From The Jakarta Post

Regaining the respect of the investment community
John A. Prasetio, Jakarta

Despite some cynicism, the overall reaction to the Feb. 27 policy package to improve the investment climate has been quite positive. At the very least, the package is seen as a tool that could help bring about a sense of alignment among different ministries, and reduce potential "turf conflicts" between central and local governments which often cause confusion and frustration for the investment community.

After more than a year-long "honeymoon", investors' hope that the Susilo Bambang Yudhoyono/Jusuf Kalla administration would introduce bold economic reforms has faded into anxiety. There is no disagreement that growth is the best antidote to poverty and unemployment, nor is there a dispute that faster growth is achievable only through investment. And yet, the government has not come up with any meaningful stimulus to entice sustainable investment inflow. By the same token, the private sector has not been keen in risking their capital in the real sector under current economic conditions of overregulation, red tape and high transaction costs.

As a matter of fact, during the past few years, hundreds of investors have abandoned our industrial zones, including Batam, for other countries in the region that are showing a stronger sense of hunger in attracting investors. Before the Asian financial crisis, Indonesia was considered a possible "newly industrializing country". Today, with Indonesia's position in the global output of manufactured goods declining, a key question is how to arrest the threat of deindustrialisation in the country.

Indeed, the World Bank reported last October the country's position in many areas of business is slipping, while a survey by the World Economic Forum confirmed that our competitiveness is falling. On the other hand, China, Vietnam and Malaysia are pulling ahead, as things are indeed happening in these countries with their respective governments putting enormous efforts into creating win-win business environments necessary to speed up economic development.

The February investment policy package signals a desire on the part of the government to embark on microeconomic reforms to revitalize the economy. However, not everybody in the private sector is yet persuaded. Some remain suspicious that this package may be just more rhetoric.

Underpinning this doubt is the government's weak track record in achieving what it sets out to do. Only a few months ago, three tax bills meant to improve the investment climate drew massive protests from the business community, which feared the new legislation would drive away investors, precisely the opposite of what the government said it was trying to accomplish. While there are bound to be differences in regard to the perspectives of the private sector and the government on tax reform, it would not seem credible to suggest the investment climate will improve when tax officials are given more wide-ranging powers that could be used to extort taxpayers in an environment where corruption at the tax office is perceived to be pervasive and notorious.

There is also a perceived flip-flop in the way infrastructure development projects or high-profile cases, such as Pertamina/Exxon, are handled. In addition, policy actions such as simplifying licensing procedures, creating more flexible labor markets and other steps in the policy package, seem to be easier said than done.

Many of these ideas were actually rolled out for discussion in the first 100 days of the Yudhoyono-Kalla administration. A key issue is the disconnect between the desire of top leaders to transform and move ahead, and the bureaucrats, who have no sense of urgency at the implementation level.

Yes, there is an absence of bold, revolutionary stuff in the policy package, and it remains to be seen whether the government can really get its bureaucrats to carry out on schedule the strategy and action plans as specified in the package.

Nevertheless, instead of prolonging our problems by trying to find fault with the package, it is perfectly appropriate for the private sector to be supportive of the endeavor and reform initiatives that will be pursued by the new economic team. At a minimum, we must give the new policy package the benefit of the doubt. After all, this framework of policy action could serve as a useful road map on our journey of change to create jobs and improve the welfare of the people.

There is certainly no disputing that the government's performance has not been outstanding in transforming Indonesia from a "turtle to a horse" economy. It is also obvious that the country cannot move toward more rapid growth by just following in the footsteps of its competition in the region.

To rebuild the economy and to create a proud and confident Indonesia, policy packages cannot be intended just to put the country's policy and regulatory framework on a par with those countries already ahead of us.

We need to be progressive in our policy reforms and rebrand Indonesia as a new pacesetter in the region in attracting investors to take part in programs to industrialize and develop the country.

The writer is chairman of CIBA ASIA, and vice president of the Indonesian Chamber of Commerce and Industry.
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