Indonesia, with its abundant natural and human resources, once
\nranked as an exotic choice for investment, but the unrelenting
\nbureaucratic, social, economic and political problems of the last
\nfive years have pretty much put paid to that designation.
\nIt's an uphill struggle for the Investment Coordinating Board
\n(BKPM) in trying to bring some sunshine to the investment
\nclimate, especially as it lacks the political clout to take
\neffective measures.
\nAccording to BKPM's 2002 annual report, approvals on foreign
\ninvestment projects in business sectors aside from the financial,
\noil and gas industries declined from US$33.81 billion in 1997 to
\n$9.74 billion in 2002, and those for domestic projects from Rp
\n119.87 trillion ($49.9 billion based on a conversion rate of
\nabout Rp 2,400 per dollar) to Rp 25.26 trillion ($2.8 billion
\nbased on the conversion rate of about Rp 9,000 per dollar).
\nThe figures do not necessarily indicate the real amount of money
\nbeing invested because the implementation of investment projects
\nhas always been low, averaging less than 20 percent for domestic
\nprojects and 60 percent for foreign ones.
\nBKPM chairman Theo F. Toemeon acknowledged that developments of
\nforeign and domestic direct investments in recent years resulted
\nfrom a set of difficult, complex domestic issues unfolding since
\nthe start of the Asian economic crisis in 1997 and the
\nrestoration of legislative democracy in the country.
\nCurrent global conditions, marked by the U.S.-led war against
\nIraq, overall weaknesses in major world economies and intense
\ncompetition for new foreign direct investments (FDI) with
\ncountries like China and some regional neighbors, have put more
\npressure on Indonesia's efforts to improve its investment
\nperformance. Repercussions from the epidemic of severe acute
\nrespiratory syndrome (SARS) are proving another burden.
\nToemeon said he was confident Indonesia retained its "exotic"
\ninvestment status and that a lot of investors would like to do
\nbusiness in the country, "but the establishment of political
\nstability, security as well as law and order is prerequisite for
\nthe conducive environment for investment".
\nHe noted that he could not go it alone in the effort to win over
\ninvestors.
\n"It will take some time to fully restore investor confidence. We
\nneed our central government and local administrations to
\nrecognize and accept that investment, together with exports, is
\nthe key to our sustainable economic recovery and job creation,"
\nToemeon told The Jakarta Post in a recent interview.
\nHe said the country needed large amounts of investments to create
\nemployment because about 40 million members of the workforce were
\nnow out of jobs, while about 100 million people were living below
\nthe poverty line.
\n"The central government and local administrations, therefore,
\nmust improve coordination and collaboration to generate new
\ninvestment and protect the existing ones," he said.<\/p>\n
Toemeon's remarks are particularly apt because the business
\nclimate in a decentralized Indonesia is affected by a host of
\ncomplex problems, including those partly related to the central
\ngovernment and partly to local administrations.
\nSome of the problems, as cited on the U.S. Embassy website in
\ninformation for American investors, include the unknown impact of
\npolitical and fiscal decentralization, the unreliable judicial
\nsystem, political uncertainty, uneven implementation of economic
\nreform commitments, security issues and the treatment of existing
\ninvestors.
\nOn fiscal decentralization, for example, a newly amended law on
\nlocal taxation has given local administrations the freedom to
\nimpose new taxes and levies within certain limits. Many of the
\nnew taxes target foreign investors and trade with other regions.
\nInvestment rules and procedures also remain unclear as many local
\nadministrations have criticized Jakarta's slow pace and lack of
\nconsultation in formulating and implementing regulations for the
\ndecentralization laws.
\nFor security issues, investors, particularly those operating in
\nplantations and mining, frequently encounter problems such as
\nlooting, occupation of land by squatters and illegal mining.
\nConcerning the judicial system, the government has taken some
\nsteps to foster judicial independence by the promulgation of the
\nlaw that transfers most of the administrative and regulatory
\nfunctions related to the court system from the former ministry of
\njustice to the Supreme Court, and also by forming an independent
\nnational law commission.
\nNevertheless, the government still has not announced a thorough
\nplan for judicial sector reform, and the system continues to be
\ndogged by a lack of fair and impartial protection for investors.
\nIndonesia ranks among the lowest in transparency and corporate
\ngovernance assessments of Asian countries.
\n "When I started my office (in 2002), I established a task force
\nand invited about 500 foreign and domestic investors. Everybody
\ncried out but I could not help solve their problems," Toemeon
\nsaid.
\n"Some of the investors experienced problems related to different
\ndepartments and some had problems related to different offices of
\ncoordinating ministers," he said, adding that other complaints
\nextended to taxation, customs and security.
