The eastern region

The eastern region

More than five years after President Soeharto's call for a
more concerted, comprehensive development program for the eastern
region, the least developed part of the country, the government
has finally come up with a concrete scheme. The program, as
announced by State Minister for Research and Technology B.J.
Habibie in his capacity as the chairman of the Eastern Indonesian
Development Council, two weeks ago, will be implemented through
an integrated economic development center. Biak town in Irian
Jaya, the easternmost province, was chosen as the pilot project.

The town and the surrounding area will be treated as a bonded
zone where import tariffs are deferred or waived, income tax
sharply reduced, value added tax waived, deductions from taxable
income eased and licensing procedures and the number of permits
needed for establishing businesses sharply reduced. The town will
then serve as a growth pole for its surrounding areas from which
economic activities will spill over to other districts in the
province.

The tax incentives and looser regulatory procedures are
obviously granted to woo domestic and foreign private investors
to tap the rich natural resources in the remote, least-developed
provinces. The extreme lack of basic infrastructure and the small
market have made the eastern region -- the provinces in Sulawesi,
Nusa Tenggara, Maluku and Irian Jaya -- less attractive to
investors because the capital costs and the costs of doing
business in these provinces are much higher than those in the
more advanced western region.

The new package of incentives and measures is encouraging in
that it will not be implemented as a standard program for all the
eastern provinces. One of the mistakes often made by policy
makers under so centralized an administration system as
Indonesia's is the tendency to apply a standard package of
measures indiscriminately to all areas. The appointment of Biak
as a pilot project reflects the recognition of the wide diversity
within the eastern region itself. This awareness will hopefully
result in the formulation of both a standard set of incentives
and also province-specific packages of policy measure.

Another factor which the central government has long been
fully aware of, but which remains a major missing link within its
development policy, is the decentralization of decision-making.
The incentives as described above will not be that effective as
long as almost major decisions regarding business permits and
policy implementation are taken in Jakarta or even in the
provincial capital.

But decentralization requires something which not many in the
government are willing to do -- the divestiture of power. The
central government should share its power and authority with the
local autonomous administrations and institutions to solve
problems as close to their roots as possible.

There is another caveat whenever the government offers
incentives or tax breaks. It is often overly concerned about the
potential for abuses that it tends to make procedures for
obtaining the incentives so arduous and complex that the benefits
of the offered incentives are nullified.