Developing Institutional Framework for Regulatory Reform: Indonesian Experience B. Raksaka Mahi Special Advisor to the Coordinating Minister of Economic Affairs and Vice Secretary of National Team for Export Development and Investment Development (PEPI) APEC Seminar for Sharing Experience in APEC Economies on Relations Between Competition Authority and Regulatory Bodies, June 11-13,2008,Bali,Indonesia
Backgrounds Government Targets Economic Growth of 6,6%-6,9% in 2008. Reducing Open Unemployment to 8,0%-9,0% in 2008. Reducing Poverty Incidence from 17,75% in 2007 to15,0%- 16,8% in 2008 It is important to push the real sector and to empower small and medium enterprises to help accelerating economic growth and reducing open unemployment and poverty incidence. 2
Objectives of the Reforms To improve the business environment in order to increase investment for growth, employment and poverty reduction. Strategies : To give a holistic picture of the government policies and reforms To make a better coordination of reforms among sectoral ministries and regional governments. To increase public transparency by involving all stakeholders in designing the reforms through survey, workshop and dialogue. An external monitoring team is also set up for feedbacks.
Direction of The Reforms Eliminating unnecessary, burdensome and redundant regulations; Streamlining required regulations; Strengthening and improving vital regulations to safeguard the public interest Developing a better environment for competition
Reform Agenda 2005-2009 Structural and Institutional Reforms Increase Competition Lower Risk Efficiency Better Environment Better Return Low Cost Increase Employment Reducing Poverty Investment Growth Better Quality of Public Spending
Reforms Development: 2005-2009 Infrastructure Financial Established without INPRES INPRES 3/2006 INPRES 6/2007 INPRES 5/2008 Focus : Investment Climate 85 actions Focus: Real Sector and Small-Medium Business 165 actions 4 groups of Issue: Investment climate, Financial, Infrastructure, Small Business Focus : 2008-2009 Reforms 193 actions Covering issues of investment climate, financial, infrastructure, small business, environment,energy,labor, ASEAN commitment. Notes : INPRES = Presidential Instruction
INPRES 6/2007 Reforms and the Components NO The Groups of the Policies Number of Actions 1 Improving Investment Climate 50 2 Financial Sector Reform 40 3 Accelerating Infrastructure Development 41 4 Empowering Small Business 34 The first three policies above are the continuation of similar policies that have been conducted since 2006 through INPRES 3/2006, while the package on Small Business Empowerment serves as an expansion of similar programs that were accommodated in the Investment Climate Improvement Policy (INPRES 3/2006). The President of Republic of Indonesia has assigned the Coordinating Minister for Economic affairs to monitor the implementation of the Inpres. 7
Reforms Directions on Improving Investment Climate Establishment of Investment Law and Its Supported Regulations : 1. Negative list of Investment 2. Incentives 3. Special Economic zone 4. One Stop Service for Investment 5. E-Investment Central-Regional Regulation Synchronization Doing Business reforms : (Notes : Indonesia Rank 123 of 178 countries on Doing Business, according to IFC Report 2008. The position is improved from previously rank 133) 1. Starting A business 2. Dealing with Licenses 3. Paying Taxes 4. Registering Property 5. Employment 6. Getting Credit 7. Trading across border 8. Protecting Investors 9. Enforcing contracts 10. Closing Business
Progress on Investment Climate Reforms: Some Milestones 9 INPRES 3/2006 INPRES 6/2007 INPRES 5/2008 Investment Law (Law No.25/2007) Reforms on Starting a Business Further Reforms on Doing Business Streamlining Sectoral (Ministrial) Licenses Completed by March 07 Completed by Sept 07 In Progress Streamlining Regional Licenses
