Localizing investment licensing

Localizing investment licensing

Investment Coordinating Board (BKPM) chairman Theo F.Toemion
took the right approach and demonstrated a thorough understanding
of his mission when he asserted at a meeting with domestic and
foreign businesspeople last week that he is working to turn the
board from a regulatory into a market-driven servicing agency.

As the agency in charge of promoting investment operations,
BKPM should indeed focus its attention on marketing Indonesia as
a viable place for investment and on making it easier for
investors to do business in the country.

But Toemion would be well advised to realize that, however
important the BKPM role is in his own opinion, he should not
waste his energy on trying to restore the BKPM's function as a
one-stop clearing house for investment, assuming the overall
authority to issue the various licenses required by an investor
before they can do business.

True, BKPM, set up in the mid-1970s as the licensing center
for domestic and foreign investment, played a central role in
administering and overseeing investment operations during the 32
years of former president Soeharto's rule. But even under the
centralized authoritarian administration, BKPM took about 10
years to overrule the resistance from other ministries against it
becoming a truly one-stop administration center for investment
licenses.

The situation has now dramatically changed, however,
especially after the establishment of regional autonomy early
this year. BKPM can no longer centralize the licensing of
investment in Jakarta and should instead delegate most of its
authority to local administrations. BKPM needs to retain
authority only on requirements that need national standards, such
as environmental impact analysis and tax incentives.

The top priority for BKPM should, therefore, zero in on
empowering local investment offices, Provincial Investment
Coordinating Offices (BKPMD), which were generally treated as a
non-essential accessory to local administrations during the
centralized system of government.

Maintaining a centralized licensing system at BKPM will not
only be ineffective, but may even plunge licensed investment
ventures into imbroglios, as many businesses licensed during the
Soeharto regime are now suffering.

Empowering local investment offices means helping local
administrations and local legislatures fully realize the vital
role of private investment to the local economy and of business-
friendly policies to woo investors to their areas.

However simple this task appears to be, the harassment
suffered by businesses in various provinces soon after the
enforcement of the regional autonomy laws clearly shows an
incorrect perception on the part of many local officials and
legislators regarding how to properly treat businesspeople.

The manner in which many local administrations have been
exercising their new-gained authority seems to place most of the
emphasis on collecting as much revenue as possible from
businesses through the imposition of new levies or service
charges, without realizing that such practices will only kill the
golden goose.

BKPM should assist local administrations and local
legislatures, which produce local regulations, to fully
comprehend that attracting investment to their areas is the most
effective way of creating new sources of tax revenue and
developing the local economy.

A new investment or business will create jobs, which means
providing local people with purchasing power and consequently
generating private consumption from which local administrations
can collect various levies or service charges imposed. Further
down the track, an area with a rapidly developing business sector
will post the highest increase in the market value of local
property and this in turn will raise proceeds from property tax,
80 percent of which belongs to local administrations.

We are looking forward to seeing local administrations compete
keenly with each other in attracting investment to their areas by
pursuing market-friendly policies and enacting business-friendly
regulations.