The World Bank recently released its annual "Doing Business 2008" global survey, which noted that Indonesia was among the top reformers in improving its business and investment climate, although still ranking a lowly 123 out of 178 countries, with the longest business start-up time in the Asian region.
In light of this, the World Bank would like to continue supporting Indonesia's development efforts, under a more mature partnership strategy reflecting the country's actual needs, whether it be on improving economic welfare or good governance.
The latter includes eradicating corruption, which the World Bank itself has been struggling to overcome following public criticism.
The World Bank's new country director for Indonesia, Joachim von Amsberg -- who succeeded former country director Andrew Steer in February after a stint serving in the Philippines -- found the time to share his views with The Jakarta Post's Riyadi Suparno and Urip Hudiono. The following are excerpts from the interview
Concerning the "Doing Business 2008" survey, could you give a general summary on how the investment climate and the environment for doing business in Indonesia are?
I think there's a broader discussion of how to raise investment, and a more specific discussion on the doing-business indicators in Indonesia. In the broader discussion, businesses still see obstacles to more investment, but there's a big improvement in macroeconomic stability, which people recognize as happening and being maintained. If Indonesia continues to run the macroeconomy as efficiently and effectively, then it will contribute to a better business environment.
Such factors as infrastructure are still an important and binding constraint on more rapid investment, so we have to focus on infrastructure, both on public investment and also private investment.
And then comes the regulatory environment, which is what doing business is all about. There is steady progress, which is good, but things are still at a bad level, which shows how much room there is for more improvement.
The "Doing Business" report gives a good indication of what kind of measures could propel Indonesia to a more dynamic environment. Simply cutting regulations and the capital requirement to start a business are the key steps.
A lot of regulations make it difficult for new entrants. It is more severe for small companies, while large and established companies can find a way to deal with the matter.
And this matters because developed countries in the world develop the kind of economic dynamic where productivity rises because of competition.
It's in this environment that small companies become medium and then big companies, crowding out the inefficient old companies. And this churning process, where companies rise and fall, is the key source of productivity gain, and therefore of wealth.
Having that kind of environment where small companies see an opportunity and can come in quickly, that's the source of so much wealth and job creation, especially when small and medium-sized enterprises tend to be more labor intensive.
From your observations, more regulations have added to the difficulty of doing business in Indonesia. Is that the result of decentralization or some other factor?
Every regulation typically has good intentions, like protecting labor and the environment. But as more regulations are made over time, they can sometimes add up to the effect of stifling competition and the environment for more investment. So sometimes we have to look back and take drastic measures to cut such effects. This is also happening here in Indonesia.
What is really interesting is that the government has laid out steps to improve investment, including regulatory changes. And then academics made a survey to see whether the government's measures had worked. So there is process of action to improve regulations, and then going out to see if it was actually working. That kind of feedback is very impressive.
What efforts will the World Bank make to help the government in these matters?
I think in terms of the macroeconomic stability, there is little we can contribute, because the economy is now well managed and in good hands.
On the infrastructure agenda, we actually want to help a lot, to support the government in picking up both public and private investments for infrastructure development, finding financing, and helping with the high quality use of those public resources through good planning, procurement and implementation of projects.
In terms of private investment, Indonesia has adopted a very sensible framework for public-private partnership so that projects are tendered transparently and competitively, but projects in the pipeline have been very slow, so that is something we are very keen to support.
And then, from the "doing business" side, we will work closely to help with analytical work, policy suggestion, and more importantly political determination and stamina. I'm not saying political will, because the political will is clearly there, but I think it needs to persist in carrying out the policies.
Coming back to creating a competitive environment for businesses, there is sometimes a situation where incumbent businesses will resist and maintain regulations that keeps competition away. So this needs determination and stamina to loosen regulations and create more vibrant competition where people benefit from lower prices and more jobs.
World Bank has shifted from in the past financing major infrastructure projects, and then into programs -- so is it now back into financing projects again?
In a certain way, the answer is yes. It reflects the ability of the country to invest. After the crisis and major fiscal adjustment that reduced the capacity of the country to invest. Now, with the macroeconomic stability, there is fiscal space to invest. And it makes sense for us to offer support, both in finance and advice. And because infrastructure is still important for Indonesia's growth and poverty reduction. We believe that would be one of the right areas to invest.
We can contribute by financing projects through lower interest bonds, rather than Indonesia having to pay bondholders at higher rates. We can also help provide the implementation support: better procurement, quality of projects.
Find Article by Date