Southeast Asia could benefit from the US president-elect Donald Trump’s vow to impose 60% tariffs on Chinese goods, as the rapid shift in global supply chains is driving new investment into the region, according to Indonesia’s former finance minister, Dr. Muhamad Chatib Basri.
Dr. Basri emphasised that key strategies are needed to improve the ease of doing business and enhance productivity, which are essential for countries aiming to achieve high-income status.
He told Thai PBS World that the escalating trade war between the two superpowers presents opportunities for countries, like Thailand and Indonesia, to raise their economic standing. He cautioned, however, that investors will favour countries with efficient governance, noting that competition within the region remains intense.
“The first thing we need to improve is the investment climate. Governments in the region should reduce the costs of doing business,” he said.
Drawing on his experience as former chairman of Indonesia’s Investment Coordinating Board, Dr. Basri observed that investment uncertainties remain a challenge.
“The quality of human capital is also critical, as it is reflected in a country’s productivity,” he said.
The former minister suggested that governments could incentivise companies to provide sustainable plans, including training and upskilling programs for employees, by offering double tax deductions. Such measures, he said, are significant in promoting the transfer of knowledge to local staff.
With these policies in place, Dr. Basri noted that political stability is another crucial factor when attracting new investors. He added, “The fact that Southeast Asia maintains an annual GDP growth of around 5% demonstrates political stability in the region.”
He stressed, though, that current growth rates in Thailand and Indonesia are insufficient to lift either country into the high-income category. Thailand’s annual GDP growth was just 1.9% last year, while Indonesia achieved 5%.
“Both countries need to accelerate economic growth through foreign direct investment and improved productivity. Thailand needs to achieve 7% annual growth, and Indonesia needs to reach 8%. For Indonesia, this depends heavily on investment. We need an investment-to-GDP ratio of between 50% and 54%,” Dr. Basri explained.
He also highlighted Indonesia’s low domestic savings rate, which is about 36% of GDP, emphasising the need to attract foreign direct investment actively, to meet the 8% growth target by the end of the new president’s term.
Government needs an agile bureaucracy for AI
Another crucial strategy for attracting investment, Dr. Basri said, is creating an agile bureaucracy, to support artificial intelligence development. While demanding agility from regulators may seem contradictory, he emphasised the importance of establishing clear principles for managing AI-related challenges.
AI has the potential to increase productivity and reduce operational costs, but governments must invest in workforce development to enable rapid AI adoption, he said.
“The government and employers should offer training programs, in schools and companies, to equip workers with relevant skills. Legal adjustments will also be necessary, but these must be handled carefully,” Dr. Basri advised.
As chairman of one of Indonesia’s largest banks, Dr. Basri noted that his institution has leveraged AI for customer profiling, particularly for high-net-worth individuals. Previously, this was a costly exercise due to asymmetric information, but AI now facilitates more efficient market segmentation and interest rate analysis.
