Tempo
No. 48/VIII/28 July - 04 August, 2008 
Economy & Business 
Local Economic Governance 
Big May Not be Best 




A survey of businesses in 243 regencies and cities in Indonesia show that big 
administrations may not be the best provider of facilities for attracting 
business and investment. 


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BLITAR Deputy Mayor Hendro Hernowo was all smiles when he mounted the podium to 
receive the award for the best performing local administration in 2007. The 
city of 1.3 million people in populous East Java had beaten other, much bigger 
municipalities to win top recognition for providing the right climate to 
attract investment and developing businesses. While Blitar was named first 
among the top 10 best performers, the North Sumatra capital of Medan ended up 
as one of the survey's 10 worst administrations. 

The recently launched Local Economic Governance in Indonesia report, last 
year's poll of more than 12,000 companies and 29 business associations in 243 
regencies and cities, produced quite a few surprises. Like Medan, none of the 
other supposedly 'developed' cities, such as Surabaya, Makassar or Yogyakarta, 
made the top 10 list either. The economic indicators used in the survey covered 
a wide range of topics-access to land and security of tenure, ease of business 
licensing, local government and private sector interaction, business 
development programs, the capacity and integrity of the mayor or regent, tax 
structures and other transaction costs, infrastructure, security and conflict 
resolution, and bylaws and regulations. 

It was the sixth survey to be carried out since 2001 by the Regional Autonomy 
Watch (KPPOD), in collaboration with USAID and the Asia Foundation in Jakarta. 
"The last five surveys covered general conditions for a positive investment 
climate from the perspective of endowments," said KPPOD Chairman Dr Bambang 
Brojonegoro and Dean of the University of Indonesia's Economic Faculty. "This 
is the first time we focused on governance, on how local administrations manage 
issues." 

Much of the stress was on how facilities, infrastructure and regulations were 
successfully capitalized on, maintained and improved so that existing 
businesses grow and new investors come in. In other words, the study is 
intended to measure the degree of initiative and innovation that local 
governments bring into play in promoting their areas. 

There is no monetary reward for winning the top prize, but over the years the 
survey has triggered enough neighborhood rivalry to induce ambitious local 
governments to raise their standards. Bambang hopes that if nothing else, those 
on the list of the 10 worst administrations will be shamed into more positive 
action. In fact, a few disgruntled losers actually offered inducements to get 
their names deleted. 

There might just be something to the one-upmanship the survey creates. Out of 
the 10 best performers, six came from regencies and cities in East Java 
province, while fully seven of the 10 worst performers were in North Sumatra. 
"If your neighbor is doing well, you tend to do as good if not better than him, 
and conversely, if you are in an area where nothing much is happening, you lack 
the motivation to do anything new," Bambang noted. Indeed, geographical 
proximity could well be a significant factor in determining how hard-working 
local officials can be. 

Finance Minister Sri Mulyani Indrawati, who gave the keynote speech at the 
award-giving event last week, provided an intriguing insight into the issue of 
fiscal decentralization. She noted that up until mid-July, her ministry had 
recommended that 28 percent of about 7,200 regional or local regulations 
(perda) on taxes and retribution (PDRD) be abolished or revised. The same 
action has been advised for a whopping 66 percent of proposed regulations. Most 
of the bylaws cited by Sri Mulyani were in the transportation and 
communication, agriculture, public works, industry and trade, and forestry 
sectors. Not surprisingly, the worst offender among eight provinces cited was 
North Sumatra. 

Conflict areas like Maluku and Papua were not included in this year's study, 
although a special survey of regencies and municipalities in Aceh is being 
planned for sometime this year. 

Sri Mulyani told the winners that she would recommend to the cabinet that they 
be given special recognition by the central government. But what will be 
interesting to observe is how the results will be received at the local level 
and whether they will impact on the next round of provincial and district 
elections after the KPPOD goes on the road to socialize the study. 

Yuli Ismartono 

10 Best All-Round Performing Regents/Cities 
1.Blitar, East Java 
2.Magetan, East Java 
3.Prabumulih, South Sumatra 
4.Musi Banyuasin, South Sumatra 
5.Jembrana, Bali 
6.Tuban, East Java 
7.Lumajang, East Java 
8.Madiun, East Java 
9.Probolinggo, East Java 
10. Gianyar, Bali 

10 Worst All-Round Performing Regents/Cities 
1.South Nias, North Sumatra 
2.Labuhan Batu, North Sumatra 
3.Rokan Hilir, Riau 
4.Nias, North Sumatra 
5.Rokan Hulu, Riau 
6.Bima, West Nusa Tenggara 
7.Asahan, North Sumatra 
8.Karo, North Sumatra 
9.Medan, North Sumatra 
10.Tanjung Balai, North Sumatra 

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