Study shows Indonesia's business climate among the worst in world

Dadan Wijaksana, The Jakarta Post, Jakarta

Mr. President, you have a tough job ahead: Indonesia has been ranked as one of the most difficult places in the world to do business in, a new report from the World Bank Group finds.

During his election campaign, President Susilo Bambang Yudhoyono has said improving the business climate in the country tops his list of priorities.

A better business environment would generate higher economic growth and eventually reduce unemployment.

The report, in the form of a book titled Doing Business in 2005: Removing Obstacles to Growth -- cosponsored by the World Bank and its private sector lending arm, the International Finance Corporation (IFC) -- should help the government decide what needs to be done.

Part of a series of annual reports investigating regulations that enhance or impede business activities, it ranks Indonesia along with Laos, Cambodia and Vietnam in the bottom quartile of the 145 nations surveyed on the ease of doing business.

Entrepreneurs in those countries found it more difficult to start, operate, or close a business than in most other East Asian nations.

At the other end of the scale, seven economies in the East Asia-Pacific region ranked in the top quartile of the 145-nation survey; New Zealand, Australia, Singapore, Hong Kong, Thailand, Taiwan and Malaysia.

"On average, it takes a business six procedures, 8 percent of income per capita and 27 days to get started in high-income OECD countries; in East Asian countries, the same process takes 9 procedures, 60 percent of income per capita and 61 days."

However, "Among the worst performers in time of business registration were Cambodia (94 days), Indonesia (151) and Laos (198)," the report says.

Indonesia has been relying on domestic consumption to fuel economic growth as investors remain wary of the country due to the adverse business climate here. Legal uncertainty, security issues, and the poor implementation of regional autonomy have added to the endemic problems of red-tape and corruption -- all major turn-offs to investors.

The economy is projected to grow by 4.8 percent and 5.4 percent this year and the next, respectively, which would be the fastest rate since the crisis. However, more foreign investment would make Indonesia's recovery faster and would soak up unemployment, easing the burden on the poor who are being hurt the most by the nation's economic slump.

IFC country manager German A. Vegarra said Susilo and his Cabinet were sending out strong signals they were committed to improving the country.

"We are optimistic that if he (Susilo) really does what he says, I think things will be better. Addressing unemployment is the key and that's what they have said must be addressed. So far, I like what I hear.

"Of course, it will take time. But (what) we expect is a lot of clear directions for improvement," Vegarra said in a recent interview.

Hans Shrader, the program manager for the IFC Business Enabling Environment service unit, meanwhile, offered ways to quickly improve the country's business climate.

He suggested a one-stop shop mechanism, in which municipal offices processed all the required documentation for businesses to attain permits or licenses.

"Another aspect is a regulatory impact assessment (of new laws).

"Before legislation is introduced to parliament, there should be an assessment as to what the cost of the legislation would be on businesses, and what its impact on the business environment would be," Shrader said.