P. Agung Pambudhi

P. Agung Pambudhi
Jakarta

The recommendations of the Indonesian Chamber of Commerce and
Industry (Kadin) to the new government on industrial and
investment revitalization have strongly indicated that
implementing regional autonomy is causing major obstacles to
Indonesia's economic development.

The business community has so far argued that regional
autonomy has negatively affected the investment climate. They say
regional regulations have imposed costly levies on businesses and
some regulations oblige the recruitment of local personnel and
not qualified professionals. They have also pointed to weakened
inter-regional cooperation, which they say has reduced economies
of scale, and a lack of a single licensing authority, which has
created business uncertainty.

Vice President Jusuf Kalla said effectively the same thing
when he presented the 2004 Regional Autonomy Watch (KPPOD) Awards
to the regions with the best record of attracting investment.
Kalla warned the administrations against adopting policies to
serve short-term interests by seeking maximum local revenue from
businesses through levies.

A recent KPPOD study of 1,025 regional regulations found that
30 percent of these bylaws would lead to high-cost economies.
This finding was validated by a business survey where 24 percent
of 5,184 respondents in 214 regencies and cities complained about
business distortions caused by the regulations.

The survey also revealed that businesses had to bear the
burden of illegal fees from security forces, the courts, social
organizations and mobsters, that were worth about 6.81 percent of
total production costs. These extra costs were estimated to be
even higher in another study undertaken by Transparency
International.

Despite this gloomy picture, it should be acknowledged that
some regions have made attempts to improve their investment
climates. A one-stop service concept for business licensing has
spread throughout different regions. While the quality of these
services still varies, it is a development worth mentioning.

A number of regions can now reduce the time and costs needed
to process business permits. In 15 regions the time taken for
business licensing has been cut by 60 percent and costs by 30
percent on average.

While still limited, some regions have enhanced transparency
in their institutions by publicizing balance sheets; something
that has not yet been done by central government.

Several regions have also made breakthroughs in the provision
of education and health services, giving free education and low-
cost medical treatment to the poor.

It is quite apparent, however, that the negative impact of
regional autonomy outweighs the positives. The question is, why
has regional autonomy become such a negative?

Much of the blame should be laid on the regional
administrations, which are regarded as weak in skilled human
resources, who work to serve narrow, venal interests.

It is just as easy, however, to point the finger at the poor
performance of central government, which is no better than that
of the regions in dealing with regional issues. In legislation,
the private sector has long lists of laws and government
regulations that are not in synergy with each other, thus causing
distortion to the investment climate.

Meanwhile, the rivalry between regions to impose questionable
levies on businesses, is as much about the coordinating function
of provincial administrations as extensions of the central
government.

It may seem trite to bring up the well-worn phrase about the
need for cooperation between government -- central and regional
-- the private sector, and civil society to create a favorable
investment climate. But while it is often said, it is also just
as true now as it was before; nothing will be achieved without
tripartite cooperation. More important is how each part of
society should take part in this change.

Unsurprisingly, each of the economics ministers of the United
Indonesia Cabinet have all on different occasions voiced the
importance of this tripartite cooperation.

To achieve any synergies between these three elements, the key
but most difficult stage is determining the common interests and
areas of authority of the three groups.

The central government should not see itself as the only
authority capable of handling regional affairs -- much of these
authorities should be delegated to regional governments.

However, regional administrations with their new powers
should not only be oriented to regional development in the narrow
confines of their bureaucracies, but also in the context of the
nation's territorial integrity.

For the private sector, it may be appropriate for it to
support the broader role of regional administrations in
investment because it is these groups that are more knowledgeable
about the local conditions and the interests of local
communities.

Assuming that the three parties accept Law No.32/2004, which
revised Law No.22/1999 on regional administrations, it is
imperative for the central government to initiate or revise
business-related laws like the investment, trade and mining
regulations.

However, the central government's most important function is
to act as a good leader, by working to accommodate the different
interests of the three groups -- something that will be no easy
task.

The writer is executive director of the Regional Autonomy
Watch group.