Editorial, The Jakarta Post

The missing link in reform

The role of regional administrations has often been a vital component absent from the packages of reform measures and national and international meetings on investment promotion over the past two years.

For example, an international investment forum in Bali last week did not include the role of regional administrations as one of the topics of discussion. The latest comprehensive package of reforms, which was introduced earlier this month to reinvigorate investment, mentions the role of regional administrations only in two very brief provisions.

Even these stipulations are not clear cut or elaborate, saying only that the authority to ratify the legal deeds of incorporations will be devolved from the Justice and Human Rights Ministry in Jakarta to its provincial offices, and that regional bylaws will be synchronized with the regulations and laws enacted by the central government in Jakarta.

The reform package promises gradually to expedite licensing procedures for starting up businesses from an average of 150 days to 30 days, but it stops short of clearly stipulating how this can be achieved at both the level of the central and regional governments.

How can the central government speed up business licensing without involving provincial and regency administrations? The fact is that provincial and regency administrations have the authority to administer and issue a number of the several dozens of licenses required to start up a business here.

Also, except for oil and natural gas, the licensing of all natural-resource based investment in the mining, fisheries and forestry sectors now rests with regional administrations.

But the extreme lack of coordination between the central government and regional administrations regarding business licenses is only one of the pressing problems encountered in promoting investment.

Despite the introduction of regional autonomy five years ago, most regional administrations do not fully realize the vital importance of bolstering investment in their areas to expand local economies, generate jobs and create new, bigger sources of local fiscal revenue. Many local administrations that do realize the importance of investment, lack the technical competence to deal with potential investors. Worse still, most local administrations, desperate to increase local fiscal revenue, simply resort to imposing numerous additional levies or fees on existing businesses and on investors intending to start up businesses.

Foreign and local investors have complained about the thousands of regulations and bylaws issued by provincial and regency administrations, which result only in unnecessarily increasing their costs of doing business.

Many local administrations have simply flexed their muscles to grab a bigger share of the wealth from their natural resources, resorting to easy, unsustainable ways of raising revenue by squeezing companies with additional levies.

It is in this context that we greatly welcome the agreements signed last week by the British, French, Dutch and German chambers of commerce, whereby they will assist the municipal administrations of Makassar, South Sulawesi, and Medan, North Sumatra, in promoting investment in their cities.

Such cooperation, if extended to other cities and other foreign chambers of commerce, as well as multilateral agencies such as the World Bank and the Asian Development Bank, would greatly help regional administrations not only to understand the vital role of investment for local economies, but also to improve their technical and bureaucratic capability to deal with potential investors, domestic and foreign.

Now is the time to educate regional administrations on the need to pursue business-friendly policies, because provincial governors, regents and mayors now have to compete in direct elections.

Certainly economic performance that directly benefits the people is the most effective way of gaining voter support. This means that job creation will be the most important yardstick for measuring the record of a regional chief executive. Consequently, governors, regents and mayors must be business friendly, meaning their economic policies and public services must be devoted to stimulating investment.
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