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Jakarta Post

Reinvigorating investment

Luhut, one of Jokowi’s most trusted assistants, is well-known for his no-nonsense management that gets things done, even at the risk of stepping on other ministers’ toes, as long as the action is in line with the government’s policies. His leadership and managerial skills will determine whether the licensing and implementation of investment projects will be greatly expedited.

Editorial Board (The Jakarta Post)
Jakarta
Tue, October 29, 2019

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Reinvigorating investment Luhut, one of Jokowi’s most trusted assistants, is well-known for his no-nonsense management that gets things done, even at the risk of stepping on other ministers’ toes, as long as the action is in line with the government’s policies. (JP/Seto Wardhana)

W

e never doubt President Joko “Jokowi” Widodo’s strong political will and commitment to boosting private investment as the main driver of economic growth. In fact, regulatory and bureaucratic reform, which has been one of his main priority programs since the outset of his first term in late 2014, has been designed to boost investment. But the bureaucratic machinery responsible for implementing the reform measures has hardly changed and, in many cases, has even resisted to change, because effective reforms usually remove the economic rents already built up within the old system.

Hence, we think the President’s decision to put overall investment management under the oversight of the coordinating maritime affairs minister and his reappointment of Luhut Pandjaitan to lead this portfolio is aimed at strengthening the interministerial coordination for the promotion of investment. Strong interministerial coordination is quite crucial for investment operations, which transcend the jurisdiction of almost all economic ministries and the heads of regional administrations.

Luhut, one of Jokowi’s most trusted assistants, is well-known for his no-nonsense management that gets things done, even at the risk of stepping on other ministers’ toes, as long as the action is in line with the government’s policies. His leadership and managerial skills will determine whether the licensing and implementation of investment projects will be greatly expedited.

The Investment Coordinating Board (BKPM) has been virtually powerless to coordinate the regulation, licensing and implementation of investment projects, even though its chairman is officially a Cabinet minister.

The BKPM cancelled the licenses of 6,541 foreign direct investment (FDI) projects worth US$23 billion between 2007 and 2012 due to difficulties in land acquisition and getting permits from local governments. More recent data was not available but the actual rate of FDI realization is still very low at less than 40 percent of the total licenses.

The main challenge for Luhut, who now has investment affairs under his management, in addition to the sectors of energy and mineral resources, fisheries, transportation and tourism, is how he will be able to coordinate with the chief economics minister, who oversees other economic sectors, the BKPM and regional government heads.

The government has significantly improved basic infrastructure to improve connectivity within the country and between the country and the global supply chain, but many bad and even overlapping regulations have virtually nullified this progress due to the acute lack of institutional connectivity.

The modern production system indeed requires an efficient supply-chain management to allow for lower warehousing costs, lean manufacturing, just-in-time delivery and this needs not only physical but also institutional (regulatory) connectivity. Besides political and macroeconomic stability and security, investors consider a broad range of factors in deciding to invest, the most important being a business-friendly legal and regulatory environment, infrastructure, labor talent and skill, and low cost of labor and input.

All these factors lie within the jurisdiction of different ministers, which again reemphasizes the vital importance of coordination between ministers, who should be like-minded and share the same perception of the role of investment to create jobs and propel economic growth.

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