The Indonesian government have demonstrated their commitment to the future of the country’s economic growth with a crucial new bill.
While most countries would be overjoyed with growth in the 6%-6.5% range, Dr. Muhamad Chatib Basri is the Chairman of Indonesia’s Investment Coordinating Board (BKPM), speaking at the “Asian Investment Conference 2012,” was insistent that to take full advantage of the benefits of having a youthful popula- tion this number needs increasing to at least 9%. Infrastructure, he believes, is key to achieving this target. Reynaldi Hermansjah, Finance Director of Indonesia’s largest toll road operator, Jasa Marga, echoed this sentiment and pointed to the recently passed “Land Reform” bill as an example of how government policies have the potential to accelerate the construction of Indonesia’s infrastructure.
The “Land Reform” bill was passed into Indonesian law in Janu- ary 2012 – around 12 months after it was first introduced – and is primarily concerned with the alteration of land ownership rights. This new law increases the speed at which the government can appropriate land that is crucial to infrastructure projects and en- sures a fair sale price for the original owner. A special committee has been formed to review each case individually and determine the appropriate remuneration. Legal options are still available for landowners that wish to dispute the decisions made as a result of the bill but the framework is now in place to fast-track crucial land acquisition.
One of the concerns that is frequently cited by nervous inves- tors is uncertainty around legal issues. Creating consistency and urgency in the land acquisition part of the process will go a long, long way towards creating reliability over the associated costs and timeframes. As a result, this new bill is expected to double infra- structure spending over the next few years.
The value of this reform was recognised almost immediately as stocks in property and toll road companies increased on the same day that the bill was passed. Passing the “Land Reform” bill was a huge test of the Indonesian government’s willingness to make the tough choices needed to drive economic growth forward; the bill, although possibly unpopular with land owners currently locked in negotiations, is a huge step forward in smoothing the way for for- eign investment in the many available infrastructure projects that are required for Indonesia’s long-term success.