Indonesia's Financial Center Needs More Than Tax Breaks to Lure Global Investors

Indonesia's ambition to establish the Indonesia International Financial Center (PFII) faces a critical challenge: incentives alone will not suffice to draw global capital. Experts argue that for PFII to compete with established hubs like Dubai and genuinely impact the domestic economy, it must prioritize legal certainty, institutional quality, and investor trust.

Suroto, head of the Akses socio-economic association, stressed that PFII should be more than a conduit for foreign investment. The incoming capital must translate into tangible benefits for Indonesia, such as creating quality employment, bolstering small and medium-sized enterprises (SMEs), facilitating technology transfer, and enhancing national economic productivity. He highlighted Indonesia's existing strengths, a large domestic market, abundant natural resources, a demographic dividend, and a capable workforce, as key differentiators that should be leveraged, rather than relying solely on fiscal incentives.

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We must show that Indonesia has enormous potential. We are a G20 member, possess a large market, rich natural resources, and a demographic dividend. These should be PFII's main strengths, not just offering incentives.

"We must show that Indonesia has enormous potential. We are a G20 member, possess a large market, rich natural resources, and a demographic dividend. These should be PFII's main strengths, not just offering incentives," Suroto stated at a recent Indonesia Business Forum. The forum also included insights from Mohamad Hekal, Deputy Chairman of the House of Representatives' Commission XI, and Josua Pardede, an economist at Bank Permata.

Fakhrul Fulvian, Chief Economist at Trimegah Sekuritas Indonesia, echoed the sentiment, asserting that PFII's economic benefits depend heavily on institutional quality, legal certainty, service standards, and investor confidence. He suggested Indonesia could adapt international best practices to its domestic needs, noting that fiscal incentives are rarely the sole deciding factor for investors. Factors like regulatory stability, ease of doing business, service quality, and credible dispute resolution mechanisms are equally crucial. Therefore, tax holidays alone will not attract investors if their trust in the institutions is not established.

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The group of SMEs must get a multiplier effect from PFII. Don't let us ignore the social impact.