Bolstering the rural economy

The Jakarta Post ,  Jakarta   |  Mon, 07/03/2006 4:36 PM  |  Opinion

The findings of the World Bank survey on the rural investment climate reflect the business constraints micro and small enterprises in the regions have often complained about. Nonetheless, the most comprehensive study ever done on rural investment conditions, and its policy recommendations, are quite important for spurring economic expansion in rural areas to achieve more equitable economic growth.

We have observed an even more strategically important development, however, in the report and in the debates at the national conference held last Wednesday to discuss the survey's findings and recommendations. That is the increasing realization on the part of both the central government and regional administrations of the vital role of good local governance for bolstering investment.

The central government has increasingly realized the important role of local governance and the rural economy. Now, more regency administrations, where local autonomy is anchored, have become fully aware of the importance of investment in expanding their local economies, generating jobs and creating new, bigger sources of revenue to improve public services and facilities.

The convergence of these perceptions will certainly heighten the momentum for further improving the quality of the decentralization process. It is worth remembering that the rural investment climate survey was done by the World Bank at the request of the chief economics minister, Boediono, who understands the crucial need for a cohesive policy on improving investment conditions in the rural areas.

While the central government, especially Boediono, has been bombarded almost daily with policy advice by trade and industrial organizations, these recommendations mostly address the concerns of medium and large businesses at the national level. As the survey found, however, the major constraints encountered by the almost 16 million micro and small enterprises which employ more than half of the 53 million people working in non-farm enterprises are different from those of medium and large businesses.

Hence, the policy recommendations based on the survey's findings can be developed into the first reform package -- the first cohesive policy -- designed specifically to improve investment climate in the rural areas.

True, many regional administrations, euphoric about their newfound power after the inception of regional autonomy in 2001, have simply flexed their muscles to grab a bigger share of the wealth from their natural resources. They have also resorted to easy, unsustainable methods of raising revenues by squeezing companies with additional taxes and levies. It will take some time to correct these excesses caused by the devolution of power from the authoritarian Soeharto to around 440 regents and mayors.

But an increasing number of regency administrations have realized that without investment they will never be able to develop their local economies. Dozens of local administrations have launched concerted efforts to attract new domestic and foreign investors by streamlining their business licensing and offering free land to investors. But as the experiences of several reformist regents show, local administrations need the full support of the central government in accelerating their deregulation efforts to unleash local initiatives.

Especially now, since provincial governors, regents and mayors have to compete in direct elections, economic achievements that directly benefit the people are surely the most effective means of gaining voter support. This means job creation will be the most important measurement of a regional chief executive's performance.

The promotion of both an investment-friendly attitude and good governance among local administrations is key to fulfilling the main goal of regional autonomy: improving the delivery of public services to the people. The most important element of business-friendly policies and a conducive investment climate is good institutions and bylaws. That's why capacity building is imperative for regional administrations, many of which are very young.

In this context, we should commend the World Bank and its affiliates as well as several non-governmental organizations such as the Regional Autonomy Watchdog and West German Technical Cooperation Agency (GTZ) for their capacity-building programs for regional administrations. The survey, the national conference last Wednesday and similar programs over the past three years, allowed meaningful exchanges of views and experiences between officials of reformist local administrations, who can act as the agents of change, and those who have yet to learn the real meaning of local autonomy and good governance.

Copyright © 2008 The Jakarta Post - PT Bina Media Tenggara. All Rights Reserved.