Canceled investment

Canceled investment

The latest data on investment projects released by the
Investment Coordinating Board at a coordinating conference last
Wednesday, besides indicating a steady increase in new investment
approvals, contained a disturbing trend. Foreign investment
projects canceled by the board in the first six months of this
year increased by 212.5 percent in terms of projects and by
almost 1,500 percent in terms of value, compared to the same
period last year.

It was regrettable therefore, that the board's chairman,
Sanyoto Sastrowardoyo, canceled a news conference originally
planned for after the meeting. Sanyoto did not explain the reason
for the last-minute cancellation. Hopefully it was not his lack
of knowledge of the details of the canceled projects but simply a
last-minute call to a more urgent appointment.

We nonetheless see it as rather strange that the chief
investment administrator could not have found the time to explain
so worrisome a trend in the investment sector. So drastic an
increase in the value of investment projects canceled -- the
figure is US$458.5 million for January to July 1996 -- requires
thorough public examination. By the board's rules the canceled
projects were probably licensed before June 1993 as investors are
granted three years in which to start realizing their projects
before the board can move to annul their investment licenses.

A thorough investigation would have told the board much about
why the investors had not started their projects after spending
vast amounts of time and money on feasibility studies and
processing the many licensing requirements. If the main reason
for the cancellations was internal corporate problems such as
difficulties in arranging investment credits then the board
cannot be blamed. However, if the main reasons were related to
regulatory requirements, they would be valuable inputs for the
board and other government agencies when considering how to
further improve the investment climate.

The problem is that even though the board has significantly
improved its services, it has yet to function fully as a one-stop
licensing office for investment ventures as it has been supposed
to do since the overall realignment of investment licensing
procedures in 1978. True, coordination is difficult and,
sometimes, a delicate problem within the government bureaucracy
in developing countries, but in Indonesia it is often the biggest
hurdle and needs to be addressed.

The problem has further been exacerbated by the fact that the
competence and authority of the Provincial Investment
Coordinating Boards are often extremely poor. These are supposed
to be the one-stop administration centers for the processing of
local permits related to location, building, land acquisition,
prevention of public nuisance and several other licenses but are
often anything but a one-stop service center. This is partly
caused by many governors' lack of awareness of the benefits of
attracting direct investment to their provinces, due to the
country's too centralized administration. They rarely feel any
need to compete for such ventures and usually focus on securing
government projects. There have been many cases whereby
investment projects which had been licensed by the national board
(BKPM) failed to be implemented because of lengthy delays
encountered in obtaining local permits.

The central government has realized the need to streamline
licensing procedures in the provinces but has been very slow to
improve things by decentralizing its authority.

The large amount of licensed investments canceled during the
first semester should give a stronger message to the government
that much needs to be improved in order to attract investment to
the country. The government should no longer be misled by the
perception that the country's huge potential market and abundant
natural and human resources will by themselves woo investors.

The government should instead realize that within the next
seven years the domestic market in Indonesia will turn into an
ASEAN market when the region becomes a free trade area in 2003.
That means new investors planning to operate in Indonesia will
take into account competition from other ASEAN countries when
making their production calculations.