Jakarta. President Joko "Jokowi" Widodo must streamline the bureaucracy and overhaul the relationship between the central and regional governments to improve the investment climate in Indonesia, according to three partners at a prominent Jakarta-based multinational law firm.
Constant M. Ponggawa, managing partner at Dentons HPRP, said four obstacles hamper foreign investment, one of which is unsynchronized regulations between the central and regional governments.
"A negative side effect of regional autonomy is the creation of 'little kings' in the regions. We suggest the government allows investors to report directly to the state secretary, who in turn, directly reports to the president," Constant told the media during a discussion titled "Investment and Business Climate From a Legal Perspective" in Jakarta on Wednesday.
Next, he said, are the many overlapping regulations, while a complicated and time-consuming bureaucracy and inflexible labor regulations make up the remainder. Constant said these issues often make investors reluctant to do business in Indonesia.
"The government must be more proactive in attracting foreign investors. How can we be a good host if our laws and regulations make investors uncomfortable? This is the reason we are falling behind Vietnam, Thailand and others," Constant said.
He added that the government must also focus on ensuring legal certainty; economic and political stability; regulatory and bureaucratic optimization; and more flexible labor regulations to improve the investment climate.
Fellow Dentons HPRP partner, Sartono, said foreign investors often cite Indonesia's strict policy on severance pay as a serious obstacle to doing business in the country.
"They see the current regulation as lacking flexibility and hampering investment. On salaries, for example, it needs to give more leeway for negotiations and terminations – a regulation that is advantageous to both parties," he said.
The government is planning to revise both the 2003 Manpower Law and labor regulations.
A high tax rate and complicated regulations also hamper sectors such as mining, especially amid a downturn in commodity prices, fellow Dentons HPRP partner Maurice Situmorang said.
"What the government should do now, is to find a good price and provide legal certainty," he said.
Insufficient competition in the domestic market due to protectionist measures, as recently witnessed in the country's aviation sector, also lead to problems for industries and customers alike, said Andre Rahadian, another Denton HPRP partner.
In his Indonesia Vision, President Jokowi has vowed to untangle the bureaucracy to remove obstacles to foreign investment.
"Everything that hampers investment must be overhauled, including a slow and complicated bureaucracy, especially money politics," Jokowi said.