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Indonesia prepares deregulation package to woo foreign investors
Shawn Donnan from Jakarta

Indonesia's government is working on a deregulation package intended to boost foreign direct investment (FDI) in south-east Asia's largest economy, officials have said.
The package is designed to address concerns that President Susilo Bambang Yudhoyono -- who celebrated his first anniversary in office on October 20 -- has failed to deliver improvements promised for Indonesia's ailing investment climate.
"We have tried to address the macroeconomic issues. Now we have to focus on getting investment really going," Mari Pangestu, Indonesia's trade minister, said in an interview with the Financial Times.
"We've already begun that process. But the major response [from investors] so far has been 'stop saying and start doing'."
Mrs Pangestu, other officials, and government advisers said ministers had been asked to identify unnecessary regulations and find other ways to simplify bureaucracy. The government aims to release a policy package early next year.
The initial focus, they said, would be on areas such as customs, licensing, and tax. The aim would be both to demonstrate tangible progress to investors while reducing the influence of a powerful Suharto-era civil service, which has proved a barrier to reforms.
FDI has shown real signs of recovery this year for the first time since the 1997-98 Asian financial crisis, with approvals topping $10bn during the first nine months. That figure, however, remains well below the levels exceeding $30bn that Indonesia attracted before the crisis.
As an example of what is planned in the new deregulation measures, officials cited a recent compensation package for business that accompanied the rise in government-set fuel prices on October 1. That package included reduced tariffs on imported sugar for the food and beverage industry and a halving of the number of weigh stations on Indonesian highways to reduce the informal tolls on trucking companies.
Now "we have to enlarge its scope and deepen its magnitude", said Rizal Mallarangeng, a spokesman for Aburizal Bakrie, the chief economic minister.
However, questions remain about Jakarta's capacity to deliver such a policy package.
A draft tax law originally intended to be more business-friendly has resulted in a revolt by the country's main business group after it was apparently hijacked by the head of the tax office, one of Indonesia's most powerful bureaucrats. People close to the government also say they are watching the dispute as a sign of how much control Mr Yudhoyono can exert over bureaucrats.
"If [the draft tax law] goes through without any changes then clearly that's not a good signal," said one senior official.
There are some signs that Mr Yudhoyono's anti-graft efforts are yielding changes in the civil service. One study found that bribes and other informal taxes in Indonesia had fallen to 6.0 per cent of business costs from 10 per cent previously, said Chatib Basri, a University of Indonesia economist who advises the government.
Exclusive to FE under syndication arrangement