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NEWS UPDATES Asean Affairs        30  May 2011

Indonesia needs to reduce red tape

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Bureaucracy is the main obstacle standing between the government and its target of becoming one of the world’s 12 largest economies by 2025, economists say.

Aviliani, an economist at the Institute for Development of Economics and Finance, said on Sunday that even though the government’s goal was realistic, red tape was scaring away potential investment needed to achieve the target.

“Apparently, the old Indonesian saying on bureaucracy — ‘If you can make things harder, why make them easier?’ — is still there,” said Aviliani, who is also a member of the National Economic Committee.

The government unveiled on Friday more details about the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), which is aimed at making Indonesia one of the world’s 12 largest economies by 2025 .

The plan includes Rp 4,000 trillion ($470 billion) in investment, which will be supplied mostly by the private sector, and a predicted 550 percent rise in gross domestic product as the country tries to become one of the world’s leading economies. The government said it would spend Rp 544 trillion until 2014 for infrastructure projects under the MP3EI, while state companies have pledged to spend Rp 836 trillion until 2014.

According to Aviliani, the first five years of the master plan will focus on developing infrastructure. If that is successful the country’s economic growth could accelerate to at least 8 percent per year.

“Infrastructure development is hampered by lengthy bureaucracy and corruption. To make the plan successful, the government is moving in the right direction by involving business players and academics, and committing to simplifying bureaucracy,” she said.

Even though the government and business interests are often at odds, the Indonesian Chamber of Trade and Commerce (Kadin) has pledged its support to the master plan, saying local businesses are committed to investing Rp 1,350 trillion in the plan.

“Indonesia is growing and will continue to grow. Our middle class is mushrooming. Investors have little choice to invest elsewhere,” Aviliani added.

Muhammad Chatib Basri, an economist at the University of Indonesia, said it would take strong leadership to tackle persistent bureaucracy problems. “The target is realistic. It can be done, but it will take an iron-fisted government to safeguard the implementation,” he said.

He said the government should not hesitate in firing underperforming ministers and intervene in delayed projects if it wants the master plan to work.

“The key is not in the planning, but the execution of it. Set the target, set the reward and punishment, and put them into practice,” he said.

The government has laid out its plan for this year, announcing ground-breakings for 17 projects worth Rp 190 trillion. “I would applaud the government if it completed one or two of the projects in two years,” Chatib said.

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