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The World Bank recently released its annual "Doing Business
2008" global survey, which noted that Indonesia was among the top
reformers in improving its business and investment climate, although
still ranking a lowly 123 out of 178 countries, with the longest
business start-up time in the Asian region.
In light of this, the World Bank would like to continue supporting
Indonesia's development efforts, under a more mature partnership
strategy reflecting the country's actual needs, whether it be on
improving economic welfare or good governance.
The latter includes eradicating corruption, which the World Bank itself
has been struggling to overcome following public criticism.
The World Bank's new country director for Indonesia, Joachim von
Amsberg -- who succeeded former country director Andrew Steer in
February after a stint serving in the Philippines -- found the time to
share his views with The Jakarta Post's Riyadi Suparno and Urip
Hudiono. The following are excerpts from the interview
Concerning the "Doing Business 2008" survey, could you give a general
summary on how the investment climate and the environment for doing
business in Indonesia are?
I think there's a broader discussion of how to raise investment, and a
more specific discussion on the doing-business indicators in Indonesia.
In the broader discussion, businesses still see obstacles to more
investment, but there's a big improvement in macroeconomic stability,
which people recognize as happening and being maintained. If Indonesia
continues to run the macroeconomy as efficiently and effectively, then
it will contribute to a better business environment.
Such factors as infrastructure are still an important and binding
constraint on more rapid investment, so we have to focus on
infrastructure, both on public investment and also private investment.
And then comes the regulatory environment, which is what doing business
is all about. There is steady progress, which is good, but things are
still at a bad level, which shows how much room there is for more
improvement.
The "Doing Business" report gives a good indication of what kind of
measures could propel Indonesia to a more dynamic environment. Simply
cutting regulations and the capital requirement to start a business are
the key steps.
A lot of regulations make it difficult for new entrants. It is more
severe for small companies, while large and established companies can
find a way to deal with the matter.
And this matters because developed countries in the world develop the
kind of economic dynamic where productivity rises because of
competition.
It's in this environment that small companies become medium and then
big companies, crowding out the inefficient old companies. And this
churning process, where companies rise and fall, is the key source of
productivity gain, and therefore of wealth.
Having that kind of environment where small companies see an
opportunity and can come in quickly, that's the source of so much
wealth and job creation, especially when small and medium-sized
enterprises tend to be more labor intensive.
From your observations, more regulations have added to the difficulty
of doing business in Indonesia. Is that the result of decentralization
or some other factor?
Every regulation typically has good intentions, like protecting labor
and the environment. But as more regulations are made over time, they
can sometimes add up to the effect of stifling competition and the
environment for more investment. So sometimes we have to look back and
take drastic measures to cut such effects. This is also happening here
in Indonesia.
What is really interesting is that the government has laid out steps to
improve investment, including regulatory changes. And then academics
made a survey to see whether the government's measures had worked. So
there is process of action to improve regulations, and then going out
to see if it was actually working. That kind of feedback is very
impressive.
What efforts will the World Bank make to help the government in these
matters?
I think in terms of the macroeconomic stability, there is little we can
contribute, because the economy is now well managed and in good hands.
On the infrastructure agenda, we actually want to help a lot, to
support the government in picking up both public and private
investments for infrastructure development, finding financing, and
helping with the high quality use of those public resources through
good planning, procurement and implementation of projects.
In terms of private investment, Indonesia has adopted a very sensible
framework for public-private partnership so that projects are tendered
transparently and competitively, but projects in the pipeline have been
very slow, so that is something we are very keen to support.
And then, from the "doing business" side, we will work closely to help
with analytical work, policy suggestion, and more importantly political
determination and stamina. I'm not saying political will, because the
political will is clearly there, but I think it needs to persist in
carrying out the policies.
Coming back to creating a competitive environment for businesses, there
is sometimes a situation where incumbent businesses will resist and
maintain regulations that keeps competition away. So this needs
determination and stamina to loosen regulations and create more vibrant
competition where people benefit from lower prices and more jobs.
World Bank has shifted from in the past financing major infrastructure
projects, and then into programs -- so is it now back into financing
projects again?
In a certain way, the answer is yes. It reflects the ability of the
country to invest. After the crisis and major fiscal adjustment that
reduced the capacity of the country to invest. Now, with the
macroeconomic stability, there is fiscal space to invest. And it makes
sense for us to offer support, both in finance and advice. And because
infrastructure is still important for Indonesia's growth and poverty
reduction. We believe that would be one of the right areas to invest.
We can contribute by financing projects through lower interest bonds,
rather than Indonesia having to pay bondholders at higher rates. We can
also help provide the implementation support: better procurement,
quality of projects.
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