Indonesia - First Growth and Jobs Development Policy Operation

Overview & Synopsis

The development objective of the First Growth and Jobs Development Policy Loan for Indonesia is to strengthen prospects for economic growth and better jobs by enhancing the business environment, deepening the financial sector, and reinforcing the foundations for resilient and sustainable employment. The operation supports reforms to streamline and depoliticize market entry and trade by establishing a single, risk-based business licensing reference with automatic approvals through the Online Single Submission system, embedding spatial conformity and environmental checks, and mandating maximum processing times and automatic clearance for import licenses to reduce costs and uncertainty for manufacturers. It eases investment frictions by lowering the minimum paid-up capital for foreign-invested companies in non-capital-intensive activities and accelerates digital connectivity by auctioning 700 MHz and 2.6 GHz spectrum with reduced reserve prices and coverage obligations in underserved areas, laying the groundwork for 5G and productivity gains. Financial sector measures strengthen capital market governance and transparency by raising free float requirements and improving ownership disclosure and securities registration to bolster liquidity and investor confidence, while expanding access to finance through enhanced credit guarantees and targeted support for productive housing finance for micro, small, and medium enterprises, with forthcoming improvements to credit information and beneficiary choice in government-to-person payments. Foundations for resilient and sustainable jobs are advanced through domestic revenue mobilization that narrows the simplified turnover-based income tax to better target micro operators and transitions corporations to the standard corporate income tax, complemented by plans to align value added tax thresholds, the establishment of a comprehensive carbon market framework with sectoral emission caps, a national carbon registry, and standardized trading and offset rules, and forthcoming public health action to phase out lead in decorative paints. Expected results include a 25 percent reduction in licensing compliance time and costs for low- and medium-low-risk micro, small, and medium enterprises, with a 30 percent reduction for female-led firms; shorter import license processing times for manufacturers from 16.7 to 13 days; a 15 percent increase in newly registered foreign-owned companies in selected non-capital-intensive sectors; and average mobile broadband speeds rising from 56 to 100 megabits per second, enabling 180 million people, including 86 million women and 36 million youth, to experience enhanced internet use. Capital market depth is projected to improve, with market capitalization rising from 45 to 50 percent of gross domestic product and the share of issuers meeting the new free float threshold increasing from 64 to 80 percent. Access to finance is expected to expand as adults using debt financing increase from 29.9 million to 42.7 million and the gender borrowing gap narrows from 5 to 3 percentage points, alongside higher private credit for productive housing finance. Stronger revenues are anticipated, with corporate income tax and value added tax collections increasing from 5.1 to 5.5 percent of gross domestic product, while environmental and health outcomes improve as the share of decorative paints certified lead free rises from 2 to 90 percent and coverage of energy-related emissions under the emissions trading system grows from 35 to 50 percent. Overall, the reform package is estimated to raise gross domestic product by about 1 percent by 2030 and lift labor incomes by 1.7 percent, equivalent to around 2.4 million more and better-paid jobs, with targeted measures that enhance women’s economic participation and support a lower-carbon growth trajectory.