Every time the government raises domestic fuel prices closer

Every time the government raises domestic fuel prices closer
to their real economic costs businesspeople always cry havoc,
urging the government to firmly deal with the old problems of red
tape, illegal levies, corrupt tax and customs services to offset
the additional burdens of businesses.

That was also the case soon after the March 1 fuel price
hikes. Most businesses have argued they will not be able to
remain competitive under the new environment of higher fuel
prices if the government does not act immediately to cut down
other costs related to government regulations and public
services.

The Riau chapter of the Indonesian Employers Association
notified economics ministers last week that 24 more foreign
investment companies on Batam island had threatened to pull out
due to the worsening business climate and the uncertainty about
the free-trade status of that island.

The investor complainants are not skittish investors who
demand special facilities or preferential treatment. Their
grievances are simply legitimate as they have found that their
international competitiveness is being eroded by inimical
business climate. Now the new fuel price policy is imposing
additional burdens.

The government should have fully realized why our economic
competitive edge has steadily been declining. Many studies and
researches have diagnosed the problems and made policy
recommendations. But the leadership and political will of the new
government seem not as strong as the political mandate it got in
last year's presidential election.

Indonesia has performed very poorly in all international
ratings of economic competitiveness and always ranks much below
all other founding members of ASEAN. The 2004 Economic Freedom of
the World Report, which was issued by Canada's Fraser Institute
last July, ranked Indonesia only the 86th out of 123 countries
measured in terms of good governance, access to sound money,
freedom to trade internationally, regulations of credit, labor
and business, legal structures and security of property rights.

Indonesia also ranked very low in both indices of the Global
Competitiveness Report 2003 which was prepared and issued by the
Geneva-based World Economic Forum. It was rated the 66th out of
102 countries surveyed in the growth competitiveness index and
58th in the business competitiveness index.

Overall, businesses in Indonesia shoulder almost twice as much
the administrative costs and have to struggle through twice as
arduous bureaucratic procedures as their counterparts in other
ASEAN countries.

The higher business risks and gross inefficiency in Indonesia
can, among other things, be noted from the much higher terminal
handling charges (THC) for container boxes charged by foreign
shipping companies at Indonesian seaports than other ports in
ASEAN countries. For example, THC for 20-feet container box at
Indonesian ports was set at US$150, as against $110 in Singapore,
$100 in Malaysia and a mere $60 in Thailand, latest data at the
Far Asia Eastern Shipping Conference showed.

The government should take a more strategic view of all the
weak aspects of our economy, realign its list of top priorities
with a focus on sound business environment to woo new domestic
and foreign investment.

Pointless regulations foster corruption. The more irksome the
rule, the greater the incentive to bribe officials not to enforce
it. that red tape is one of the chief obstacles to growth in
almost all poor countries.

There is much that governments can do to promote reform even
when lacking a clear mandate for wide-ranging action, let alone
the current government which possesses so strong a political
mandate.

Moving ahead in areas where the ground for reform has been
best prepared and laying the groundwork for further reform by
setting out to shape, or reshape, popular understanding of the
issues would inspire business confidence about the direction of
the economic management.

Laggards sometimes argue that reforms would be difficult and
costly to enact. But what could be simpler than scrapping a
stupid rule? Simplifying procedures is harder, but not too hard.
There are plenty of examples to learn from.

An economy can never be competitive if its business units are
not highly productive but the productivity of businesses is
inter-wined with the quality of the investment climate.

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