentives are not the only consideration for investors in determining investment locations. According to Fakhrul, regulatory certainty, ease of doing business, service quality, and credible dispute resolution mechanisms are no less important factors. Therefore, incentives such as tax holidays are deemed insufficient if investor confidence in institutions has not yet been established. “We must answer why investors should move from Dubai to PFII. Trust is far more important. Incentives can become irrelevant if trust is not built,” Fakhrul said. PFII is also considered to require a complete financial services ecosystem to compete internationally, ranging from investment banking, wealth management, international law firms, to professional staff with global competence. The development of this ecosystem will determine PFII’s ability to attract international financial players whilst connecting capital inflows with domestic economic activities.