FOR ADS -- EXPO on MAKING INVESTMENT IN REGIONS on MONDAY --

FOR ADS -- EXPO on MAKING INVESTMENT IN REGIONS on MONDAY --

Attracting investors through "regional autonomy"

Hendarsyah Tarmizi The Jakarta Post Jakarta

In any part of the world, investors are profit-oriented when it comes to their business activities. If they feel their existing investment locations are too costly, they will move to other areas that are more conducive to their investment activities.

This rule of the game should be followed. Otherwise, no investors will come. Indonesia was one of the most attractive investment locations for foreign investors in Asia during the 1990s thanks to a wide range of incentives offered to investors.

The investment climate, however, has changed significantly over the past five years. Many investors no longer consider Indonesia an attractive place to set up businesses. The incentives are no longer appealing. Political instability and uncertain security conditions have caused the investment climate to worsen even further.

The government has been working hard to lure back foreign investors through many efforts, including a change in investment policy. One of the most important efforts was the implementation of regional autonomy in early 1999.

Regional autonomy, meaning the transfer of authority and functions from the central government to regional governments, was hailed as an innovative breakthrough for the empowerment of regional economies, which had for years been dictated to and controlled by the central government.

Vested with administrative power, regional governments are expected to determine the direction of their own economic policies, including investment regulations.

Investors and businessmen alike hope that regional autonomy would help create a healthy competition among regional governments in attracting new investments.

The reality, however, tells a different tale. The lack of financial sources to finance their budgets -- including the salaries of civil servants who, prior to the introduction of regional autonomy, were paid through the central government's coffer -- has brought the regional governments to face serious financial difficulties.

The local governments, in fact, have received cash from the central government's budget to help finance their activities. But this money, called the general allocation fund (DAU), is far from enough, even to pay the respective salaries of provincial civil servants.

This financial problem has encouraged regional governments to find new sources of revenue, and the easiest way was to impose various kinds of user charges or levies to businesses within their jurisdiction. This short-term fiscal policy has only created uncertainties among local businessmen and potential investors.

The worrying condition in the investment climate in the provinces has prompted the Indonesian Chamber of Commerce and Industry (Kadin) to form an agency called the Monitoring Committee of Regional Autonomy Implementation (KPPOD) to monitor those activities of regional governments that could further hamper business activities.

The committee found that, during the first two years of the implementation of regional autonomy, almost all regencies had resorted to the imposition of levies and user charges to finance their budgets. Besides levies, the local governments also created various kinds of permits as requisites for businessmen wanting to set up businesses in their territories, in a bid to gain more money.

This condition did not only discourage new investors, but also hurt the activities of existing companies.

P. Agung Pambudhi, executive director of KPPOD, said that although levies and other red tape were still rampant in some areas, the regional business climate had significantly improved.

Many local governments are aware that abusing their power would be detrimental for their future economic growth, so "Many regencies have been very supportive of investors," he said.

Local governments in such regencies as Sawah Lunto in West Java, Pare Pare in South Sulawesi, Gianjar in Bali and Semarang municipality have made great progress in improving their business climates.

Local authorities in these regencies have not only eliminated the unnecessary levies, but have also provided a one-stop service to investors in a bid to speed up the licensing process.

Agung said that many regencies, particularly those located in a particular area, had formed alliances whose task was to attract investors. "Rather than fighting each other, it will be more useful to join forces in attracting new investments," he said, adding that neighboring Pematang Siantar and Simalungan regencies in North Sumatra were working hand-in-hand to promote their investment potential.

"This kind of synergy should also be followed by other regions," Agung said. He believed that all regencies would eventually leave behind their short-term policies, such as the imposition of levies to finance their budgets.

"The most important thing is to create a strong central government that will provide clear guidance on how the regional autonomy should be implemented," he said.

There should be, for example, a clear-cut regulation on the authority given to the central government, the provincial administrations and those governments at the regency level, he said. "This is important to reduce conflicts between Jakarta and provinces, and among regencies," he said.

Kadin chairman Aburizal Bakrie said that the establishment of the KPPOD had indirectly brought a positive impact on the regions' investment climates.

Findings made by the committee are sent to all of Kadin's chapters every six months as a guideline for the organization's members in seeking new investment locations.

"The findings are also used in determining the investment climate rating of each region. Any region that fails to meet the minimum rating requirement will automatically be left behind by investors," he said.

Aburizal said that if the regions did not eliminate investment red tape, they would automatically be excluded from Kadin's investment radar.

"So," he advised regional governments, "please make a solid infrastructure, if you want investors to come."