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."