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Jokowi: We've only built foundation of Indonesia's 'house'

On the cusp of his maiden trip to the U.S., Indonesia's President Joko Widodo says that while his first year may have been rocky, he's still forging ahead with reform plans.

"This is the first year. If you were a building a house, you would have just laid the foundation," Indonesia's president, popularly referred to as Jokowi, told CNBC in an exclusive interview. "Don't ask me about the roof yet, about the walls. I will do will that in the second year, the third, the fourth or the fifth." Jokowi spoke in Bahasa Indonesia and the interview was translated.

Jokowi swept to power a year ago on a platform promising tough reforms, including making the country more attractive to foreign investors and advancing critical infrastructure projects. But since then, he's struggled to push through many reforms and infrastructure projects. The economy is slowing, with second-quarter gross domestic product (GDP) rising around 4.7 percent, its slowest rate since 2009, during the depths of the financial crisis.

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Jokowi's popularity has also dropped, with research firm Indo Barometer finding that his approval rating fell from around 75 percent when he was elected to around 46 percent in October, according to a report in Today paper.

That drop is partly due to one of his success stories: cutting expensive fuel subsidies, which had been crowding out government spending by sopping up as much as 20 percent of the budget in previous years. The change led to gasoline and diesel prices rising more than 30 percent.

"When I decided to change the price of fuel subsides, I knew when I did that, people weren't happy, they weren't satisfied," Jokowi said, noting the grumbling was amplified by external factors: a global economic slowdown, which has spurred outflows from Indonesia's stock market and sent its currency, the rupiah, down to levels it hasn't touched since the 1998 Asian Financial Crisis.


Dimas Ardian | Bloomberg | Getty Images

He's had another success story recently: getting a deal this month with a Chinese consortium to build a 150-kilometer high-speed rail project between the capital of Jakarta and a textile hub of Bandung.

The project, estimated to cost around $5.5 billion, saw Indonesia pick the Chinese bid over one from a Japan after Jakarta stuck to its guns on conditions for the deal. In September, Indonesia had said it was canceling the project, citing the government's inability to fund it.

"I said I wanted the train, as long as firstly, it didn't touch the government's budget," Jokowi told CNBC. "China said they wouldn't use the state budget or require a government guarantee. They agreed to our terms, so I said go ahead, do business-to-business."

Instead of a government-funded project, four Indonesian state-owned companies will own 60 percent of the venture, with the Chinese consortium holding the remainder. The China Development Bank will finance most of the project.

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Infrastructure development is a critical need in Indonesia. Logistics costs in the country come in at around 27 percent of its GDP, compared with 20 percent in Thailand and 13.0 percent in Malaysia, as poor infrastructure causes bottlenecks, UOB KayHian said in a note this week. It noted that the dwelling time -- or the time ships remain in port for loading and unloading freight -- at Indonesia's Tanjung Priok port is 8.7 days, compared with just two days in Hong Kong and four at Malaysia's Port Klang.

Jokowi is now pressing ahead with a series of economic policy packages, which were announced in four tranches over the past couple months. Some of the efforts focus on short-term stimulus to revive a flagging economy and some aimed at improving Indonesia's spotty record for business investment.

Historically, Indonesia has offered a slew of roadblocks for foreign investment, including years-long processes for approval to operate, stringent labor rules and changeable regulations.

Jokowi is aiming to change that.

"We have rolled out a number of economic policy packages and deregulation measures," he said. "We could keep rolling them out. We will continue to press ahead until we have a good investment climate in Indonesia."

In addition to aiming for a "one-stop shop" for business approvals, many of his lieutenants publicly tell potential investors to call them directly if they encounter hurdles in getting permissions. Jokowi told CNBC he's shifting toward "e-government," to allow procurement, audits and budgeting online.

Next week, Jokowi heads to the U.S., in part to convince more foreign companies to invest in Indonesia. He's expected to chat up Apple and Google to discuss investment prospects -- both to boost internet access in Indonesia and for the country's tin industry as the metal is used in iPhone production, Reuters reported.

But while Indonesia is trying to change perceptions, it's also trying to tamp down any hype.

"The president's instructions were very clear: we're not really going to be going into big, kind of whiz bang announcements that only serve to further exacerbate high expectations," Thomas Lembong, Indonesia's trade minister, told CNBC in an exclusive interview.

"It's the same as every other country," he added. "Policy making usually takes place over a time frame of many years and legislation sometimes in the course of a decade.

But Lembong noted that the first economic package on deregulation, announced nearly two months ago, contained around 30 regulations for his ministry and he's already implemented 15.

"By the standards of Indonesian bureaucracy, we're already moving at lightning speed," the trade minister said.

However, there are concerns some of Jokowi's reforms may fall victim to political stresses.

For one, Moody's noted that one of the economic packages announced over the past couple months included lowering energy prices in an effort to reduce businesses' costs.

"The lowering of prices for some energy products–while not significant in terms of the fiscal impact— highlights a risk that the government could backtrack on its subsidy reforms," Moody's said in a note earlier this month.

—Nyshka Chandran and Ansuya Harjani contributed to this article.

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