Incentives needed to push investment in eastern regions

Rendi A. Witular, The Jakarta Post, Jakarta

State Minister for Eastern Indonesian Development Manuel Kaisiepo said on Wednesday tax incentives were badly needed to attract investors to eastern Indonesia and accelerate economic development in the region.

He said incentives must be offered particularly for the fishery and agribusiness sectors.

"Do not expect an acceleration of economic development in the region if we cannot accommodate the needs of investors," he told lawmakers during a hearing with House of Representatives Commission IV for transportation and communications.

Manuel said the investment incentives should include a tax holiday and soft loans from the banking industry.

He said his office had proposed the incentives but that other related ministers had so far rejected the plan.

President Abdurrahman Wahid signed a decree in 2000 to provide tax incentives for investment in eastern Indonesia, but then canceled the policy in response to strong opposition from Ministry of Finance. The ministry said the decree would violate existing law, which stipulates that no region can be granted exclusive tax breaks.

The decree contained exemptions on value added taxes, income taxes and import duties for foreign investors for a duration of eight years.

The eastern part of the country is widely regarded as lagging far behind western Indonesia, particularly Java, in economic development.

Accelerating economic development in eastern Indonesia is seen as crucial in helping to ease rising separatist demands in the region.

Manuel said there should be a consensus on the part of banks, businesspeople and government officials to accelerate development in eastern Indonesia.

Elsewhere, Manuel explained that small and medium-scale companies in the region were having difficulties expanding their businesses because bank loans were hard to get.

In September last year, leading banks made an agreement with the minister to give full authority to their local branches to extend loans to businesses in eastern Indonesia, in a move that was to help promote economic growth in the region.

However, Manuel said there were few signs that more money was flowing from the western part of Indonesia to the eastern part via the banks.

About 80 percent economic activity in the region is dominated by small and medium enterprises, mainly in the fishery and agribusiness sectors.

During the same hearing, a deputy to the minister of maritime affairs and fisheries, A.R. Maklin, sought the support of lawmakers to upgrade the Makassar Port in South Sulawesi and the Bitung Port in North Sulawesi to become international hubs serving the eastern regions.

These hubs are necessary to accelerate economic development in eastern Indonesia, he said.