Indonesia's one-stop permit shop to cut investment red tape

Permits from ministries such as mining, forestry and transport will be moved to the investment coordinating board, said Coordinating Minister for Economic Affairs Sofyan Djalil in an interview with Bloomberg TV Indonesia in Jakarta. Indonesia needs to improve its bureaucracy so regulations don’t get in the way of development, he said on Oct. 31 in his first week on the job after being appointed by President Joko Widodo.

“I hear a lot of complaints relating to permits,” Widodo, known as Jokowi, told reporters at the state palace in Jakarta today following a meeting with regional governors.

The president said he directed them to set up one-stop permitting at the provincial level and gave them a one-year deadline to comply, adding that they will face penalties if they don’t.

The plans signal the first efforts by Jokowi to tackle the red tape that led the World Bank to place the country 155th out of 189 economies for the ease of starting a business. Investors have bought nearly $4 billion of Indonesian stocks this year on hopes Jokowi will replicate his policies as governor of the capital in shaking up the bureaucracy, moving tax collection online and kick starting infrastructure in Southeast Asia’s largest economy. Jokowi is a “hands on” manager, Djalil said.

“The President wants a one-stop service to be one stop in reality,” Djalil said in the interview at his ministry in central Jakarta, adding that he aims to complete coordination with the relevant ministries in two to three weeks. “Right now, regulations are very expensive. People doing business require so many licenses.”

Currently, foreign investors need dozens of permits from different departments including the investment board for approval to start operating. They have to go to various ministries for permits for land use, import duties and exports. Companies that want to explore for oil in the archipelago need 289 permits, according to the country’s main energy regulator.

“The idea is always good but the execution is always determined by action plans they have in place and what sort of concrete steps they will do,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc.

One-stop permitting would require “very strong coordination” between the ministries and the investment board, he said.

Foreign direct investment rose 16.9 percent in the third quarter from the same period a year ago, the same pace as the previous three months, according to data from the Investment Coordinating Board, or BKPM. Total investment increased 19.3 percent. The country posted a $270 million trade deficit in September, the fifth monthly shortfall this year.

The country needs to boost domestic production to overcome the deficit and achieve Jokowi’s target of 7 percent economic growth, Djalil said. A priority is to improve irrigation to lift food output, and the government plans to revise next year’s budget to focus more on rural infrastructure, he said.

Jokowi tapped Djalil, a former state-owned enterprises minister, to coordinate 10 ministries including finance, trade, public works, forestry and environment and manpower. He was an independent commissioner at Jakarta-based brokerage Trimegah Securities, and has a doctorate from Tufts University, Massachusetts, according to Trimegah.

Each day in Jokowi’s team is like a year, he said.

“Ministers come and go, like appointments with the doctor,” Djalil said, referring to Jokowi’s meetings. “It already feels like four years. Working like this is very challenging, very interesting.”

More than 10 percent of the current 2015 budget is allocated for fuel subsidies, an issue that also needs urgent reform, Djalil said. The government will raise subsidized fuel prices this month, yet hasn’t decided the magnitude of the rise, Djalil said today.

The government will re-allocate savings from the fuel program to increase subsidies to farmers to help them buy fertilizer and seeds to achieve self-sufficiency in food within three years, Jokowi said today.

“Seventy-one percent of people who are enjoying the subsidy are middle-up class consumers,” Jokowi said. “This is our economic challenge going forward.”