Govt must push regions to drop bad policies

A'an Suryana, The Jakarta Post, Jakarta

The central government is not doing enough to resolve the poor investment climate in provinces and districts, according to Regional Autonomy Watch (KPPOD).

KPPOD executive director Agung Pambudi told The Jakarta Post on Wednesday that local governments had issued many bad policies which discouraged investors, but the central government had largely sat by quietly without taking an active role in pressuring the regions to drop the policies.

He said that such a wishy-washy attitude had only worsened the country's investment climate.

"In order to lure back investors, the central government has no choice but to take a tougher stance against the recalcitrant regional governments," Agung said.

The above problem emerged after the central government provided in 1999 wide-ranging powers to regional governments, allowing them to manage their own economic and social affairs including investment policies under the autonomy law.

But it turned out that the provincial and district administrations have been too aggressive in exercising their newly obtained power by, among other means, imposing high taxes on businesses in a bid to collect higher revenue, disregarding investors' concerns.

This is seen as among the major factors which have discouraged investors from pouring in new investments and had even prompted some investors to leave Indonesia.

Agung pointed out as an example a bylaw issued in 2001 by the Deli Serdang district administration in North Sumatra which stipulates that businesses must pay fees to the local government for its role in supervising the production process.

"It (the ruling) has no precedent in the business world, and it will only burden investors," he said.

Agung said that the Ministry of Manpower and Transmigration has filed a letter of complaint to the Deli Serdang regional government, but the latter has yet to respond.

Worse, the Deli case is not the only case, but such practices have also occurred in many regions, Agung said.

Agung said the central government should move quickly to overturn the bad policies if it wanted to lure new investments into the country.

He added that according to the regional autonomy law, the central government had the authority to revoke local regulations that contravened higher rulings.

"If the government fails to do so, the investors could shy away from investing money in the regions," he said.

Investment has been a primary concern for the Indonesian government, as it has sharply plunged since the 1997 financial crisis. Indonesian economic growth has so far been supported by domestic consumption as investment and exports have continued to dwindle.

But in the longer run, sustainable growth cannot be expected without a significant role from the investment and export sector.

The Investment Coordinating Board reported earlier this month that foreign direct investment approvals dropped by 35 percent to US$9.7 billion in 2002 from its level in 2001.

A steeper decline was seen in domestic investment approvals, which last year saw a 57 percent drop from Rp 58.62 trillion to Rp 25.26 trillion.

The 10 most attractive regions for investment in Indonesia

1. Semarang Mayoralty, 2. Balikpapan Mayoralty, 3. Sawah Lunto Mayoralty, 4. Tegal Mayoralty, 5. Batam Mayoralty, 6. Tangerang Mayoralty, 7. Kediri Mayoralty, 8. Pekan Baru Mayoralty, 9. Palembang Mayoralty, 10. Sibolga Mayoralty

Source: 2002 Survey by KPPOD. The survey was conducted in 134 regencies and mayoralties in 2002, which measured key indicators like institutions, social, political and culture of the regions, local economy, manpower and physical infrastructures.