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July 22, 2008

Indonesia: Regions ordered to cut investment red tape
Indonesia's president has given regional governments a year to revise regulations deemed unfriendly towards business, amid efforts to cut red tape and boost investment in Southeast

Asia's biggest economy, reported Reuters.

The ruling, signed by President Susilo Bambang Yudhoyono on June 24 but seen by Reuters on Monday, follows complaints by businesses that the web of regulations issued by local

governments is throttling investment.

Indonesia has moved swiftly to devolve power from the centre to regional governments, but businesses complain this has often caused more uncertainty and extra burdens, such as

double taxation in the mining sector.

Under the new ruling, regional governments may offer incentives, such as tax reductions for infrastructure investment, provided the investments meet certain criteria such as absorbing

local workers and using local resources.

"Regional regulations that conflict with government regulations would have to be adjusted, by the latest, one year after the government regulation is put into effect," the order said.

Some businesses have complained that some regional authorities have placed unfair burdens on them by charging them for using roads or requiring them to pay both central and regional

government for licences.

Investment in Indonesia, the world's fourth most populous country, has risen in recent years amid improving political stability and a boom in the commodities sector, but analysts said

progress has been slow in fighting graft and reducing a bloated bureaucracy.

"Opportunities have increased with the huge increase in commodity prices, but procedures have, generally, not improved accordingly," said Peter Fanning, the chairman of the

International Business Chamber in Indonesia.

He said that Indonesia was supposed to have established a "one-door service" for business licences in April 2007 to help investment.

"(But), here we are over a year later and there is no sign or progress...That's because the bureaucrats won't cooperate."

Indonesia badly needs billions of dollars of investment, especially in infrastructure, to reduce high unemployment and propel economic growth.

"As long as you got plenty of coal, plenty of water, plenty of gold, people will continue to invest in Indonesia. (Business) will continue to do well but not nearly as well as it could,"

Fanning added.

The head of the state investment agency, Muhammad Lutfi, said last week that foreign direct investment (FDI) in Indonesia rose more than 160 percent in the first half from a year ago,

helped by strong interest in telecommunications.

He did not give a figure, but FDI in the first half of last year was $4.1 billion, although the investment agency sometimes revises this figure.

Indonesia ranks 123rd out of 178 countries in terms of the ease of doing business, according to a World Bank survey issued last year.

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