From The Jakarta Post http://www.thejakartapost.com/detailbusiness.asp?fileid=20060223.L01&irec=1 Govt plans investment reform package
Riyadi Suparno, The Jakarta Post
Amid slower-than-hoped-for economic growth, the government is preparing a reform package that will include a revision of various laws and regulations deemed to be hampering investment in a bid to woo overseas money and boost growth, the chief economics minister said Wednesday.
Speaking to European businesspeople attending a business luncheon here, Coordinating Minister for the Economy Boediono said the reform package would be finalized in the first semester of this year.
"We have to deliver this package soon, this semester, so that in the second semester, we can see a positive improvement in the area of private investment," he told those attending the luncheon, which was hosted by the Indonesia-Netherlands Association, the official bilateral chamber of commerce bringing together Indonesian and Dutch businesspeople.
The reform package, Boediono said, was aimed at removing barriers to investment, and would include a review of investment, taxation and labor legislation, and the reform of the customs service.
A new investment law, said Boediono, would afford equality of treatment to foreign and domestic investors in the areas that are open to overseas investment. A number of sectors, however, would remain closed to foreign investment, but the "negative list" of sectors would be significantly shorter than before.
In the taxation arena, Boediono said the government had noted the concerns of investors, especially as regards the powers of the tax service and the rights of taxpayers.
Currently, the government and the House of Representatives are deliberating a number of tax law amendment bills.
In the manpower field, the coordinating minister said the government was reviewing the country's labor legislation to accommodate investor concerns, especially in the areas of severance pay and outsourcing.
In addition to the reform package, the government would facilitate the implementation of large and strategic projects, especially in the infrastructure, and oil and gas sectors.
By facilitating the implementation of major projects, Boediono said, the government hoped that smaller projects promoted by private investors would follow suit.
"Hopefully, it will create a snowball effect," Boediono explained.
The final measure to be taken by the government would be to facilitate access to reliable and affordable financing sources, especially for domestic investors.
To that end, the government plans to create an infrastructure fund and a guarantee fund to help domestic investors play a role in the development of infrastructure projects.
Boediono explained that the infrastructure fund would target long-term money held by pension funds and insurance firms, which was currently invested on a short-term basis in time deposits.
In addition, Boediono said, the government would help reduce the cost of financing for domestic investors by improving the efficiency of banks and working to reduce lending rates.
"Foreign investors do not face this problem of financing, but domestic investors do. So, the government will play its part in lowering the cost of financing for domestic investors," he said.
Lowering the cost of financing would, however, only be possible after lending rates began to fall, and this would only be feasible after single-digit inflation had been achieved.
Therefore, Boediono said, the government would work closely with Bank Indonesia to ensure single-digit inflation this year, probably within a range of 8 to 9 percent.
Based on these three measures, Boediono said he felt confident the government would be able to reverse the deceleration in growth that had been apparent since the first quarter of last year.
Indonesia's economy expanded by 5.6 percent last year, but the pace of growth slowed from 6.6 percent in the last quarter of 2004 to 6.25 percent in the first quarter of 2005, 5.63 percent in the second and third quarters, and 4.9 percent in the last quarter.
Unless the government is able to reverse the declining growth trend, consumer pessimism will continue to act as a drag on growth.
"Compared to the rest of the region, Indonesia is actually not doing badly, but pessimism at home still prevails. The key now is to turn our pessimism into optimism," Boediono said. Five economic zones to be offered to investors
The government plans to create five more special economic zones similar to that in Batam, Riau Islands, in an initiative designed to attract investors and create more employment.
Coordinating Minister for the Economy Boediono said three of the new zones would be located on Java island -- probably one each in West, Central and East Java -- while one would be in Sumatra and one in eastern Indonesia.
The minister, however, refused to state the exact locations of the planned economic zones, saying the matter was still being studied.
Boediono said the economic zones would likely include the development of international ports and industrial zones that would enjoy various special privileges so as to be attractive to foreign investors.
"Such economic zones have been very successful in countries like China and India, while we have been left behind. We will start now by identifying the regions that can be packaged and offered to investors," he said.
In addition, Boediono said the government would improve the attractiveness of Batam to lure more inward investment. Again, he stopped short of going into detail.