Regulations Related to the Investment Law Negative List Incentives Special Economic Zone Criteria Pres Reg 76/2007 Gov Reg Gov Reg No.1/2007 Regulation Draft of the Law is completed The list Pres Reg 111/2007 Notes Under Revision Notes To be submitted to parliament One Stop Service (OSS) E-Investment Central-Regional Investment Functions Current Regulation Min of Home Affairs 24/2006 Current Process The system is currently undergoing Regulation Gov.Reg 38/2007 Notes Pres Regulation is prepared to have a better quality of OSS Notes The pilot project will be December 2008, the national wide will be the end of 2009 Notes Clarify division of authority between Central and Regional Government on Investment
Central-Regional Regulation Synchronization: Number of Nuisance Local Regulations Cancelled, as of April 2008 (Cumulative from 2001) Provinces which have the most nuisance local regulations: North Sumatra East Java West Java Central Java South Sulawesi A joint Team of Ministry of Finance and Ministry of Home Affairs has been established to evaluate all local regulations suspected to distort investment Future Regulatory Reforms Direction: Closed-List of Local Taxes Category
Starting Business Improvement: Completed Sept 2007 No 1 Notary Survey LPEM (2005) Law Firms Interview (IFC 2005) Notary survey LPEM Target Action Progress (2007) Activities Obtain clearance for the company name from the Ministry of Law (MoL); obtain the standard form of the company deed from MoL 2 7 2 1 done Founders draw up the deed of establishment 2 (articles of association) and sign it in front of a notary. 2 7 2 1 done Obtain a certificate of domicile from 3** the local municipality 4 10 3 0 Eliminated Obtain a taxpayer registration number (NPWP) 4** and taxable entrepreneur identification number (NPPKP) 6 14 3 0 paralel Open a bank account and deposit the initial issued 5** capital in the name of the proposed company 4 4 2 1 No need tt, just Directors Statement Pay to the State Treasury the non-tax state revenue (PNBP) fees for legal services pursuant to the Decree of 6 the Minister of Law No. M.OI-UM.01.06/1993 1 1 1 1 done 7 Arrange for the notary to apply for the publication of the articles of association of the company in the supplement to the State Gazette from the State Printing Press, get payment receipt 1 2 1 1 done 8 Submit physical documents to the Ministry of Law 1 4 1 centralization ; done 9 Delegation of Authorization to Kanwil NA 13 0 centralization; done 10 Issuance of the SK approving the deed of establishment by the Minister of Law 14 22 10 7 done 11 Register with the Company Register at the Local Trade Office and obtain the Company Registration Certificate (TDP) 9 15 10 4**) done 12 Apply for the business trading license (Surat Izin Usaha Perdagangan or SIUP) 11 14 11 3 done 13 Register with Ministry of Manpower 1 1 N/A 1 done 14 Apply for workers social security (Jamsostek ) program 1 1 N/A 1 done Total Time in Working Days 53 97*) 62 22 *) Calender Days ; **) Including Tax Identification number
Other Regulatory Reforms Related to Investment Climate Better Paying Taxes through Modern Tax Offices Establishing National Single Window (NSW) for Speeding up the Export-Import Process
Accelerating Infrastructure Development: Backgrounds The need and Sources of Investment on Infrastructure 2005-2009 Needs* Sources *) The needs are estimated as requirement of Infrastructure of 5-6% of GDP Rp. 585 Trillions Govt Budget Rp. 225 Trillions ( 38%) Financing Gap Rp. 360 Trillions (62%) Sources of Potential Fundings Domestic multilateral dan bilatera Donorsl Rp Trilln % 126 22% 90 15% 1 2 3 Regulatory Reforms Increase of Infrastructure Investment The Forum And Capacity Building Private Sectors 144 25% Source : IRSDP RRP ADB & BAPPENAS, October 2006
INPRES 6/2007: Reforms on Infrastructures Policies PROGRAM # of Actions Regulatory Reforms Finishing all regulations related to infrastructure development 14 A Increasing ability of Contracting Agency in preparing KPS policy 1 B Clear description on Central-Regional functions 1 Institutions C Clarity of the role of Regional Govt Enterprises on Infrast Development 1 D Non-banking institutions for Infrastructure 2 E Institutional Development 3 A Revkew public obligatory (PSO) 1 B Land for Public Needs 1 C Operational Guidelines for private 4 Infrastructure Management D E Accelerating housing development Road Maintance 4 5 F Blue Print on Master Plan of Infrastructure 2 G Transportation rate policy 2 TOTAL 41
