T

he uncertainties in the global economy have had a negative impact on the inflows of foreign direct investment (FDI) into the country.

According to the data issued by the Investment Coordinating Board (BKPM), the realization of the FDI dropped by 20 percent to Rp 89.1 trillion (US$6.17 million) in the third quarter from Rp 111.7 trillion in the same period last year.

But the government should not make global economic uncertainties the scapegoat for the fall of FDI inflows. Indonesia should instead continue its efforts to further improve the business climate.

The government has issued a series of economic policy packages to improve the ease of doing business during the last three years. However, many of the deregulation measures have not been fully implemented. This partly contributed to the fall in the country’s ranking in the 2019 Ease of Doing Business (EoDB) index issued by the World Bank.

Indonesia’s position in the index, which was issued earlier this month, dropped from 73rd to 72nd from last year. In contrast, Indonesia’s neighbor, Malaysia, due to its government’s six major reforms that boosted its ranking, made it to the top 15. This means there is still an uphill battle and room for improvement, considering that the Indonesian government is targeting a top 40 spot.

But why is the decline occurring at the time when the government has put in place policies to improve the ease of doing business in the country?

One of the major policies was the issuance of the 12th economic policy package in April, which simplifies a number of business licensing procedures. Business permits (SIUP) and registration certificates could, for example, be issued simultaneously in two days.

Another reform included in the package was the revocation of the requirement to obtain the issuance permit or hinder ordonantie (HO), which has burdened businesspeople for many years, particularly in terms of levies.

The HO permit is outdated because it is based on a 1928 law. But local governments still implement it because they have the right to collect a levy from their issuances as stipulated in Law No. 28/2009 regarding regional taxes and regional levies. It shows that deregulation measures taken by the central government are not fully implemented in the regions.

Some of the reasons why local governments are unable to follow up on the changes in the central government’s policies are a lack of capacity by the local government to draft regulations, lack of intergovernmental policy briefings and not updating support systems.

The local governments’ lack of capacity in drafting regulations can be seen in the issuance of local regulations that do not address the real problems. In fact, many regulations issued by local administrations were copied from other local regulations.

The central government so far does not have a grand strategy to improve this situation. The efforts are only incremental.

The existence of a grand strategy can help central and local governments map out the needs of future improvements that should be carried out.

The slow implementation of the deregulation measures is also caused by a lack of coordination between ministries. The Office of the Coordinating Economic Minister and BKPM have different views about the licensing system. Coordination between central and regional governments is even worse. Despite the fact that the simplification of business licenses is among the government’s priorities, the issuance of business permits still takes time because local governments still have certain requirements that need to be fulfilled.

In addition, a number of regions still require unnecessary permits and licenses that have been revoked by the central government, such as a nuisance permit and business domicile letter. Many other regulations, which have been revoked by the central government, are still implemented at regional government level. Permits are still seen as a commodity, not as government instruments to manage investments.

In the end, businesspeople must pay the price in terms of cost and time. Business licensing in regions is considered a scary phantom that needs to be immediately exorcised. It can discourage investments, which could in turn affect the country’s economic growth.

The reforms implemented by the government only partially cuts and simplifies the procedural basis (“meso-institutional” level).

Improvements must be made at the root of the problem. The root is the government system (macro-system level), including patterns of performance, assessment, as well as achievement that focus on procedures and fulfillment of requirements.

For starters, deregulation reform must be placed in one grand strategy especially in the face of a shift in the global situation. The grand strategy must contain planning, stage of implementation, monitoring and evaluation.

Without clear direction, there will be no national standardization for regulation and implementation to promote a business climate and our competitiveness.
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