The go-east policy

The go-east policy

Since January 1990 President Soeharto has repeatedly stressed the need to help the eastern region of the country to catch up with the other more developed islands. The President's statements have prompted a host of seminars urging investors to go east and the central government to give special assistance to the widely scattered chain of islands east of Bali.

But we think the establishment of the Development Council for Eastern Indonesia and its first meeting on Monday are the only major concrete steps so far taken towards the realization of all the verbal commitments and lip service heard over the past five years.

Judging from the structure and composition of the high-powered council, the government really means business. The council, chaired by Minister of Research and Technology B.J. Habibie, includes 13 ministers, high officials and former governors of the eastern provinces.

The four task forces already set up by the council -- natural resources and environment, human resources and technology, infrastructure, and institutions -- ensures that the development of the eastern region will be based on fully-integrated programs.

The eastern islands -- Sulawesi, Nusa Tenggara, Maluku and Irian Jaya -- which have long been left out of the mainstream of progress and development pose a formidable challenge indeed. They account for almost 41 percent of the country's total land area, but are inhabited by only 13 percent of the total population. They also constitute groupings of widespread chains of islands.

Decades of being left out of the mainstream of national development have caused not only huge infrastructure problems but also poverty. The 1993 survey by the Central Bureau of Statistics concluded that almost one fourth of the 26 million Indonesians still living below the poverty line were located in the eastern islands. Worse still, these islands have steadily lost many of their brightest people to Java and other more developed areas of the country.

Such least developed areas are obviously least attractive to private investors. The only major industries which have developed in those areas so far are extract businesses, such as mining, fishing and logging. Many wood-processing plants have operated there, but their establishment was forced in the first place by the government ban on log exports in 1985. Worse still, the few industrial establishments have been operating as "modern enclaves" isolated from the surrounding communities in mostly undeveloped areas. These establishments have even caused the impression among the local people that their areas are being raped for the benefit of Java.

It is the obligation of the central government to develop the necessary basic infrastructure in the eastern region. But given the severely limited capacity of the state budget it is likely to take several decades before adequate infrastructure can be installed to attract private investors.

The most feasible alternative, as suggested by the council, is to provide special incentives to businessmen willing to unlock the abundant natural resources in those islands. Among the incentives being mulled over are tax holidays, concessional loans with longer grace periods and income tax exemptions for employees. These incentives are crucial for attracting private investors because the capital costs of industrial projects in the eastern islands are much higher than those in the more developed areas in the western region. Investors, for example, have to bear the costs of basic infrastructure and other support facilities and have to offer much higher salaries and more fringe benefits to attract skilled manpower to work in the frontier areas.

The new tax laws empower the government to provide such tax incentives. The problem is how to administer the incentives so as to attract the kind of investment ventures most wanted in those islands.

Another delicate problem inherent in the development of the eastern frontier areas is related to local hiring. The government, we think, should see to it that investors will hire as many employees as possible locally and, if necessary, invest in training and education. Taking the easiest way of simply hiring from Java and other developed areas will cause potential problems by widening the gap between immigrants and native people. That might heighten the ill feeling among the local people that their areas are being raped only for the benefit of Java and other developed islands. Such disillusionment naturally does not support the archipelagic concept that is precisely the vision to be enhanced with the accelerated development of the eastern region.