Ease of Doing Business

AP PHOTO/MARK SCHIEFELBEIN

A Chinese investor checks stock prices on his cellphone at a brokerage house in Beijing, Friday, Dec. 4, 2015. Asian stocks sank Friday, extending a sell-off in world markets after Europe\'s central bank unveiled plans to stimulate the continent\'s ailing economy that fell short of investor expectations.

Good enough is no longer enough. This expression is quite relevant to explain the decline in Indonesia’s position in the World Bank’s Ease of Doing Business Index to 73rd rank in 2019 from 72nd rank in 2018. Last year, Indonesia became one of 10 countries with the most progress, as indicated by the drastic increase in its ranking from 106th in 2016 to 91st in 2017 and 72nd in 2018. In three years, we managed to leap by 34 spots. Unfortunately, the 2019 ranking dropped.

Indonesia has made more efforts to improve the ease of doing business. However, other countries were more progressive so, even though our scores in the index actually increased, our ranking dropped. In the 2019 index, our score totaled 67.96, up by 1.42 from last year’s. However, the scores of other countries rose higher. For example the score of Afghanistan rose by 10.64, Djibouti by 8.87, China by 8.4, and India by 6.63.

President Joko Widodo is known to be very progressive in making changes. However, in the fourth year of his administration, his progressivity declined. First, global turmoil put considerable pressure on the domestic economy. Second, the dynamics of domestic politics are intensifying ahead of the 2019 elections. As a result, focus on the reform in the economy has declined. This is the challenge we have to face.

The transformation process usually has a cycle. At the initial stage, it is usually quite progressive, then it slows down in next stage (one of them is due to resistance from various parties), before finally falling significantly. Naturally, the cycle of change is in the form of an inverted U-letter formation. The critical point usually occurs during the slowing phase so that harder efforts are needed push up the cycle of change back again.

Countries with the highest increase in scores can be categorized into two. First, there is the group of countries that has not changed much. So, although they only made a few changes, their scores increased significantly. Secondly, large countries, such as China and India, have to make significant changes due to external pressures.

Global change

The change is one of, if not the only way, to survive uncertainties. In the past two years, the world has been clouded by uncertainties, not only in the economic field, but also in politics, social issues and culture (civilization). Therefore, this period is one of the best moments to make improvements in various fields. This situation has prompted many countries, including China and India, to make progressive transformations.

In the midst of the escalation of its trade war with the United States, China has become one of the most progressive countries in changing their domestic economy. The Chinese Ministry of Commerce just held a major exhibition for six days at the China International Import Expo (CIIE) in Shanghai. This big event was rather unusual. Most countries usually hold an international exhibition to promote their exports, while China did the opposite, holding it to promote imports.

Shang-Jin Wei, the former chief economist at the Asian Development Bank, who is also a professor at Columbia University, wrote an interesting article on the Project Syndicate website (6/11/2018) about this policy. The point of the article: China is a labor-rich country, not only in absolute terms, but also compared to other resources. Now, the wage rate in China is around 85 percent of the global average. The massive entry of imported goods, especially those produced by capital-intensive industries, is expected to change the landscape of China\'s domestic industry.

Capital-intensive industries will move to other countries because they are unable to compete with imported products, while labor-intensive industries will grow more rapidly. As a result, China\'s exports will increase because the domestic economy will grow optimally thanks to its comparative advantage. From Wei\'s research, policies that eliminate barriers to trade and investment will always benefit China.

KOMPAS/HERU SRI KUMORO (KUM)

A. Prasetyantoko

There are two lessons for us. First, policy reform must be carried out as part of a grand strategy in facing a shift in the global situation. Without a clear direction, we will only be swayed by uncertainties that will continue in the next few years. Second, the reforms that are being carried out by almost all countries to support their domestic economy will in turn give opportunities for other countries.

China has introduced a policy that encourages some companies that are no longer competitive in the country to move overseas, and invites investors to replace them. For us, the policy offers an opportunity to attract investment in some industrial sectors that are no longer competitive in China. However, we must compete with Vietnam, Thailand and Malaysia, whose rankings in the Ease of Doing Business Index are better than ours.

There is no other way to survive in this increasingly dynamic situation but to further reform the domestic business environment progressively on basic aspects, not just procedural.

A. Prasetyantoko, Lecturer at Atma Jaya Catholic University Jakarta