Excessive regulations and licensing red tape are this week’s buzzwords as the government fights to streamline all the regulatory pipelines and clean up a rusty bureaucracy to facilitate the economic development process. As dark clouds hang over the economy, President Joko “Jokowi” Widodo announced on Wednesday a package of reform measures to strengthen people’s purchasing power, strengthen anti-inflation efforts and increase the supply of dollars at local banks.
Jokowi said 89 regulations would be revised to improve the ease of doing business and strengthen the competitiveness of the manufacturing sector. Dozens more reform measures will be launched later this month, all aimed at improving the investment and business climate.
As part of measures to strengthen purchasing power, which has been eroded of late by the steady depreciation of the rupiah against the US dollar, the government raised the maximum amount of untaxable income from Rp 22 million (US$1,600) per year for a single unmarried worker to Rp 36 million. The interest rates on credit for micro and small businesses were slashed from 22 to 12 percent. Procedures for the disbursement of village funds from the state budget were streamlined to speed up cash injections into rural areas.
It is encouraging to learn that the government will continue its regulatory and bureaucratic reforms with several more packages of policies to be released within the next few months. The process of regulatory reform has become more and more imperative as National Development Planning Minister Sofyan Djalil revealed earlier this week that his office had identified more than 2,700 regulations and presidential and ministerial decrees that were inimical to economic activity.
As President Jokowi himself has often complained: “we have been shackled by excessive procedures and regulations.”
Yet more flabbergasting is the blunt fact that the many regulations that have been erected seem useless in their ability to control this country because corruption and numerous other forms of malfeasance continue to thrive and Indonesia has gained a notorious reputation as one of the most corrupt nations in the world.
The arduous regulatory chain is in fact a stretch of landmines that officials and businesspeople must navigate. Businessmen and officials often unintentionally make mistakes picking their way through the minefield and so they become trapped in charges of corruption, making them prey to corrupt law enforcement officials.
Many aspects of the trade and investment policymaking process are fragmented across many ministries and government agencies — with no formal and independent assessments of such regulations. Various high-level teams have sometimes been engaged to hold regulatory review consultations with stakeholders; but these are mostly on an ad hoc basis and are the result of financial market turbulence.
The Organization of Economic Cooperation and Development (OECD) asserted in a special study on Indonesian regulatory reform in 2012 that independent and objective evaluations of policies from an economy-wise perspective had not yet been institutionalized.
The OECD recommended that an institution within the existing regulatory framework should be empowered to conduct these types of evaluations, with a view to significantly enhancing inter-ministerial coordination and improving regulatory outcomes.
Unfortunately, there have been no significant improvements in the process of enacting regulations.
The government has yet to build up a strong, effective mechanism to ensure public consultations involving a broad base of stakeholders are held systematically to enhance transparency and avoid unintended trade restrictions. Rules or guidelines that ensure consultation with experts and interested parties area are desperately needed.
While significant steps have been taken to group together the many licenses needed to start and operate a business in Indonesia into one-stop shops at the Investment Coordinating Board (BKPM) and provincial BKPMDs, more efforts are still badly needed to streamline the licenses themselves.
Worse still, the central government is not yet able to ensure that regional licenses have clear policy objectives and that these are not contradictory to national laws. The fragmentation of the policymaking process has led to an increase in opportunities for special interests to exert influence.
As a result, the government should consider embedding regulatory impact assessments systematically into the regulatory framework for all policies that meet a pre-defined threshold.
Stronger coordination among ministries is therefore critical. Note how many new regulations contradict higher order laws and regulations, thus creating confusion and uncertainty. Such coordination is particularly important given decentralization of authority and increasing clout of the House of Representatives.
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