Investment and governance: A new paradigm<\/p>\n
Joe C. Bartlett
\nJakarta<\/p>\n
Economic growth and job creation depends heavily on high
\nlevels of investment. One of the major disappointments of
\nIndonesia's economic recovery is that the government's success in
\nre-establishing macro-economic stability has not generated the
\nhigh levels of investment necessary to increase per capita
\nincome, reduce poverty, and raise gross domestic product (GDP)
\ngrowth levels.<\/p>\n
Historically, the government has provided the capital
\nnecessary for much of the investment in Indonesia through state
\nowned enterprises and state banks. There was a suspicion, if not
\ndistrust, of private capital. However, today, the government
\ndoes not have the funds, let alone the ability, to be the main
\ndriver of economic development. The government must switch gears
\nto fulfill its new role as the facilitator of investment and
\nfinancial flows rather than the role of its principle provider.
\nNow, more than ever, the government must work in partnership with
\nthe private sector to facilitate investment, job creation,
\neconomic growth.<\/p>\n
In spite of macroeconomic stability, a sampling of recent
\nevents informs us that:<\/p>\n
* New foreign direct investment (FDI) approvals have dropped
\nyet again for the first six months of 2004. However, it is
\nimportant to note that the decline was somewhat offset by an
\nincrease in approvals for investment project expansions by
\nexisting investors.<\/p>\n
* Oil and gas exploration activities have significantly
\ndeclined over the past several years. Indonesia is a net oil
\nimporter. Mining exploration is at a standstill. Electrical power
\ncapacity and access to telecommunications are less than the
\npublic and business require.<\/p>\n
As these few items indicate, Indonesia needs new, private
\ninvestment capital, and must address the issues that are
\nhindering the country from attracting it.<\/p>\n
Investors are attracted to stable and predictable policy
\nenvironments, where private sector counsel is sought and included
\nin policy formulation. Investors are deterred by surprises and
\ninconsistencies. Equally important, investors are attracted to
\nplaces where current, existing investors are successful and
\nenthusiastic about their business' future.<\/p>\n
From an investor's point of view, major concerns in Indonesia
\nare transparency and the quality of regulations, the control of
\ncorruption, the rule of law and regulatory certainty as well as
\noverall government effectiveness, especially policy development
\nand coordination across government ministries and between the
\nnational government and the provinces and regions. These are
\ngovernment-created sources of business risk and uncertainty that
\nhave reduced Indonesia's competitiveness, increased the
\nperception of risk and inhibited the inflow of capital.<\/p>\n
There is a misperception that business climate can be improved
\nsimply by issuing new laws and regulations. Actually, the major
\nproblems investors face are often not with the actual rules
\nthemselves but with their implementation throughout the
\nbureaucracy which is badly in need of streamlining,
\nrationalization and discipline.<\/p>\n
Rules and regulations can always be improved. But these
\nimprovements will not bear fruit unless the regulations in which
\nthey are embedded are consistently and transparently implemented
\nby the relevant government institutions.<\/p>\n
There is a strong perception in the foreign investor community
\nthat the problems deterring investment here are ones of attitude
\nand mindset. As a submission by the International Business
\nChamber to the Ministry of Finance states:"More than just
\nsuperficial changes are required to reverse the damage which has
\nbeen done to Indonesia's image and economy. New thinking is
\nrequired, including the adoption of new paradigms and mindsets
\ntowards direct investment, regardless of whether it is foreign or
\ndomestic in origin."<\/p>\n
As the first president directly elected by the people, the
\nincoming president and her\/his Cabinet will be uniquely
\npositioned to introduce a new paradigm towards private investment
\nand governance. We wish to offer a few proposals:<\/p>\n
* Upon taking office, the President should personally issue a
\nstatement of unequivocal support for private sector investment,
\nin which the central role of business, be it a small, medium and
\nlarger enterprise, in economic development is clearly recognized.<\/p>\n
* Current investors are Indonesia's best advocates. Within
\n100 days of taking office, the President should convene a working
\nsession with the business community, to be followed up with
\nquarterly meetings thereafter. The purpose of the meetings will
\nbe to jointly discuss and develop integrated, economic policies
\nthat will encourage and facilitate private sector investment and
\ndevelopment.<\/p>\n
* Reporting directly to and in the office of the President, a
\nnational economic ombudsman office should be established with
\ncounterparts in each Department. This office shall serve as the
\ncoordination center for the dialogs, an open office where private
\nsector ideas, concerns, and complaints can be presented, and a
\nvenue for the private sector to address difficulties across
\nministries.<\/p>\n
* Among the many specific, focused actions that should be
\ntaken to show a new paradigm, we propose the establishment of a
\nnew Intellectual Property Rights (IPR) agency, chaired by the
\ncoordinating minister, and inclusive of the National Police, the
\nAttorney General, Customs and other relevant departments and
\nagencies.<\/p>\n
The article was condensed from a presentation made by Joe C.
\nBartlett, Chairman of Amcham Indonesia, at a dialog between the
\nIndonesian Chamber of Commerce and Industry and presidential
\ncandidate Megawati Soekarnoputri on Aug.2.<\/p>",
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