US-Indonesia Bilateral Economic Ties Worth $90 Billion: Report

The total value of the Indonesia-US bilateral economic relationship exceeds $90 billion per year

AmCham Indonesia Team
Monday, September 19, 2016

 

Executive Summary

Full Report

(Jakarta, Indonesia)  The total value of the Indonesia-US bilateral economic relationship exceeds $90 billion per year, according to a report released today by AmCham Indonesia and the U.S. Chamber of Commerce. Entitled “Vital & Growing: Adding up the US-Indonesia Economic Relationship,” the study projects that, in a best case scenario, that number could grow to $131.7 billion by 2019—an increase of 46.2 percent over 5 years.

The report was released at the fourth annual US-Indonesia Investment Summit in Jakarta, which is co-sponsored by the US Chamber and AmCham Indonesia.

 “This report succinctly captures the enormous importance of the economic relationship between the two countries,” said Myron Brilliant, Executive Vice President and Head of International of the U.S. Chamber of Commerce.  “Even more striking than the size of the economic interaction is the potential for further growth, if the investment environment is welcoming.”

In an innovative approach to measuring bilateral economic ties, the two organizations quantified the totality of the economic linkages between the two nations, to include not just foreign direct investment, but also trade, domestic sales, finance and government revenue.  Taken together, these five components added up to $90.1 billion in 2014 (the latest year for which data are available). This is equivalent to roughly 10 percent of Indonesia’s GDP.

"This report grows out of our strong partnership with the US Chamber of Commerce and with the Indonesian government – particularly BKPM (the Indonesia Investment Coordinating Board)." said Brian Arnold, President of AmCham Indonesia. "This partnership has given both government and business a very valuable platform on which to hold frank and candid discussions about the policies that will best promote economic growth."

According to the report, achieving the best-case scenario will depend largely on actions taken by both governments. The report notes that President Joko Widodo’s administration has already undertaken certain economic reforms, but will need to continue and expand that process to achieve the desired outcome. Priorities include:

  • Legal certainty as the foundation for business confidence and growth. Both US and Indonesian companies will be able to invest, grow and create jobs if there is greater legal certainty in terms of contract sanctity, enforcement of existing laws and an impartial judiciary.
  • Collaboration and communication are vital for the creation of an enabling economic environment. Effective communication with the private sector will yield more effective and rational policies and regulations.
  • Innovation is the key to keeping pace in a dynamic global economy. Incentives for taking risks, investment in research and development, and human resource capacity building are the keys to innovation.
  • Bureaucratic and policy reform must continue and expand. Specific examples include the abolition of the Negative Investment List (DNI), rationalization of the work permit process, streamlining of permitting at all levels of government, and reform and proper incentivization of the civil service and judiciary.

The report also looks at nine industrial, extractive and service sectors. Each one is at a different stage of development with US companies playing different roles in each. The degree to which each sector is controlled by the government is a main factor in their performance.  Based upon a ranking system developed in the report, several sectors have a high degree of future potential. These include creative economy, finance and infrastructure. Several sectors in which US companies have a significant presence have average prospects of growing apace with GDP, such as oil and gas, consumer goods and agriculture. Other sectors have lower potential partly due to restrictive government policies that inhibit investment and create uncertainty.

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