The Jakarta Post
The progress that raised Indonesia’s ranking in the World Bank annual index of the ease of doing business, to 72nd among 190 countries this year from 91st last year, should give us the confidence to push even faster for more deregulation measures.
President Joko “Jokowi” Widodo’s strategic decision to make business-licensing reform and infrastructure development the top feature of his priority programs has indeed made Indonesia’s profile much bigger and brighter on investors’ radar.
But we should warn against complacency because our condition is still worse than most other major economies even in the ASEAN region, despite the launch of 16 regulatory reform packages and the spending of billions of dollars in the construction of infrastructure such as power plants, roads, bridges, seaports and airports and dams over the past three years.
Right from the outset of his administration in late October 2014, Jokowi has focused his attention on making things much easier for businesses through deregulation measures. He has greatly improved connectivity within and between the major islands by accelerating infrastructure development, but the road towards a fully integrated domestic market and economy is still long and arduous. The title of the World Bank report, Doing Business
2018: Reforming to create jobs, is quite appropriate because it is business or investment that creates jobs. It is jobs that generate wages, which in turn fuel purchasing power to turn the wheels of the economy.
Certainly, it is much easier to build physical infrastructure than to reform the bureaucracy in order to expedite business licensing and to strengthen law enforcement, because the latter work requires a drastic change in mindset of officials from being the provider of permits or services to being the servants of the public.
For example, building or expanding seaports requires only funds to hire good contractors and procure equipment. But efficient seaport operations require the involvement of no less than 18 different institutions whose officials still tend to use permits to get rent from businesspeople.
No wonder the regulatory reform that is the basic requirement for improving the ease of doing business is an uphill task because the process involves the coordination and synchronization of all the procedures needed to start up and operate businesses.
Of the 10 key indicators used by the World Bank’s ranking for the ease of doing business, Indonesia has always performed poorly in the areas that require massive deregulatory measures, like business permits and procedures for import and export clearance, property registration, paying taxes and investor protection.
The implementation of the 16 regulatory reforms has been much slower than expected because there has been strong resistance from vested -interest groups at central government and regional administrations — which have benefitted from rents already built within the old licensing system.
But the significant progress made so far should reassure us that Jokowi will push for stronger reform measures despite the heavy political agenda in the two remaining years of his administration.