RI-U.S. businesspeople boost joint intiatives

JAKARTA (JP): Indonesian and American businesspeople, buoyed by the progress of their first-year efforts, yesterday expanded their joint initiatives to four new areas they believe are crucial to improving the competitiveness of the Indonesian economy.

The 75 executives, who met at the Shangri-La Hotel for the second annual Indonesia-U.S. Private Sector Roundtable, worked out a set of recommendations on privatization and deregulation, small and medium-size enterprises, the protection of intellectual property rights and human resources.

The first business roundtable in Washington last September zeroed in on three issues related to their countries' bilateral tax treaty, Indonesia's distribution system and customs administration.

"We are delighted by the responsiveness of both governments in addressing our priorities," noted R. Michael Gadbaw, Chairman of the U.S.-Indonesia Business Committee, one of the cosponsors of the roundtable.

Gadbaw said previously the U.S.-Indonesia tax treaty gave American companies higher withholding rates than their European and Japanese counterparts, thus penalizing U.S. investors in Indonesia.

"But we were extremely pleased that the U.S. and Indonesia signed a protocol on July 24, amending the treaty to lower the withholding tax rates for royalties, dividends and interests to a level comparable to our competitors," Gadbaw, who is also a vice president of General Electric Co., said.

He added that restrictions on imports and distribution imposed on foreign companies had also been eased by the June 4, 1996 package of deregulation measures.

The deregulation package allows foreign companies to import complementary products from their affiliates overseas and to sell their own products locally up to the wholesale level.

The second business roundtable, which was opened by Coordinating Minister for Production and Distribution Hartarto, was also co-sponsored by the U.S.-ASEAN Council and the AmCham in Indonesia and hosted by the U.S. Committee of the Indonesian Chamber of Commerce and Industry, which is chaired by businessman Tony Agus Ardie.

Gadbaw added that several programs have been launched to help modernize and improve the efficiency of Indonesia's customs administration.

The set of recommendations on the four priority areas was prepared at a workshop Monday and finalized at the roundtable meeting yesterday.

Privatization

Regarding the privatization and deregulation of electricity, water, toll roads and telephones, the roundtable suggested the establishment of a regulatory regime to function as a rate- setting body.

"But the regulator must be separate and distinct from any government company which provides a similar or competing service and must treat government companies the same as the new private sector companies," the meeting noted.

The participants brought up two old issues in the petroleum sector; recommending that oil mining contractors be allowed to consolidate their taxes related to several concessions and that oil producers be allowed to sell their own fuel products.

As Indonesia's car population increases, the need for a denser, more service-oriented distribution system becomes more urgent," the businesspeople said in supporting their argument for the deregulation.

They said these needs can be met by foreign direct investment, and the result would be increased tax revenues to the government.

They hinted that none of the more than 10 private oil refinery projects are likely to be implemented unless those involved were allowed to distribute their products.

The meeting recommended that besides power generation, the transmission and distribution of electricity should also be opened to private investors.

"We also recommend a more transparent and competitive regime for independent power projects," the business roundtable said.

They also addressed the problems of high credit transaction costs and the limited scope of lendings to the private sector, recommending that banks be allowed to secure loans with movable assets such as industrial machinery and that the enforcement of debt contracts be strengthened.

"The U.S. private sector has the technology to develop an information system to register and track the movement of movable assets," the businesspeople said in supporting their recommendation.

The Indonesian government recently enacted a mortgage and hypothec law but it only covers land, buildings and other fixed assets associated with land.

The roundtable cited the 30 percent tax collected from the claims paid to an insured party as a disincentive to further investments.

"This practice is an issue because it hinders the time in which a company can restore its plant operations," the businesspeople noted. (vin)