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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