[Kabar-indonesia] BT/Jakarta: Removing infrastructure bottleneck is crucial

[Joyo at aol.com]

The Business Times Singapore 
Tuesday, June 20, 2006

Removing infrastructure bottleneck is crucial

Only then will more investment help the economy grow

Shoeb Kagda Jakarta Correspondent

POLICIES aimed at cutting down bureaucracy for foreign
investors and making it easier for foreigners to work
in Indonesia are now being implemented, the government
has announced.

Among the new measures are a substantial reduction in
the processing of documents needed to acquire a
business licence; cutting down processing time for
work permits from seven to four days; and a decree to
speed up the establishment of industrial relations and
work contract agreements.

As of May, according to a report published last week,
the government had completed 23 out of 85 planned
policies it announced in February to improve the
investment climate. The Ministry of Finance has also
submitted to Parliament its final draft of the
country's three tax laws, and Customs and excise laws.

While that should be considered as progress, it
clearly is nowhere near sufficient to improve the
country's sagging investment levels. It also remains
uncertain whether a new Investment Bill submitted in
March will pass Parliament unscathed.

The government has not managed to complete a draft
revision of the Labour Law, or measures reducing local
taxes and bureaucracy in the telecommunications and
transportation sectors, which are deemed excessive in
comparison with those faced by companies elsewhere in
the region.

The task before President Susilo Bambang Yudhoyono in
attracting foreign investors was made starkly clear
over the weekend when two of his senior Cabinet
ministers were reported to be at odds over whether to
allow private investors to help reinvigorate Jakarta's
ageing railway network.

Transportation Minister Hatta Radjasa favours allowing
a South Korean engineering company to invest US$270
million to improve and operate the railway network in
Greater Jakarta.

There are currently 65 25-year-old trains serving
500,000 commuters in Greater Jakarta every day. Given
that more than three million Jakartans travel by train
to work each day, the existing railway network is seen
as woefully inadequate.

Mr Radjasa wants to privatise the country's railway
network and sees allowing private investors to operate
the Greater Jakarta railway as a possible precursor to
similar moves for other large cities, such as Surabaya
and Medan.

But a 1992 Railway Law, and the Minister of
State-Owned Enterprises, Sugiharto, stand in the way.
The current law stipulates that the government is
responsible for owning and operating all railway
facilities in the country - meaning a monopoly for
state railway operator KAI.

That may be why Mr Sugiharto is against privatising
KAI and the railway network. Despite agreeing to sell
the state company following two recent fatal train
accidents, he was reported as saying that it would be
unfeasible to sell off the company to private
investors in the near future.

Mr Sugiharto instead favours improving the railway
service by reforming the KAI management.

But given the fact that the company has suffered
millions of dollars in losses over the past two
decades due to corruption and bad business planning,
that may be wishful thinking on his part.

The deliberation to revise the railway legislation has
been going on for more than two years now and
illustrates just how slowly Indonesia's reform process
is proceeding.

No doubt, progress has been made in improving the
country's investment climate but the country is
rapidly falling behind other regional countries such
as Vietnam, Thailand and China.

Improving and modernising the railway network will
cost US$1.2 billion over the next four years - money
which neither the government nor the state railway
company has. With the road system also in disrepair,
it is crucial that the railway network is improved to
facilitate the flow of goods from the hinterland to
the coast and to enable people to travel with greater
ease.

It now takes nearly seven hours to travel from Jakarta
to Surabaya in central Java by rail, a distance of
some 400 kilometres; by road, it takes considerably
longer, as there is no highway linking the two major
cities.

If Indonesia is serious about having its economy grow
by 7 per cent per annum by 2009, it needs to invest
seriously in infrastructure today.

It is thus time to put personal interests aside and
get the nation back on track.

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Joyo Indonesia News Service
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