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Jokowi's bid to centralize power stirs Suharto memories

President's plan to cut red tape would take authority from local governments

Former President Suharto ruled Indonesia for three decades using a centralized system of government that neglected developments outside Java and fueled separatist movements.   © Reuters

JAKARTA -- President Joko Widodo's proposed omnibus bill to cut red tape and create jobs has excited investors but rankled critics, who say his plan to recentralize power stirs memories of former President Suharto's authoritarian New Order powers.

The roughly 1,000-page bill, if approved by parliament, would allow Jakarta to reclaim authority from local administrations in the processing of business permits in sectors including mining, energy and manufacturing. Widodo intends for lawmakers to complete their deliberations on the legislation -- a shortcut to amending as many as 79 laws -- in the next few months.

The extent of the planned overhaul is becoming clear as copies of the draft circulate. The omnibus bill would omit clauses in laws that grant governors, mayors and regents authority to process and oversee business permits. Elsewhere, it would alter these clauses in a way that would give power back to the central government.

Some critics say the planned changes could be a set back for the regional autonomy policy that Indonesia, a young democracy, adopted after the fall of the New Order regime in 1998. Suharto's three decades of authoritarian rule were marked by a centralized system of government that neglected developments outside Java -- the country's most populous island -- and fueled separatist movements.

The decentralization policy was aimed at countering a potential breakup of the sprawling archipelago nation.

"True, Indonesia is hyper-regulated," said Robert Na Endi Jaweng, executive director of Indonesia's Committee for Regional Autonomy Monitoring. "And there have been indeed so many problematic bylaws. The omnibus bill with its spirit of deregulating needs to be supported.

"But regional autonomy is a constitutional mandate... a mechanism to resolve conflicts; otherwise there will be a lot of moves to disintegrate. We can't sacrifice it even for something as important as economic growth."

Indonesian President Joko Widodo inspects an area planned to be the location of Indonesia's new capital in East Kalimantan province in December.    © Reuters

The push for centralization is clear in the legislation.

The 2009 mining law reads, "Controls over minerals and coal by the state... are carried out by the government and/or local administrations." But in the bill, "the government and/or local administrations" is replaced with "the central government."

A clause in the 2001 law on oil and gas says, "Working areas to be offered to companies or permanent business entities are decided by the [energy] minister after consultations with local administrations." The proposed bill says the selection of these areas is up to the central government.

Widodo, commonly known as Jokowi, has expressed frustration that Southeast Asia's largest economy has failed to attract manufacturers seeking to relocate production from China to bypass higher U.S. tariffs. While the country rose from 120th place to 73rd in the World Bank's ease of doing business ranking during Widodo's first five-year term, the president's goal is to put Indonesia at No. 40 on the list.

"I will remain committed to creating a better investment climate," Widodo told a business forum in Canberra during a recent visit to Australia. "This time I will try to do that once and for all through the issuance of the omnibus law."

The bill has received positive feedback from the private sector, with many businesspeople having long complained against lengthy procedures and bureaucratic hurdles -- often in the form of overlapping and counterproductive ordinances.

Arthur Simatupang, chairman of the Indonesian Private Electricity Producer Association, said members often grumble about having to submit dozens to hundreds of application documents to bid for power plant projects.

"Businesses have long complained how it takes hundreds of days to process permits here, while in neighboring countries [similar processes] are completed within a month," Simatupang said. "[We're] very supportive of the omnibus bill."

Hendra Sinadia, executive director of the Indonesian Coal Mining Association, welcomes the central government's move to take oversight functions from local administrations. Poor oversight by the latter, he said, has resulted in overlaps such as different companies being granted licenses for the same working areas.

"The lack of oversight also makes it difficult to ensure good mining practices and compliance with environmental regulations," he added.

Some regional leaders, meanwhile, complain they were not involved in drafting of the bill.

The mayor of the West Java city of Bogor went as far as calling the bill "authoritarian," citing a clause that may allow the central government to overrule laws passed by parliament, according to local media. Other critics called the bill "capitalistic," referring to provisions on labor issues, and the Widodo administration a "neo New Order."

Widodo has promised that the central government will hold as many public forums and hearings "as possible."

Fitch Solution analysts say the omnibus bill is "a good step forward" that will help Indonesia attract more funding, and so will be "generally good for the economy."

Anwita Basu, head of Asia country risk research at Fitch, took note of the recentralization concern, but said, "It is worth noting that decentralization has been one of the reasons why it has been difficult to invest in Indonesia."

"Businesses have had to not only negotiate with central government officials but have also had to bargain with local chieftains with vested interests."

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