Barrier to exports

Anyone intending to exploit the huge potentials of the export business in Indonesia may want to ask themselves if they have the strength and stamina to overcome the frustration they will encounter from mounting bureaucracy.

They should take their cue from the Ministry of Industry and Trade's Director General of International Trade Anang Fuad Rivai. During a hearing with the House of Representatives on Tuesday, Anang disclosed that an exporter in Indonesia currently has to pay at least 4,396 different levies, imposed at various levels, from the mayoralty and regency administrations to central government agencies in Jakarta. These are official levies for which official receipts are issued. There are also illegal levies, the number and total amount of which are close to impossible to ascertain.

Anang's disclosure is still astonishing, if not disturbing, although everyone in the business knows very well that levies, official or otherwise, are rampant in Indonesia. Anang did not disclose how these nearly 4,400 levies affect the competitiveness of our exporters. The Indonesian Chamber of Commerce and Industry said earlier this year that the amount of levies -- both legal and illegal -- could add up to 27 percent of production costs.

Those already in the export business, or any business for that matter, have managed to live with these thousands of levies by incorporating them as part of the cost of doing business, and passing the extra expense onto consumers. But this reality is certainly a major deterrent to newcomers to the export business.

Until early this year at least, exporters as well as other entrepreneurs largely kept silent about the problems of business levies. The deregulatory packages, including debureaucratization measures, introduced by the government since 1983, have managed to bolster the economy and boost non-oil exports, giving businesses hardly any grounds for complaint. The local and central government agencies continued to charge the levies, which proved to be major sources of revenue, and businesses continued to pay them. It was a win-win situation where everyone gained and no one lost.

Conditions, however, have changed. In the last two years, Indonesian exports have slowed down and the growth of imports are outpacing exports, slashing the huge trade surplus that once acted as a cushion in our balance of payments. This is occurring while Indonesia has barely caught up with the newly industrialized countries like Malaysia and Thailand, yet it is fast losing its competitive edge to newcomers in the world market like China, Vietnam and India. The closing down of many textile and garment plants this year is one indication of Indonesia's declining competitiveness in industries traditionally reserved for developing countries that rely on cheap labor.

Ironically, entrepreneurs only began making noises about rampant business levies early this year after the government instructed them to raise their employees' wages. They argue that given the fierce competition in the export market, raising the salaries of their workers would raise costs which in turn would render them uncompetitive. However, if the government does something about the levies, then they could grant the pay hikes demanded by the government. No wonder it was Minister of Manpower Abdul Latief who took the initiative in February and campaigned for the scrapping of business levies. Coordinating Minister for Production and Distribution Hartarto later picked up the cause.

Sadly, after many promises to look into the matter, the slashing of levies was not included in the deregulation package announced last month. This probably indicates just how deeply rooted the problem of levies has become: that various government agencies have become dependent on them for revenue and there is no clear prospect of replacing them if they are scrapped.

Given the worrying trend of our export and import figures, something must be done soon. The biggest barrier to export growth now is no longer the lack of skilled labor or lack of entrepreneurship. It is now apparent that the government is the problem. After so many trade liberalization measures, including slashing tariffs, Indonesia's options to stay competitive in the world markets have become fewer. The next package of economic deregulations should target business levies which have largely remained untouched and tolerated to this day.