Regulatory Reforms on Infrastructure Road & Toll Road Water & Sanitation Telecommunication New Road Law Law No. 38/2004 Law on Water Resources Law No.7/2004 Interconnection regulation Ministrial Decree No. 8/2006 GR on toll road Gov Reg No.15/2005 GR on Supply Gov Reg No.16/2005 Regulation on Retain Revenue Gov Reg No. 28/2005 Energy & Power Transportation Land & Government Investment GR on electricity procurement & utilization Establishment New Electricity Law New Energy Law Law No. 3/2005 Submitted to parliament Law no 30/2007 New Rail Transport Law Draft new laws on sea, air, and land transport Law no 23/2007 Submitted to parliament New Land Acquisition Law New Government Investment Regulation Presidential Instruction No.36/2005 & No.65/2006, Per Ka BPN 3/2007 Gov Reg No. 8/2007
Small-Medium Business Empowerment Access for Credit Financing Credit Collateral (Land Certification for collateral) Revitalizing Investment Credit for Small-Medium Enterprises Entrepreneurship Development Launching Degree for Bachelor on entrepreneurship Market Access Government Regulation on Traditional-Modern Market Integrated market development Regulatory Reforms Fiscal Incentives for Small-medium enterprises Developing Law on Micro, Small and Medium enterprises
Financial Reforms Financial Sector Stability Law on Financial Safety Net Operating Forum of Financial Sector Stability Banking Reforms Improving Performance of State Banks Establishing Law on Syariah Banking Non Banking Reforms Amendment of Laws on Insurance, Pension Fund, Export Financing SOP for financing sector Capital Market Fiscal Facility for Openness of the company Merging BEJ and BES State-owned enterprises reforms
Results: Indonesian Economy Keeps Growing After The Crisis - 13%
Investment Realization Improved in 2007
Economic Growth of Indonesia is among the highest in South East Asia
Employment is Growing and Unemployment Rate is reduced Period Unemployment (Millions persons) Labor Works Unemployment Rate (%) Open Underemployment Total Force Open Total 2002 (Agt) 9.1 12.0 21.1 100.8 91.7 9.1 21.0 2003 (Agt) 9.9 13.2 23.1 102.8 92.8 9.7 22.5 2004 (Agt) 10.3 13.4 23.7 104.0 93.7 9.9 22.7 2005 (Nov) 11.9 15.0 26.9 105.9 94.0 11.2 25.4 2006 (Agt) 10.9 13.8 24.7 106.4 95.5 10.2 23.2 2007 (Agt) 10.0 14.9 24.9 109.9 99.9 9.1 22.7
Poverty Reduction Existing Poverty Based on Some Measurement 1996 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 CBS Number of Poor People 34.01 49.5 47.97 38.7 37.9 38.4 37.3 36.1 35.1 39.3 37.2 % 17.5 24.2 19.1 18.4 18.2 17.4 17.4 16.7 16.0 17.8 16.6 Poverty line USD PPP 1 per capita/day Number 15.4 na 24.9 20.9 19.7 15.5 14.5 16.5 13.6 19.5 15.5 % 7.8 na 12.0 9.9 9.2 7.2 6.6 7.4 6.0 8.5 6.7 Poverty line USD PPP 2 per capita/day Number 99.6 na 135 125.3 125.2 115.6 110 109.1 102.1 113.8 105.3 % 50.5 na 65.1 59.5 58.7 53.5 50.1 49 45.2 49.6 45.2 *) Projection Sources : Wrold Bank and Central Bureau of Statistics (CBS)
Challenges Regulatory Reforms need a timely process, especially within the parliament, when related to passing a new (reformed) law. Coordination among stakeholders to pursue the actions is the key for the success of completion of actions, which sometimes it is hard to get a strong commitment of stakeholders. Implementation of new (revised) regulations at regional level requires an extra effort of resources. Some regions are not keen to help implementing the revised regulations. Infrastructure: Despite significant regulatory reform, not much has happened. Streamlining regulations at national and regional level requires a strong support of the units or regions. Public Expectations are high for reforms, but the yield of reforms take sometimes to take effect. Public communication related to the reforms results is not yet effective.
Conclusions Reforms have already had a direction and a framework, at least for the last three years. Reforms have shown good outcomes Reforms have existed in all agenda, but not all have yet given significant outcomes (e.g.: Infrastructure) Gradual Reforms are more sustainable than a sudden change. Public Communication of the Reforms need to be improved in the future.
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