Circumventing for legal infrastructure to entice investments

Circumventing for legal infrastructure to entice investments

The following is an excerpt from an Interview with Soeharsono
Sagir, an economist at Padjadjaran University in Bandung and
consultant to the Ministry of Home Affairs and Regional Autonomy
in the autonomy drive. He is confident that despite the poor
legal infrastructure, foreign investment can still be encouraged
by establishing sister-city schemes.

Question: Regional autonomy is not a new concept but is only
to be implemented here. What is your opinion?

Answer: That's true, the 1974 Law No. 5 on regional
administration already deals with this, but the autonomy policy
was never implemented well. In fact, it's been a messy state of
affairs.

Now we have the two laws, No. 22 and No 25, on regional
governance and fiscal balance between the central government and
local administrations. These two, however, may not be implemented
in January 2001 as planned but in May 2001.

Q: Why are they being postponed again?

A: I believe because many regions are not yet ready for it.
First, they are not ready in terms of their human resources.
Second, they are not ready to engage in the necessary
restructuring of administration.

Third, they are not ready in terms of genuine local revenue
(Pendapatan Asli Daerah/PAD); the regions have yet to prepare
their capacity reports for the autonomy policy. They would have
to stop being dependent on the central government's subsidies,
and this is something they are not ready to do yet.

Fourth, the necessary local regulations are not yet prepared
either. Many of the regional legislative councils have yet to
master the autonomy law despite the fact that they, along with
the local administrations, would be in charge of establishing
those regulations.

Fifth, the regions have yet to prepare their citizens. Owing
to poor dissemination of information about the laws, many people
think that the drive would cut all involvement of the central
government. Further to this they feel that the regional
administrations will no longer be accountable to the central
government.

Q: Will the remaining time (before May) be enough to handle all
of those problems?

A: Let us hope so. It's clear, though, the autonomy policy is
being deferred because many regions are yet to prepare for it.

Q: What about the regions that are already prepared?

A: The autonomy drive is for all administrative affairs to be
carried out by the regency governments. The exceptions to this
are for foreign relations, defense, security and monetary
affairs. So the governors no longer have the rights or authority
to run them. Governors are no longer the superiors of regents and
mayors.

Q: Don't you think another postponement would be taken as proof
of the government's reluctance to decentralize power?

A: It's true the postponement has yet to be publicly announced,
but it is being taken because there are some requirements that
would be effective only in May.

I heard from my own sources that January 2001 would be a no go
(for the whole country). It'll be introduced gradually, and in
general all regions would be ready by May.

Let's look at the PAD factor first. Out of the 292 regencies,
only two of them have an income which equals or exceeds 50
percent (of their annual budgets). Most regencies are still
depending on the central government's subsidies.

Q: Isn't the central government concerned about being accused of
foot-dragging?

A: What can it do? The central government cannot force regions
which are not ready for the policy yet. Even if you take one
necessary factor, such as human resources (there would be signs
of unreadiness) in both of the executive and legislative
branches. There is, for instance, a coastal region (whose
administration) is now seeking to establish zoning (for business
purposes) offshore. This is a mistake on their behalf.

There are regions which house airports, such as Tangerang with
the Soekarno-Hatta Airport, demanding the authority to manage the
facilities. That too is a mistake. Do they have the human
resources to carry out (the authority) anyway?

Another example is regions, such as Bitung, which demand
authority over state-owned port company PT Pelindo, or that the
company be "nationalized". This is because those people in the
regions think that whatever facilities exist in their regions,
must be transferred to them. This is not true.

Q: How will foreign investment be regulated?

A: I suggest the establishment of sister cities. A regency or
city can seek partners abroad, and those partners can then
mobilize their businesspeople to invest there. We have such
schemes already, for example; Bandung and Braunschweig (in
Germany) have an arrangement for urban development in sewage
construction.

We really didn't need to amend the bill on investment. (We can
have) limited investment schemes for the purpose of establishing
partnerships between Indonesian cities or regions with cities
overseas, focusing, for instance, on improvement of urban spatial
zoning. The investment we are talking about is not the same with
foreign capital that we know of today, we are talking about a
smaller scale of investment.

Now foreign investment depends much on the availability of
infrastructure and facilities, which are the responsibilities of
the central government.

Q: Will regions want to be like a province in China whose
administration can directly contact foreign investment without
having to go through the central government?

A: In China the autonomy policy applies to provincial level of
administration, while ours apply to regency level.

Regencies or cities need to have adequate human resources in
order to be able to negotiate (investment). It's something that
cannot be done yet here. We need to do this gradually.

Q: So even resource-rich regions such as North Aceh regency
cannot arrange for direct investment by foreign oil companies?

A: There are already regulations about mining in the law,
including stipulations about what percentage goes back to which
parties.

Q: There have been some concerns raised over the possibility of
resource-poor regions overexploiting their residents through
taxation. What do you think?

A: No can do. There are laws on taxation that still apply. No
need to worry (about overexploitation) because it is not that
easy to determine the level of taxes to be applied.

The problem with us is that we tend to be too hasty,
discussing things that are not yet clear. Really, what's
important for us is to reintroduce order and restudy what levies
can still be imposed (on the public). Rather than increasing
taxes, we can expand the range of taxable objects.

Q: Your suggestion for resource-poor regions to improve their
local earnings?

A: They should think of establishing their most competitive
(commodities). We are mistaken if we think that resource-poor
regions would be automatically poor. That's not necessarily true.
They can be creative and exploit their tourist sector, for
instance.

The genuine local earning is indeed an indicator of a level of
prosperity. The higher PAD, the more prosperous. But (increasing
levies) would be counterproductive and hamper (autonomy).

Q: Some are worried the autonomy policy will only deepen gaps
between regions...

A: Let's just give this drive a shot. We are doing it in fact to
reduce the disparity.

Q: Jakarta has the most facilities, all belonging to the central
government. Some people are worried that the regional
administration of Jakarta will be left with nothing.

A: This is not a contest to grab as many things as you can. There
are rules that guide the process.

Now Jakarta is indeed a special region, it has different rules
from those applied in other regions. Jakarta would not be treated
the same as Tangerang, for instance. Indeed three regions will
get different treatment, namely Aceh, Jakarta and Irian
Jaya.(Saiful Hamiwanto).