Change does not and will not hurt

The Jakarta Post ,  Jakarta   |  Wed, 09/26/2007 3:23 PM  |  Opinion

Martin Manurung, Jakarta

""I'm sorry, sir. I'm afraid you can not withdraw your money until your company is legally certified by the Justice and Human Rights Ministry,"" said the officer of a reputable bank one afternoon.

""But my business has started and I have to do some important transactions. Do you know how long the certification process will take?"" I asked.

""I don't know for sure, but usually, it is going to be between one to three months,"" she replied.

The above conversation happened at the beginning of this year when I established my small company. I had to face complicated procedures in starting up a business. First, to have a bank account I needed a legal certificate from the Justice and Human Rights Ministry. However, to be able to carry out the certification process, I needed to prove that we have put up at least 25 percent of the minimum capital requirement in a bank account.

Thus, it is a chicken-and-egg dilemma.

Fortunately, the bank invented a creative way out. That is, a bank account can be opened, but we are not allowed to carry out transactions until the certification is completed. However, it also means that I have to seek more than the minimum capital requirement if I want the business to start running as soon as it is established.

Ease of doing business has been a crucial issue for Indonesia where the process of starting up a business has been quite complex and arduous, time consuming and very costly.

Nevertheless, we have to recognize that the government has taken some pivotal steps to reduce barriers in starting and doing business. For example, the investment policy packages (Presidential Instructions 3/2006 and 6/2007), introduced a wide-ranging action plan to improve the business environment and accelerate the development of small and medium enterprises (SMEs). The important point of this initiative is it focuses on the development of domestic entrepreneurships, the very issue that has been relatively left behind since the economic crisis in 1997.

In the regional level, we also see that many regional administrations have also undertaken significant reforms. In Jakarta, governor's decree no. 85/2006 simplified the licensing and inspection procedures required to obtain a building permit. It also introduces a temporary permit that allows construction to begin while the permanent permit is being processed. This policy will significantly reduce the previous 49-day period needed to obtain a building construction permit (the IMB).

The good initiatives of the central and regional governments need to be accelerated. We have to acknowledge that Indonesia is not the only country in the world that has taken such bold reforms in a similar transformation. The World Bank's Doing Business report shows that Indonesia's position is only better than Laos. We need not mention that one of our closest neighbors, Singapore, because they have always been much better than us in ease of doing business. Another shocking example is Timor Leste, our former 27th province, which only needs 92 days to finalize starting a business.

In addition, there are also examples of countries that have abolished the minimum capital requirement, such as Malaysia, Vietnam and Singapore. This policy has been proven effective in creating more new businesses and increasing productivity. Subsequently, it also contributes to higher economic growth that helps make them the strongest economies in the Southeast Asian region.

It is true that the ranking is not the only important issue. Nonetheless, it provides us with comparisons of how much we have achieved and how far we have gone. Subsequently, comparisons will offer us good examples of what other countries have experienced, and the areas that they have focused on to better their performances.

For example, one critical factor that lowered Indonesia's position was related to business entry and registration procedures. If we focus on improving this area, it will potentially increase Indonesia's position in future rankings in terms of the ease of doing business.

Finally, the steps that the government has taken show that change does not and will not hurt. Moreover, it will benefit the country by bringing more and more informal entrepreneurs into the formal sector. As a result, Indonesia will also gain more tax revenue, more jobs, and eventually it will help the revival of the country's industry. It is the key message that the government has to deliver and we will see how our country will perform in the next 2008 Doing Business Report, which will be launched today.

The writer is a senior consultant at Sekurindo Global Consulting, based in Jakarta. He can be reached at martin@sekurindogroup.com.

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