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.