Megawati's promise of jobs

President Megawati Soekarnoputri's adoption of job creation as a key policy of her economic platform ahead of the July 5 election is unconvincing, as it is precisely in this area that, as perceived by the public, her government has failed miserably.

If reelected, Megawati promises to create almost 13 million jobs in the next five years by accelerating annual economic growth to an average of 6.8 percent, from about 4 percent over the past three years.

Jobs are, indeed, desperately sought by the some 10.5 million unemployed and 30 million underemployed people across the country. For these people living in poverty, jobs would bring options, second chances and solutions.

The experiences of countries that have succeeded in reducing poverty have shown that the majority of people who escape it do so by taking up new employment. Certainly, not just any job offers a way out of poverty. If Megawati is simply promising to generate jobs, the government's employment of every job seeker would do the trick, as has been tried by some communist regimes.

What Megawati has promised is most likely productive jobs, but this is exactly why her promise is a tall order. The achievement of her government is limited to political and macroeconomic stability, of which it is proud. This does not mean that macroeconomic stability is not important; on the contrary, it is unquestionably vital because without a stable macroeconomic environment, no other progress will be made in the economy.

However, as the huge pool of unemployed, underemployed and the poor testify, macroeconomic stability is not enough. Various economic sectors should also be stimulated as jobs are created by businesses -- whether small, medium or large -- and not by the government. The main role of the government in this context is to act as a facilitator, creating an environment conducive to business activities.

Job creation, therefore, requires a vibrant private sector that makes investments, improves productivity, promotes growth and increases opportunities for the poor.

Megawati, in order to deliver on her promise, should significantly improve the investment -- that is, business -- climate because, according to the estimate in her economic platform, investment must be increased from its current annual rate of around 20 percent of the gross domestic product to at least 27.1 percent. Since the government's financial capacity will remain severely limited by its domestic and foreign debt burdens at least until 2010, it is the private sector that will need to be responsible for the bulk of investment.

However, private investors are willing to stake their capital only if the overall investment climate allows for a calculable business risk. This, in turn, will be dependent on good governance in the public sector, particularly legal certainty, reliable policies and a strong and efficient regulatory framework.

In other words, the quality of business regulations and the institutions that enforce them are, collectively, the determinant of a vibrant business climate.

A recent World Bank survey shows that the business regulatory system in Indonesia is among the most cumbersome, requiring a process of more than six months to obtain a business license, which entails numerous steps starting with registration at the Ministry of Justice and Human Rights, obtaining a corporate tax identification number and many other requirements.

Cumbersome business regulations, also, are inimical to small businesses which, in most countries, generate the greatest number of jobs. Small-scale entrepreneurs simply do not have the resources and cannot afford the arduous regulatory procedures, which, in Indonesia, also means additional expenditure to line officials' pockets.

The national reform agenda, launched last September in the White Paper on Reform, covers almost all measures needed to revive the investment sector, including tax and customs reform and improving the Bankruptcy Law and labor regulations.

However, progress in many areas has been much slower than expected. Worse still, the government has often backtracked on its own reform measures.

If Megawati is really serious about poverty reduction and the mass creation of jobs, she and her government should go all out to improve the investment climate by minimizing business risk to an acceptable level through the implementation of strict reform measures.

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