Thu, 18 Sep 2008
Mon, 09/15/2008 10:14 AM | Opinion

Even though the government might have some legitimate questions to raise about the accuracy of the latest business climate survey of the International Finance Corporation, the blunt fact remains: our business climate is really poor and worse than that of most ASEAN countries.

We have consistently performed poorly since 2004, when the World Bank's private-sector arm first introduced this comprehensive survey on the world business climate for its annual Doing Business Report.

The government has made significant progress in streamlining licensing systems, reducing both the time and cost of fulfilling regulations and procedures for starting up a business.

The problem, though, is that the government has often been inconsistent in the pace of reform, while many other countries have implemented regulatory reforms not only at a much faster pace, but also more consistently and step by step, thereby scoring higher than Indonesia in the business climate index.

The 2009 Doing Business Report, which was launched here last week, lowered Indonesia's ranking from 127th last year to 129th this year in terms of global business-friendliness, out of 181 countries surveyed.

Indonesia was also among the most difficult places in the world in terms of ease of doing business, ranked 135th out of the 175 countries surveyed in 2006 and 131st among 155 countries studied by IFC in 2005.

Sad to note we were ranked lower than most other ASEAN countries covered by the survey. We only performed better than the Philippines and Laos.

The survey tracks indicators of the time and cost to meet government requirements for business startups, construction permits, employment, property registration, access to credit, investor protection, tax payments, border-cross trade, contract enforcement and closing businesses down.

Yet more discouraging is that Indonesia would have done even worse if the tracked indicators included areas such as the condition of infrastructure and the availability of a highly-trained and skilled labor force.

One day after the release of the IFC business climate report, Trade Minister Mari Elka Pangestu painfully found, during an incognito visit to Jakarta's Tanjung Priok port, the country's largest seaport, solid congestion of containers at the port terminal caused by poor port management. In many instances it takes a few weeks to have containers cleared.

This evidence shows how progress in regulatory reform has often been nullified by problems in other areas and inconsistencies in the pace of reform.

The recent wholesale reform of the customs service and the introduction of a national single-window for most public services and regulatory procedures at the Tanjung Priok port has improved significantly the flow of documents for clearance of goods out of the port area.

But this painstakingly-gained progress was made less meaningful because the flow of goods has been stalled by utterly terrible port management and inadequate infrastructure.

No wonder, overall, businesses in Indonesia often bear administrative and logistics costs up to twice as high as their counterparts in other Asian countries. Business leaders of the Indonesian Employers Association have often cried out against pointless regulations and irksome rules, but the improvements have at best been incremental.

In so far as the business climate is concerned, the responsibility does not lie solely with the central government. The central government, fully realizing the important role of private investment, may be able to push harder with reforming and streamlining the regulations within its jurisdiction -- such as licensing systems at the Investment Coordinating Board and business incorporation at the ministry of law and human rights.

But there are many other permits a company must obtain from regional administrations before they can start up operations. The problem is that most of the 480 regional administrations where local autonomy is vested have yet to become aware of the key role of investment in fueling economic activities.

No wonder, the central government has been working hard to review and revoke thousands of regional bylaws issued by local administrations, which were inimical to business operations.

So instead of further grumbling about the IFC business climate survey, the government, in cooperation with regional administrations, should accelerate the pace of reform measures and do it consistently.



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