Bring down the barriers to business; World Bank

Tony Hotland and Zakki P. Hakim, The Jakarta Post/Jakarta

The World Bank urged the new government on Friday to fix the country's adverse investment climate in a bid to accelerate economic growth and create jobs.

Speaking during a presentation of the 2005 World Development Report here on Friday, the Bank's visiting managing director Peter Woicke said Indonesia had to minimize policy-related risks and costs as well as barriers to competition facing firms of all types -- from farmers and micro-entrepreneurs to local and multinational manufacturing companies.

"This report shows how climate improvements drive growth by encouraging investment and productivity. Improvements also help reduce poverty by expanding opportunities for poor people," said Woicke, who is also vice president at the Bank's investment arm, the International Finance Corporation.

The global report was first launched in September.

Indonesia's new administration should consider a medium-term plan that provided a benchmark against which to measure the government's performance and give firms of all sizes the confidence that conditions would continue to improve and support productive investment, Woicke said.

The World Bank's country manager for Indonesia, Andrew Steer, said he had met with President Susilo Bambang Yudhoyono early in the day to submit the report.

"I believe, and that's what he told me, that the President fully understands the problems the country is dealing with. I didn't give any suggestions or whatsoever, only assuring him that we're prepared to help him in any possible measures," Steer said.

Among Indonesia's major turn-offs to new investments, as seen in the report, are policy-related risks. Uncertainty about the content and implementation of government policies is the top- rated concern, with other risks including macroeconomic instability, arbitrary regulations, and weak protection of property rights.

Policy-related costs shouldered by firms due to the hefty red tape and corruption is also substantial, coupled with the lack of basic infrastructure to uphold new investments.

Previous surveys have ranked Indonesia's bureaucracy as inflexible and the country as one of the most difficult places in the world to do business.

A 2003 survey by the United Nations Conference on Trade and Development showed Indonesia receiving negative levels of materialized foreign direct investment, putting it on a par with resource-poor countries like the Solomon Islands and Yemen.

Other Asian countries received strong FDIs, such as China and Singapore (more than $5 billion), and India, Korea and Malaysia ($2 billion to $4.9 billion).

Indonesia has been relying heavily on domestic consumption to fuel economic growth as investors remain wary of the country due to the poor business climate.

While the economy is expected to expand by 4.8 percent this year, the new government aims to push growth to an average of 6.6 percent per year during the next five years.

Meanwhile, chairman of the National Economic Recovery Committee (KPEN) Sofyan Wanandi said the country would be able to attract up to US$20 billion in fresh investments next year if the government applied the economic measures proposed by the Indonesian Chamber of Commerce and Industry (Kadin).

Kadin earlier this week presented a road map on how to develop the country's industry and investment sectors.

"There would be between $10 billion and $20 billion in fresh domestic and foreign investments entering the country in the first year of the new administration, under the conditions created if the road map was applied," Sofyan said.

He said foreign investors from Europe, U.S. and Japan were queuing right now to meet with the new government to make new investment commitments in the manufacturing and infrastructure sector.