PPI: Competitiveness of Indonesia's International Financial Centre Depends on Ecosystem, Not Just Fiscal Incentives
The government’s plan to build the International Financial Centre Indonesia (PFII) is considered an important momentum to strengthen the country’s position in the competition to attract global investment. However, its successful implementation cannot rely solely on fiscal incentives but must be accompanied by a comprehensive strengthening of the financial sector ecosystem.
Syahrir Ika, Chairman of the Indonesian Researchers Association (PPI), stated that the financial sector has different characteristics from the real sector because capital flows move very quickly. This condition means investors are constantly comparing the ease of doing business and the incentives offered by various countries.
“If another country provides better facilities, investors will certainly choose that country. Therefore, the issue is not simply how large an incentive we provide, but how the incentives we offer can keep Indonesia competitive compared to rival nations,” Syahrir said in Jakarta on Wednesday.
The researcher from the BRIN Economic Research Centre explained that providing fiscal incentives is a common instrument used to increase investment competitiveness. However, according to him, experience shows that such policies do not automatically attract investors if they are not supported by legal certainty, political stability, regulatory quality, infrastructure, and a conducive business climate.
“Fiscal incentives are necessary, but they do not stand alone. Investors do not only calculate taxes; they also look at political stability, policy consistency, regulatory quality, infrastructure, and business certainty,” he said.
Therefore, the implementation of the PFII needs to be accompanied by various complementary policies so that Indonesia can offer an investment environment that provides certainty while increasing the confidence of global business players.
On the other hand, Syahrir reminded the government that it must maintain fiscal space when designing various incentives. According to him, efforts to increase competitiveness must not sacrifice national fiscal health, as this could actually increase the risk perception of the Indonesian economy.
“The government must certainly calculate the optimal incentive position. We must be competitive, but we must not let the fiscal space be disrupted because ultimately that will increase economic risk,” he said.
The former researcher at the Fiscal Policy Agency of the Ministry of Finance assessed that the establishment of the PFII should also be used as momentum to deepen the national financial market. This step can be taken through strengthening regulations, developing financial technology, improving the quality of human resources, and establishing more credible governance.
According to him, the competitiveness of an international financial centre is ultimately determined by the quality of the ecosystem built, not merely the size of the tax facilities provided.
“The momentum of establishing the PFII should be used to improve Indonesia’s financial sector ecosystem. What is built is not just the incentives, but also the foundation so that our financial sector becomes stronger, more efficient, and able to compete in the long term,” he said.
Syahrir also reminded the government of the need to maintain a level playing field so that the provision of incentives in the PFII area does not create competitive distortions with businesses outside the zone. He said the policy design must be able to increase Indonesia’s competitiveness without creating unequal treatment or disrupting fiscal sustainability.
Nevertheless, he appreciated the government’s move to establish the PFII as part of a strategy to capitalise on changes in the global economic and financial system landscape.
“This means the President has a strategy. He understands the changes occurring in the global economy and financial system and is trying to seize that opportunity. That is a positive aspect that needs to be appreciated. I give very high marks to the effort to capture this momentum,” he said.