Entrepreneur Asia: Power Players

What businesses want from Indonesia: Lippo CEO

Leslie Shaffer | Writer for CNBC.com

With the global economic recovery only slowly grinding forward, export-dependent Indonesia's new president will need to strengthen the country's finances and spur private investment, the CEO of one of the country's largest conglomerates told CNBC.

The president's main priority should be getting "reelected in the second term," James Riady, CEO of the property-to-banking-to-resources conglomerate Lippo Group, said. "That's good. That means they'll be thinking about how to lift up the economy (and) how to bring wealth to the people of Indonesia." Indonesia will go to the polls to choose its president on July 9.

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Like its emerging market peers, Indonesia has come under pressure from the U.S. Federal Reserve tapering its asset purchases, which has exposed economic weaknesses such as Indonesia's wide current-account deficit.

"Next year will be a challenge," Riady said. "Come next year, we've got the tapering out of the way. Interest rates will go up, the U.S. dollar will strengthen. Countries that rely heavily on U.S. dollar borrowings (and) U.S. dollar imports will get hit," he said.

The country has struggled with slowing growth and declining demand for its resources exports. Economic growth in the first quarter came in at 5.21 percent from a year earlier, below the 5.60 percent forecast in a Reuters poll and slower than the 5.72 percent in the fourth quarter.

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Indonesia's central bank has hiked rates five times since the middle of last year to 7.50 percent to prop up a crumbling currency. This month, the central bank cut its economic growth forecast for this year to 5.1-5.5 percent, the weakest since the global financial crisis.

"There must be moves to make sure that our fiscal balance sheet is strong. If it's not, it's going to hit the rupiah (and) it's going to hit confidence," he said. "Our fiscal condition needs to be strengthened. The tax revenues are coming below target. The subsidies are well over the budget."

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Indonesia is expected to spend around 285 trillion rupiah (around $25 billion) on oil subsidies this year, swallowing up more than 15 percent of its budget and spurring cuts to other spending . In 2013, subsidies cost around 240 trillion rupiah, despite the government cutting the level mid-year. By comparison, the government aimed to spend around 200 trillion rupiah on infrastructure that year. The stronger U.S. dollar against the rupiah has been a major factor in the rising costs, hurting the country's current account.

"The (economic) growth will have to come from the private sector," Riady said, adding a key policy focus needs to be on making it easier to do business in the country by cutting some of the bureaucratic hoops.

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Indonesia ranked at 120 out of 189 countries in the Ease of Doing Business Index compiled by the International Finance Corp. and the World Bank in 2014, dropping four places from 2013.

Riady also believes the government needs to provide incentives in sectors that need more investments, including mining.

Earlier this year, the country introduced a controversial mineral export ban to force miners to process their ore in Indonesia before export, specifically targeting the nickel and bauxite industries - worth more than $2 billion in annual shipments. The ban came as demand for commodity exports has declined.

"This whole thing about the wrong time coming out with policies, those things need to be reversed," Riady said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1