A year has passed since the House of Representatives amended the law on investment in March 2007, promising incentives and equal treatment for domestic and foreign investors. The amendment was only the first major step in a series of promised regulatory reforms targeted at improving the domestic investment climate. With the reforms still incomplete, the country's global competitiveness has been put to the test by soaring global oil prices. Worsening the situation is the government's failure to provide clear fiscal policy in relation to fuel price subsidies. The Jakarta Post's Andi Haswidi recently spoke with Muhammad Luthfi, chairman of the Investment Coordinating Board (BKPM), about these issue. The following are excerpts:Question: Rising crude oil prices will of course affect the competitiveness of most countries. How does it affect the investment climate in Indonesia?
Answer: Scrapping subsidies would mean an increase of costs. There are two rules of thumb in investment, risk and cost. When risks are high, investors will hold. The moment costs are up, people will think things through carefully and make calculations.
Nowadays, costs are already up. For investments in oil refineries, for instance, costs are already double what they used to be. In general, investors are now in a wait-and-see mode, as seen from a significant correction in the value of investment commitment, which dropped by 53 percent in the first quarter.With that as a background, how do you project the country's investment outlook ahead?
Though investment commitment is likely to remain weak this year, we saw investment realization of both domestic and foreign investors in the first quarter grow by 86 percent compared to the same period last year. By the end of the year, we are pretty sure we will secure 15.2 percent growth in realized investment.
New investment commitments will be entirely dependent on the global market conditions and how it will affect our economy. Nevertheless, I believe we will still be in a safe position considering growth in the food sector and energy.Recently, the President announced a plan to boost investment in the food and energy sectors by creating a committee for speeding up all procedures. How will that work and what is the BKPM's role in this?
The fundamental issue for investment in food and energy comes back to the question of clarity. There is an overlap of legal status on protected forests under the law on mining and the law on forestry.
The committee is being created so that investments in the two sectors are not halted amid the current condition of high food and energy prices. For the two sectors, the problem is not about investors' commitment, but the availability of land.
There are three things at least that can be developed by the committee. First are geothermal projects, second mine-mouth power plant projects and last is the regulatory support for investment in rice, sugar and palm oil.
In a nutshell, the committee will give special treatment and special incentives for investments in the two sectors.A lot of incentives have been promised under the new law on investment, but many of the implementing regulations are still on hold. Can you explain the country's investment climate reforms?
On Monday, we completed the standard procedures for the One-Stop Shop Investment Service under the BKPM, which will give both investors and the public clarity for business permit issuance, in terms of requirements, costs and period needed.
The service will be fully implemented after the issuance of an implementing regulation under the law on investment, which will be signed by the President shortly. With that, we expect to improve our rank in the Doing Business Survey from the current 123 to 70-ish in the 2010 survey, as the period for permit issuance will be cut from 97 days to 25 days.
On tax and customs, there are two areas of reforms. The first is the laws, which are already half-way done, and human resources. Besides accountability, tax and customs officials must be reliable. That was why the government raised their salaries above those of other civil servants. The director general of customs is now being paid more than twice that of his boss, the finance minister.
If we take a look at this year's state spending on infrastructure, it is already double that of last year. But as you know, infrastructure reform does not happen in a day.
Talks about labor law reforms are still very sensitive. However, if you really look at the law itself, unlike what some investors say, it is actually still very competitive.
The problem lies in the implementing regulations, which tend to favor labor interests. For instance, there is a provision in the implementing regulation that says the workers' minimum pay must be raised annually, but the law says nothing about that.
We will continue to work on this so as to create a balance among stakeholders. The first breakthrough will come soon with the issuance of a presidential decree on severance pay, which would ease the burden on employers.
The Constitutional Court recently favored the annulment of an article in the new law on investment, on 95 years of land use rights. This, has again, raised the issue of investment uncertainty. How do you respond to that?
The article basically adapts a government regulation issued in 2000, which says that land rights' renewal can be carried out in advance and can be constantly renewed unless there is a new spatial regulation that changes the function of the land. So, in essence, the period is limitless.
The wording of the article was crafted in a way so that it would look lucrative to investors, while keeping it in harmony with other laws and regulations. I think the court's verdict is entirely out of context and damaging to our image.
Promotion-wise, we will continue to sound what was proposed under the article.