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145 Regional Autonomy and the Business Climate 145 5 REGIONAL AUTONOMY, REGULATORY REFORM, AND THE BUSINESS CLIMATE Mohammad Sadli During the Conference organized by USAID-PEG and the Ministry of Industry and Commerce (Departemen Perindustrian dan Perdagangan) convened at Hotel Borobudur in Jakarta on 13 August 2003, a lot of complaints were heard, supported by surveys of credible research institutions, as regards new taxes, user charges (retribusi) and other levies that had been extracted by provinces, districts and municipalities (kabupaten & kota) in the past two years in which the laws on regional autonomy had been implemented. Many of those charges were levied on trade or on the movement of commodities in, or passing through, a certain territory. Such levies were depicted as having a distorting effect on the economy, as they would hamper the free flow of goods within national borders, an important economic policy principle to be upheld. The central government had tried to roll back such levies in 1997 by Law No. 18, but after the implementation of the laws on regional autonomy in 2001, especially Law No. 34/2000, they have come back. The legal status of some of them is, however, more than questionable. Apart from charges on transportation of goods, there are also reports of exactions on enterprises by local governments, ostensibly as user charges, such as contributions for street lightings, even when the electricity is produced by the companies themselves. The practice of demanding “third party contributions” by local governments is also a new cost-increasing phenomenon 145 05 D&RA_Indonesia Ch 5 9/16/09, 8:49 AM 145 146 146 Mohammad Sadli making the affected enterprises less competitive or less profitable. According to a survey in fifty-five districts (kabupaten) by the research institute of the economics faculty of the Universitas Indonesia (LPEM) in Jakarta, such charges have sometimes amounted to up to 10 per cent of the costs since 2001, and impose a relatively heavier burden on smaller establishments. Other surveys presented in this anthology, however, concluded that the impositions have weighed more heavily on larger enterprises. Hence it is still not easy to form a firm conclusion. Perception surveys have also indicated that most companies do not report a larger change in impositions as compared to the situation before the year 2001. There are even respondents who perceive a slight improvement of the business climate after the implementation of regional autonomy. Whatever the direction, lighter or greater burdens, the changes are marginal (below 0.5 on a scale of 2). Bert Hofman, former chief economist of the Jakarta office of the World Bank, had said at the beginning of 2003 that “the implementation of the laws on regional autonomy in Indonesia has created great new fiscal and administrative problems and confusion but has not caused a major calamity”. What he had meant was that in the realm of public administration and finance, the transfer of some two million central government personnel to regional entities and the transfer of a significant part of central government expenditures to local governments had not wrecked the system. The minister of finance was able to control the deficit in his budget, the growth of money in circulation was properly managed by the Bank of Indonesia and the inflation abated in 2003. The rate of growth of the economy dropped from a post-crisis peak of about 5 per cent in 2000 to levels between 3 and 4 per cent per annum. The figure remained relatively stable, showing even a very slight increase from 2001 to 2003. The relatively high growth figure for 2000 has also to be seen as a recovery from a low point. In 1998 the economy had contracted almost 14 per cent; this contraction, however, stopped in 1999. Exports were still holding up (between US$55–60 billion annually), growing a bit from year to year, again the year 2000 being recorded as a peak after the very deep crisis in 1998. Only investments remained the weak spot in the economy after tumbling heavily and becoming negative during most part of the crisis. The movements in macro-economic indicators may have been more influenced by macro-economic and international factors rather than by the implementation of the law of regional autonomy starting in 2001. By putting a damper on the loud cries of complaints is not to sideline them though. The new taxes and charges may perhaps not have been excessive and, for the time being, most were absorbed by the enterprises and not...

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