Govt must step up investment reforms

Urip Hudiono, The Jakarta Post, Jakarta

With unemployment on the rise due to the recent economic slowdown, the government must step up reform efforts to attract more labor-intensive investments into the country, analysts say.

Three classical problems that participants of an investment workshop on Wednesday still saw as hampering Indonesia's investment potential were legal uncertainties, too much red tape and poor infrastructure.

World Bank chief economist for East Asia and the Pacific Homi Kharas said the government must continue improving the legal framework to ensure a transparent and fair competitive environment. If investments continued to be monopolized by only a few, their economic multiplier effects would be decreased, he said.

"You can, of course, still attract more investments by creating monopolies, but it will not spur the expected level of growth and create the needed amount of jobs," Kharas said.

"The government must then also support the implementation of that legal framework with an efficient and effective bureaucracy, (create) certainty of investor rights in the courts and such issues as labor regulations."

The two-day workshop was organized by the World Bank, the governments of Indonesia and the Netherlands and attended by international experts, academics and policy-makers.

On the issue of red-tape, economist Russell Muir of the International Finance Corporation's Foreign Investment Advisory Service said although Indonesia was still among the hardest places in the world to do business-- at 115th from a total of 155 countries surveyed in the World Bank's Doing Business study -- it had begun to show improvements from last year.

Muir suggested the government cut unnecessary procedures and create a single-access registration point to cut the average 150 days needed to set up a business here.

Slashing registration fees and scrapping minimum capital requirements would also cut down investment costs and further improve the situation, he said.

From the business community, chairman of the Indonesian Employers Association (Apindo), Sofjan Wanandi, suggested the government pursue rural infrastructure and agriculture sector projects to boost investment.

"Investments have risen during the year, but so has unemployment because most of the (growth was in) capital- intensive industries," he said.

"These (other) projects, meanwhile, will spur growth and create jobs, while improving the country's public infrastructure."

Sofjan said the excesses of bureaucracy and legal uncertainty meant the country was still seen as a high-cost economy.

The business community wanted the newly proposed tax law amendments to be implemented as soon as possible because they were seen as business-friendly, he said.

"If there is further delay, then we will lose the opportunity and momentum again to attract investments, when we have already lost it this year due to external factors such as the tsunami, soaring oil prices, disease outbreaks and terrorist attacks."