Investment licensing realigned

Investment licensing realigned

Stripping the Investment Coordinating Board (BKPM) of its
licensing authority will do little to speed up the process of
business start-ups in the country unless the government acts
firmly to realign cumbersome procedures and expedite the issuing
of permits by government agencies.

Inter-ministerial coordination has always been the weakest
link in successive governments, despite the creation of the
Coordinating Minister for the Economy position, which has been
part of cabinets since the early 1980s. Even the authoritarian,
centralized administration of Soeharto took more than 10 years to
overcome resistance from its ministries to make the BKPM a truly
one-stop service center for domestic and investment licenses.

However, the entire system broke down after Soeharto's ouster
in May 1998, and investment licensing has become far more arduous
and complex, especially after the institution of local autonomy
in 2001.

Then president Megawati Soekarnoputri tried early last year to
restore the BKPM as a one-stop center for investments but to no
avail due to the failure of her political leadership. In terms of
this country's public administration, which is perceived
correctly to be the most corrupt in East Asia, licensing
authority means the power to collect rents.

No details were immediately available as to how the government
would go about expediting licensing after downgrading the
office's function into that of a promotion and company registry
office.

Coordinating Minister for Economy Aburizal Bakrie and Minister
of Trade Mari Elka Pangestu, who last week disclosed the
government's plan to facilitate smoother approvals, only said
that notaries public would play a central role in helping
businesses obtain permits. It would be notaries public, not
investors, who would traipse between the different ministries to
obtain all the necessary permits.

On the face of it, this new system would do virtually nothing
to speed up investment licensing. The BKPM is not the main
impediment in the country's series of bureaucratic licensing
procedures. Nor is the BKPM the only agency in charge of
licensing. Investments in financial services are still handled
directly by the Ministry of Finance and Bank Indonesia, while
those in the oil and gas sectors are administered by BP Migas.

The latest survey by the World Bank, as compiled in its Doing
Business in 2005 report, shows that it takes an average of about
five months to start up a business in Indonesia.

If the government is really serious about expediting
investment licensing, it must first review the cumbersome
procedures and reassess the real purpose or merit of the dozens
of permits an entrepreneur is required to obtain when starting a
business.

Experience shows that many of the permits imposed on
businesses have nothing to do with ensuring compliance with
government regulations. Take, for example, permits for plantation
investments. The more than two dozens permits an investor has to
obtain from local administrations and ministries in Jakarta are
supposed to secure sustainable forest management. However,
massive deforestation in the country continues unabated.
Likewise, the cumbersome procedures for customs clearance are
designed to minimize smuggling or under-invoicing -- in theory
only -- rampant goods smuggling has severely damaged the
manufacturing industry.

The government should decide which of the existing permits can
be simply abolished; which can be delegated to private
institutions with fiduciary responsibility; which can be issued
by ministries in Jakarta and which should be under the
jurisdiction of local administrations.

Whatever mechanism is introduced to replace the BKPM as the
center of investment licensing, it should be designed with two
objectives: To develop a one-stop administration center for all
permits under the jurisdiction of the central government and to
further empower local administrations to better serve businesses
and woo new investors.

This means that Jakarta should eventually delegate most of its
business licensing authorities to local administrations to
encourage them to compete for investment.

However, expediting investment and business licensing is only
one part of the great challenge to reinvigorate the investment
here. The other more demanding task is to further improve the
general business climate. Businesspeople decide to apply for
investment licenses only when they see the situation is
conducive.