Investment licensing

Investment licensing

President Megawati Soekarnoputri's move to centralize the
authority to license foreign and domestic investment in the
Investment Coordinating Board (BKPM) in Jakarta will not be
effective in significantly speeding up the processing of permits
for investors. Nor will the policy contribute greatly to
stimulating new investment.

First of all, the stipulations in the presidential decree,
which establishes the BKPM as a one-stop clearing center for
investments, are legally ambiguous. There is virtually nothing
new in the executive order in so far as the BKPM's licensing
powers are concerned. The decree does not fully empower the BKPM
to process and issue all of the various kinds of permits required
by investors as there is no outright transfer of licensing
authority from other ministries and government agencies to the
BKPM. Permits for an investment venture still have to be
processed and issued by the relevant ministries and by local
administrations.

The new rule only spares investors the arduous procedures that
require them to go from one ministry to another to obtain the
various permits needed for their investment projects. Investors
need only file their applications with the BKPM, which is
responsible, on behalf of the investors, for getting the
necessary permits issued by the relevant ministries.

BKPM chief F. Toemion promised last week that a domestic or
foreign investor would be able to obtain all the necessary
permits within two weeks at the latest. But we greatly doubt the
reliability of this timetable.

Inter-ministerial coordination has always been the weakest
aspect of government here, even during the authoritarian,
centralized administration of Soeharto. This is not only because
of pervasive bureaucratic jealousy, but also the fact that from
the perspective of those manning the public administration, which
is regarded as being one of the most corrupt in the world,
licensing authority means "money" for the relevant officials.

Even the all-powerful Soeharto took about ten years to
overcome resistance from other ministries to making the BKPM a
truly one-stop administration center for investment licenses. But
this system broke down after his ouster, especially after the
launching of local autonomy in 2001.

The latest presidential decree, which was issued last
Thursday, is also rather confusing. It does not explain the
status of licensing powers for investment in oil and gas
extraction, which now comes under the BP Migas (Oil and Gas
Authority), in general mining (other than oil and gas) under the
jurisdiction of provincial administrations and in financial
services under the finance ministry and Bank Indonesia.

True, a more expedient licensing system will help make things
easier for investors. But the presidential decree does not
address what businesspeople see as being the biggest barriers to
investment: weak law enforcement, legal certainty in the
provinces, excessively rigid labor rules, and inefficient and
corrupt customs and tax agencies.

Instead of centralizing overall investment licensing in
Jakarta, which is, after all, contrary to the spirit of local
autonomy, the BKPM should focus its attention on strengthening
the roles of the local investment offices-- Provincial Investment
Coordinating Offices (BKPMD) -- to enable them to better serve
business and woo new investors through business-friendly
policies.

Many local administrations still don't fully realize the great
contribution investment can make to their local economies through
job creation and the injection of new purchasing power to
generate consumer demand, thereby fueling manufacturing
operations.

Moreover, trying to restore overall licensing authority to the
BKPM now could well generate a hostile climate for investment
ventures in the regions, thus sabotaging one of the primary
objectives of local autonomy -- encouraging local administrations
to compete for investment. Jakarta should instead delegate most
of its licensing authority to the local administrations, with the
BKPM retain authority only over requirements that need national
standards, such as environmental impact analyses, fiscal
incentives, etc.

The BKPM should devote more attention to a promotional
campaign targeted at investors that, instead of trying to attract
investment in general, focuses its efforts on wooing investment
in selected categories of industry that the country wants to
develop.

An investor-targeting strategy would allow the government to
choose the kinds of investment it wants and direct them to
supporting its development objectives related to employment,
technology transfer, export competitiveness, skills improvement
and other development goals.

Let the coordinating minister for the economy, and the finance
and industry ministers tackle the job of expediting the licensing
of investment through the inter-ministerial task forces of the
National Export and Investment Promotion Team.

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