Licensing Reformation in Order to Increase Foreign Direct Investment

The existence of foreign direct investment in Indonesia is one of the factors that boost economic growth in Indonesia become an indisputable fact. Foreign Direct Investment has raised Indonesian Economy as recorded in historical event. In 1998, Indonesia facing huge crisis that force the economic growth of Indonesia hit the lowest point at -13,68%, existence of foreign direct investment was one of the factor that contribute to the revival of Indonesia, currently, Indonesia’s economic growth rate permeates 6.5%. Economists predict by 2012, Indonesia's economic growth rate will hit 7%. In order to achieve economic growth, it needs conducive investment climate; therefore Foreign Direct Investment will increase.According to Nugroho SBM, one of the factors that affected investment climate is licensing bureaucracy.

Nowadays, as the Global Crisis that hit America and Europe, many foreign investors steal a glance in Asian countries, such as China, India, and Indonesia. These countries are seen relatively stable in global crisis and have unexplored economic potential. Particularly in Indonesia, Indonesia still has not proper readiness for the incoming foreign investor, as the licensing condition was not supported.

Making Real Improvement

Based on data from the World Bank in 2005, Indonesia had poor licensing procedures, that require 12 procedures and the cost 130,7% of income percapita.  On the other hand, Singapore and Hongkong needs only 7 and 5 procedures and 1,2% and 3,4% cost compared to its income percapita. This fact is shown the not conducive investment climate, especially on licensing sector.

Currently the government has issued Law in order to improve licensing in investment, named Undang Undang nomer 25 tahun 2007 about Foreign Direct Investment (FDI), this legislation are expected to improve in investment climate for it contained about the ease of licensing. However, the existence of this Undang Undang has solved the investment problem in Indonesia is still questionable. There are 2 mains problems of licensing in Indonesia, which are; licensing system is a package system and poor coordination between central and local government.

Licensing does not depends on one act only, but also depends on a whole acts. Undang Undang nomer 25 tahun 2007 effectively also depends on the effectiveness of other acts, such as; tax. When licensing procedures has been simplified, however tax imposed in investment is relatively high with hard procedures, foreign investment will revoke his willing to invest.

The coordination between central and local government is getting poorer as the arrangement of regional autonomy. In this autonomy, central government gives authority to Pemerintah Kota, Pemerintah Kabupaten, dan Pemerintah Provinsi for arranging investment policy and investment by their self. As a result foreign investors are facing long and twisted bureaucracy.

Against non-conducive condition, improvement needs to be made, which is Investment reformation in licensing that consist of review of existing acts by Central Government, determination of Sistem Pelayanan Terpadu Satu Pintu, coordination between Central and Local Government, 3 lateral control for  local government licensing procedure.

As the number of acts increasing, government needs to review the existing acts especially that affect the effectiveness of Penanaman ModalAct. If there was unsynchronized between these acts, government needs to revise those acts.

Central government needs to coordinate with local government, especially determination of licensing authority, by giving the national coordinator right to BKPM, which is Indonesia Investment Coordination Board Official, to establish the investment rules and Local Government to implement the rules, as according to Penanaman ModalAct on first chapter, article one, verse eleven.

Sistem Pelayanan Terpadu Satu Pintu or one stop integrated service system is licensing and non-licensing activity that grants delegation of authority from Organization which has authority on licensing and non-licensing activity, so that the process can be done in one place. The implementation of one stop integrated service system on licensing is not only will accelerate the licensing process, but also decrease the cost.

3 lateral controls for local government licensing procedure can be implemented through the participation of central government, foreign investor, and independent consultant.

Central government has the main role to control both of foreign investor and the local government. The control to the foreign investor is not only post-investment, for instance control the implementation of investment process whether there was deviation from laws and acts, but also pre-investment, by investigating whether this investor is prospectus and has good credibility, its investment sector, and its demand. Control to local government can be performed by doing regular investigation on the licensing execution. Control from foreign investor to the local government can be done through survey that copes for the scoring of local government performance, especially on licensing process. Afterward, data from central government and foreign investor is analyzed by the independent consultant for giving the conclusion and suggestion about the undertaking of local government.

Expected Result

By implementing the licensing reformation, investment climate can be more conducive, as Indonesia has simpler licensing process. Impact of conducive investment climate is increasing number of Foreign Direct Investment. As Foreign Direct Investment is part of investment expenses, increasing in Foreign Direct Investment is expected to accelerate the economic growth.

Increase in Gross Domestic Product also lowering the number of unemployment, which is stated on the Okun’s law, “increase 2% in Gross Domestic Product, and will result on lowering 1% on unemployment”. The final result of increasing in Foreign Direct Investment is increase society’s welfare.