Doing business in RI remains costly, IFC says

The Jakarta Post, Jakarta

Indonesia is at risk of falling further behind many of its regional rivals in terms of attracting foreign investment due to the continuing high cost of doing business here, according to a report released on Tuesday.

The report titled Doing Business in 2006: Creating Jobs, co- sponsored by the World Bank and the International Finance Corporation, ranks Indonesia 113th out of 155 countries in terms of doing business, with the top being the best.

Indonesia lags far behind Vietnam (99), China (91), Malaysia (21), Thailand (20) and Singapore (2). Indonesia finds itself this year in the third quarter, up from last year's bottom quarter.

However, the progress has only been made in three areas: the introduction of a new Bankruptcy Law clarifying the rules for dealing with insolvent businesses and reorganizing viable businesses, improved regulations for protecting investors, and reductions in the cost of starting up businesses.

Other areas, however, remain the same or have even worsened.

"In Indonesia, although there is progress and the government understands that the issues need to be addressed, the changes are not happening fast enough. This may be a disincentive for investors, since the region is growing and more options are available for investors to choose a competitive country," said IFC Country Manager German Vegarra when launching the report.

The report traces the difficulties involved in doing business, including starting a business, hiring and firing workers, getting loans, paying taxes, contract enforcement, licensing, registering property, protecting investors, cross-border trading and, lastly, bankruptcy.

In terms of starting a business, Indonesia's notoriously cumbersome bureaucracy prolongs the licensing process. It takes an average of 151 days to start a business in Indonesia, compared to 30 days in Malaysia, 33 days in Thailand and 50 days in Vietnam. Indonesia is far behind the regional average of 39 days.

The data employed in the report, however, was collected between early 2004 and the beginning of 2005, and thus does not reflect on the performance of President Susilo Bambang Yudhoyono, who has vowed to cut the number of days needed to start up a business from 151 days to 30.

Regarding the hiring and firing workers, Indonesia is among the most business unfriendly countries in the region. It has the highest cost of firing in the region, equal to 145 weeks' wages, compared to 90 weeks' wages in China, 65 in Malaysia, 39 in Cambodia and 4 in Singapore.

It takes 42 days to register property in Indonesia, which is relatively good compared to the rest of the region. However, this figure represents a worsening compared to the 33 days recorded in the previous report. Besides, the cost of registering property in Indonesia is the second most expensive in the region, second only to Fiji. To register a title costs 10.95 percent of the property's value here.

Indonesia also has problems with contract enforcement, which needs 570 days -- that second worst figure in the region after Timor Leste. The cost of enforcing contracts is also high in Indonesia, at 126.5 percent of debt value, compared to 20 percent in Malaysia, 13 percent in Thailand and 9 percent in Singapore.

In the case of bankruptcy, the recovery rate in Indonesia is still stuck at 13 cents per dollar, far behind the 19 cents per dollar in Vietnam, 32 cents in China, 39 cents in Malaysia and 91 cents in Singapore.