Developing a Self-Sufficient Pharmaceutical Industry in Indonesia

Indonesian President Joko Widodo signed Presidential Instruction No. 6/2016 on the Acceleration of Development of the Pharmaceutical Industry and Medical Devices on 8 June 2016. Through this instruction Widodo calls on all relevant ministries - including the Health Ministry, Industry Ministry and Finance Ministry - to take efforts to boost development of Indonesia's pharmaceutical industry. The Health Industry has a key task to write an action plan for the development of a self-sufficient pharmaceutical industry and to boost competitiveness.

Indonesia's pharmaceutical industry is highly dependent - for some 90 percent - on imports of raw materials from abroad. Considering that sales in the nation's pharmaceutical industry are expanding by around 10 percent year-on-year (y/y), it implies imports of raw materials will continue to rise, especially now the Indonesian government is eager to turn its ambitious universal healthcare scheme (in Indonesian: Jaminan Kesehatan Nasional, or JKN) into a success. JKN, which was implemented by the social security agency Badan Penyelenggara Jaminan Sosial Kesehatan (BPJS) in early 2014, aims to provide all Indonesian citizens with access to a wide range of health services (by 2019). If conditions do not change but the JKN program is a success, then it would imply a significant surge in imports of raw materials, putting pressure on Indonesia's trade and current account balances.

The presidential instruction also orders the Health Ministry to create an integrated data system that covers the demand, production and distribution of pharmaceutical supplies and healthcare services. Meanwhile, the process to obtain permits to develop a pharmaceutical factory should be simplified. Furthermore, BPJS needs to improve its capacity to pay bills submitted by local hospitals and health clinics.

Earlier this year we reported about the growing mismatch between claims paid and premiums received by BPJS. The subsequent growing deficit undermines the financial sustainability of the whole program. Moreover, given that 90 percent of medicines' raw materials are imported, part of BPJS' funds (taken from the central government's state budget) flow abroad.

Presidential Instruction No. 6/2016 also calls on Indonesia's Finance Ministry to provide fiscal incentives in order to attract investment in the pharmaceutical industry. Also the Indonesia Investment Coordinating Board (BKPM), the government agency that provides investment services, is tasked to create new policies that boost investment in this sector.

Earlier this year the Indonesian government had already widened room for foreign ownership in factories that produce raw materials for medicines from 85 percent to full 100 percent foreign ownership. However, more incentives are needed to attract investment.

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