Jokowi’s mixed messages

Jakarta International School. Indonesia’s expat institutions are feeling the pinch. Source: Wikimedia

As ever, Indonesia is sending out mixed messages. It wants foreign investment but is not keen on letting too many foreigners live there to spend it.

Jakarta is keen on encouraging citizens to repatriate overseas wealth but wants to organise how the money is spent.

And as a backdrop its ambitious plans for infrastructure projects were budgeted before fuel prices started to slide so a subtle recalibration in scale might occur.

The Indonesian parliament has just approved a tax amnesty that the authorities hope will draw in billions of dollars needed to finance a widening budget gap as it steps up infrastructural spending to boost growth.

Under the law, citizens who repatriate undeclared assets held abroad would face a penalty of between 2 and 5 per cent, according to the bill.

President Joko “Jokowi” Widodo is facing a revenue squeeze in the face of weaker commodity prices and slower growth. To keep the budget deficit under 3 per cent of GDP, Widodo is banking on the tax amnesty to help fill the shortfall.

The central bank estimates the tax programme, which will start next month and run for a maximum of nine months, will help bring US$42.5 billion of funds back to the country. Almost 30 per cent would go to government coffers, Finance Minister Bambang Brodjonegoro said.

Meanwhile, foreign workers are leaving Indonesia at an increasing rate due falling commodity prices that have forced resource companies to axe jobs while Jakarta has also introduced stricter regulations on expats.

The number of temporary residential permits handed to foreigners, including renewals, has fallen to 171,944 last year from 194,162 in 2013. So far this year, there were 72,399 issued but service providers to expats say they anticipate a further fall this year as they are seeing few fresh arrivals.

Top-end rents in Jakarta have plummeted and enrolment at international schools has dropped.

“The expat drought has been really noticeable in 2016,” said Deborah Minicola of international relocation firm Allied Pickfords in Indonesia. “This time the expat community has been hit from so many angles.”

The outflow was set to reduce luxury consumption and increase unemployment, economists said, as wealthy expats often employ several people, including housemaids, drivers, gardeners and bodyguards.

Some workers who recently lost their jobs are finding it difficult to get new employment.

The Australian Independent School in Balikpapan in East Kalimantan said it was expecting a 36-per-cent reduction in pupil numbers this year. Three other international schools in the city have closed during the past few years after layoffs at mining contractors and significant cuts to expat allowances.

Analysts fear the expat exodus will also create a noticeable skills shortfall that could hold the country back when the commodity downturn is reversed.

Sliding resource prices and a slowdown in demand from China, a key export market, have reduced the incentive for exploration or production in the oil, gas and mining sectors, forcing firms to cut costs.

The mining, oil and gas and geothermal sectors account for 7.62 per cent of the archipelago’s GDP, down from 11.81 per cent in 2011. Drilling contractors and exploration site surveyors are among the heaviest hit, industry experts say.

Total’s Indonesia spokesman said the company had “manpower planning which is in line with our evolution of activities”.  Chevron, which is selling assets in Asia, and Exxon declined to comment.

Last month a PwC survey of 53 companies in the oil and gas sector estimated that there would be a smaller expat workforce in future, with tighter controls on hiring foreigners cited as another example.

Jakarta has recently opened numerous business sectors to foreign investors in what President Joko Widodo called a “big-bang” financial liberalisation.

But running parallel were protectionist measures like the manpower ministry was encouraging companies to hire more indigenous staff and tightening scrutiny of the work permit applications from foreigners, said Ratna Agustina of an expat services firm.

The government also limits applicants to a maximum age of 55 in the fuel sector which rather restricts access to talent.

“If they are above 55, the assumption is that many have ailments and are less productive,” said Taslim Yunus of Indonesia’s energy regulator.

In 2015 it was required that foreigners should to be proficient in Bahasa and for firms to hire 10 Indonesian for every expat, only to backtrack after business protests.

The manpower ministry was unavailable for comment.

In contrast in Singapore foreign professionals, managers and executives earning at least US$3,300 a month rose 5 per cent to 187,900 by December last year from a year earlier.