By Darrell R. Johnson
There has been almost as much press coverage as questions about the Indonesian Government's announcement in May of MP3EI.
So what is MP3EI?
MP3EI is the Indonesian acronym for Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia, or, in English, the Master Plan for Acceleration and Expansion on Indonesian's Economic Development, a 207 page document which lays out Indonesia's ambitious plans to accelerate and expand economic growth. The Indonesian Government has adopted MP3EI because its economic growth has not reached an advanced and sustainable level and the Master Plan is needed to do so.
The purpose of the Master Plan is to enable Indonesia to become one of the 10 major world economies by 2025. It contemplates a high degree of cooperation among the central government, local governments, state owned enterprises, and the private sector and a major change in mind set of all of them. The Government will act as a regulator, a facilitator and a catalyst to support economic growth. To do this, the Government will both amend and remove regulations to achieve debottlenecking and prevent roadblocks to investment implementation. To act as a catalyst to investment, the Indonesian Government will provide fiscal and non-fiscal incentives and the private sector will be given a major role in economic development, particularly infrastructure.
MP3EI has two-prongs: acceleration and expansion. The acceleration prong is designed to achieve early completion of a number of existing key development programs. The expansion prong is intended to spread the positive effects of economic development to every region and among all components of the Indonesian community.
Six Economic Corridors
The Master Plan identifies six growth centers, or economic corridors, to boost economic development which are Sumatra, Java, Kalimantan, Sulawesi, Bali — Nusa Tenggara and Papua – Maluku Islands. The main strategy of the Master Plan is to achieve economic development by focusing on these six economic corridors, by strengthening national connectivity throughout the archipelago, and by strengthening human resource capability, science and technology. The Master Plan identifies eight primary programs and 22 primary activities as the focus of development. The eight primary programs are agriculture, mining, energy, industrial, marine, tourism, telecommunications and the development of strategic areas. The strategic initiative of the Master Plan is to encourage large-scale investment in 22 primary activities: shipping, textiles, food and beverages, steel, defense equipment, palm oil, rubber, cocoa, animal husbandry, timber, oil and gas, nickel, copper, bauxite, fisheries, tourism, food and agriculture, the Jabodetabek area, the Sunda Straits strategic area, transportation equipment, and information and communication technology.
The implementation of the Master Plan is coordinated by the National Economic Committee, or KEN and the National Innovation Committee, or KIN.
Challenges
The Master Plan recognizes Indonesia must overcome a number of challenges: a failure to achieve value-added input in the agricultural and extractive industries; a developmental gap between western and eastern Indonesia; the lack of infrastructure support generally; a lack of connectivity between regions; inadequate quality of human resources; and rapid urbanization.
Among the steps that will be taken to realize the Master Plan, are bureaucratic reform, including the legislature and judiciary, tax reform and incentives, the creation of special economic zones in each of the corridors, improved shipping and airline capability (ports and airports) to promote connectivity, and increased high school and vocational training to improve human resources.
Points of Departure
Many points in the plan are unique points of departure for Indonesia. For example, the Master Plan states that the Government bureaucracy will support the needs of business and provide equal treatment and fair opportunities for all businesses. Government loans will be used to finance investment instead of routine expenditures, such as subsidies. In addition, subsidies will be for the poor directly rather than for goods. Other points of departure include the fact that taxes will be on Indonesian source income and not world wide income, taxes will also be based on consumption rather than value added taxes, and employment regulations will be supportive of employers as well as employees.
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