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.