\nAfter the Bali bombings last October, Toemeon also gathered
\ninvestors on the shattered resort island.
\n"I was surprised that most of the complaints were not about the
\nbomb blast but about tax harassment," he said.
\nAn administrator of an international school, for instance,
\ncomplained that soon after the school had bought a plot of land
\nfrom the Indonesian Bank Restructuring Agency (IBRA), tax
\nofficials demanded payment of Rp 3 billion.
\nAfter tough negotiations, the school was "allowed" to pay about
\nRp 300 million.
\n"When asked about the use of the money, the tax officials told
\nthe school administrator, 'We have to pay Rp 120 million to the
\ncountry and the remainder to our boss who will retire'," Toemeon
\nsaid.
\nUnfortunately, the school backed down on its complaint after
\nToemeon reported the case in a hearing with the House of
\nRepresentatives (DPR). "They withdrew the complaint because they
\nwere threatened by the tax people," he said.
\nIn facing such complex problems, involving various ministries and
\nother government institutions, the task force -- which was
\nestablished and overseen by BKPM, an institution lower in rank
\nthan ministries -- lacked the power to make definitive
\ndecisions.
\nThe board has proposed the establishment of a national team for
\nthe protection of investments and President Megawati
\nSoekarnoputri approved its proposal in a Cabinet meeting last
\nNovember.
\nHowever, it has failed to materialize due to legal and technical
\nproblems.
\nTo make it effective, the team is supposed to be chaired by the
\nPresident and to have ministers as its members, with the BKPM
\nchairman acting as secretary-general. However, a coordination
\nproblem is almost certain to occur if the BKPM chief remains of
\nlower rank than ministers.
\nWhile a presidential decree on the establishment of the
\ninvestment team cannot be issued without the necessary change in
\nstatus of the BKPM chairman to a minister, the President seems
\nreluctant to add another member to her Cabinet, whose tenure ends
\nnext year.
\nWhile waiting for the issuance of such a decree, the BKPM
\nchairman now leads an investment working group that comprises
\nsenior officials from various ministries. This group deals
\ndirectly with investors' issues and if it cannot solve certain
\nproblems alone, it would then forward them to the team, if and
\nwhen it is established.
\nToemeon said BKPM was also preparing mechanisms for providing
\none-stop services to investors and formulating measures to
\nsimplify licensing procedures. It would cut out the bureaucratic
\nrunaround and the likelihood of graft being exacted on investors
\nwho want to start a business in the country.
\n"This facility at the BKPM will help speed up the processing of
\ndocuments related to investment," he said. "At the same time, we
\nare reviewing the existing approval process to streamline and
\nreduce bureaucratic requirements on investment and related
\noperations."
\nIn other efforts to curb graft, the BKPM will introduce measures
\nto avoid face-to-face contacts between investors and its
\nofficials. For example, investors would only need to meet
\nofficials at its front office, with no opportunities for contact
\nby other officials.
\nToemeon also said that he, in his support of the Feb. 27
\ndeclaration of 2003 as the Year of Investment, had finalized an
\naction plan to reorient BKPM to compete for new investment and
\nimprove the outreach to existing investors.
\n"In our action plan for investment, we focus on four key
\nstrategic goals: the improvement of institutional and legal
\ncoordination, communication and 'investors' after care',
\nproactive promotion and better linkages to the legislature, local
\ngovernments and overseas agencies."
\nHe said his office would take the lead to address conflicting and
\nconfusing legislation, policies and procedures that affect
\ninvestors, including those by local governments. Investors would
\nnow have a single channel of contact to address the issues
\nthrough BKPM, bolstered by its role in the investment working
\ngroup and the national investment team.
\nBKPM will also soon set up an investors relations center to
\nhandle investors' queries and grievances, he said.
\nProactive investment promotion within the country and overseas
\nwill also continue to be central to Toemeon's strategy.
\n"An important part of our foreign investment strategy is to
\ncultivate the return of overseas entrepreneurs of Indonesian
\norigin," he said. "A program is being worked out to target many
\nof these entrepreneurs to reconsider bringing back their capital
\nfor investment in an improved political and security
\nenvironment."
\nBKPM is also planning a program to communicate to local
\ngovernments on the role of investment in their regional
\ndevelopment and on the negative impact of introducing new
\nadministrative or fiscal demands.
\nDespite the problems, he said he was optimistic that investors,
\nmany now awaiting political certainty, would return to the
\ncountry after next year's general election.
\n1<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/indonesia-with-its-abundant-natural-and-human-resources-once-1447899208",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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