Fall in EoDB Index: Tip of The Iceberg

Lenida Ayumi & Boedi Rheza
Research & Policy Analysts at Regional Autonomy (KPPOD)

The uncertainties in the global economy have had a negative impact on the inflows of foreign direct investment (FDI) into the country.

According to the data issued by the Investment Coordinating Board (BKPM), the realization of the FDI dropped by 20 percent to Rp 89.1 trillion (US$6.17 mil­lion) in the third quarter from Rp 111.7 trillion in the same pe­riod last year.

But the government should not make global economic un­certainties the scapegoat for the fall of FDI inflows. Indonesia should instead continue its ef­forts to further improve the busi­ness climate.

The government has issued a series of economic policy pack­ages to improve the ease of do­ing business during the last three years. However, many of the de­regulation measures have not been fully implemented. This partly contributed to the fall in the country’s ranking in the 2019 Ease of Doing Business (EoDB) index issued by the World Bank.

Indonesia’s position in the in­dex, which was issued earlier this month, dropped from 73"' to 72^ncl from last year. In contrast, Indo­nesia’s neighbor, Malaysia, due to its government’s six major re­forms that boosted its ranking, made it to the top 15. This means there is still an uphill battle and room for improvement, consid­ering that the Indonesian gov­ernment is targeting a top 40 spot.

But why is the decline occur­ring at the time when the govern­ment has put in place policies to improve the ease of doing busi­ness in the country?

One of the major policies was the issuance of the 12^th econom­ic policy package in April, which simplifies a number of business licensing procedures. Business permits (SIUP) and registration certificates could, for example, be issued simultaneously in two days.

Another reform included in the package was the revocation of the requirement to obtain the issuance permit or hinder or- donantie (HO), which has bur­dened businesspeople for many years, particularly in terms of levies.

The HO permit is outdated be­cause it is based on a 1928 law. But local governments still im­plement it because they have the right to collect a levy from their issuances as stipulated in Law. No. 28/2009 regarding re­gional taxes and regional lev­ies. It shows that deregulation measures taken by the central government are not fully imple­mented in the regions.

Some of the reasons why lo­cal governments are unable to follow up on the changes in the central government’s policies are a lack of capacity by the local government to draft regulations, lack of intergovernmental policy briefings and not updating sup­port systems.

The local governments’ lack-of capacity in drafting regulations can be seen in the issuance of local regulations that do not ad­dress the real problems. In fact, many regulations issued by lo­cal administrations were copied from other local regulations.

The central government so far does not have a grand strategy to improve this situation. The ef­forts are only incremental.

The existence of a grand strat­egy can help central and local governments map out the needs of future improvements that should be carried out.

The slow implementation of the deregulation measures is also caused by a lack of coordi­nation between Ministries. The Office of the Coordinating Eco­nomic Minister and BKPM have different views about the licens­ing system. Coordination be­tween central and regional gov­ernments is even worse. Despite the fact that the simplification of business licenses is among the government’s priorities, the is­suance of business permits still takes time because local govern­ments still have certain require­ments that need to be fulfilled.

In addition, a number of re­gions still require unnecessary permits and licenses that have- been revoked by the central gov­ernment, such as a nuisance per­mit and business domicile letter. Many other regulations, which have been revoked by the cen­tral government, are still imple­mented at regional government level. Permits are still seen as a commodity, not as government instruments to manage invest­ments.

In the end, businesspeople must pay the price in terms of cost and time. Business licensing in regions is considered a scary phantom that needs to be imme­diately exorcised. It can discour­age investments, which could in turn affect the country’s eco­nomic growth.

The reforms implemented by the government only partially cuts and simplifies the proce­dural basis (“meso-institutional” level).

Improvements must be made at the root of the problem. The root is the government system (macro-system level), includ­ing patterns of performance, as­sessment, as well as achievement that focus on procedures and ful­fillment of requirements.

For starters, deregulation re­form must be placed in one grand strategy especially in the face of a shift in the global situation. The grand strategy must contain planning, stage of implementa­tion, monitoring and evaluation.

Without clear direction, there will be no national standardiza­tion for regulation and imple­mentation to promote a business climate and our competitiveness.

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