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.