Political Economy of Local Investment Climates: A Review of the Indonesian Literature

Transcription

1 Political Economy of Local Investment Climates: A Review of the Indonesian Literature PAPI Background Paper 'Political Economy of the Local Investment Climate in Indonesia' Project * Arianto A. Patunru Siti Budi Wardhani June 2008 A look into investment climate in Indonesia will not be sufficient without a careful elaboration on its political economic ambience. Indonesia is the only country in Asia that radically reformed both its economic and political system in a big bang manner: abandoning both its authoritarian and centralized system and embracing democratic and decentralized system in an abrupt way. Not surprisingly this has significant impact on the political and economic stability. The ability of the government to attract foreign investment to Indonesia is highly dependent on political stability and the ease of doing business in the country (Basri and Patunru, 2008). Political instability, labour problems and local taxes can increase the cost of doing business in Indonesia (LPEM-FEUI 2002a, 2007). Furthermore, there is a growing tendency by the government to collect extra money according to the ability of businesspeople to pay. Parallel with the distribution of power in the bureaucracy through the policy of autonomy, corruption has also been decentralised (Basri, 2004). Although the amount of bribery may be less than in the * For a general literature review, see von Luebke (2007). Arianto A. Patunru, Director of Research, Institute for Socio-Economic Research, Jakarta, Indonesia; Siti Budi Wardhani, Researcher, Institute for Economic and Social Research, Jakarta, Indonesia; We thank Christian von Luebke and Neil McCulloch. 1

2 Soeharto period (i.e. pre-decentralization), it fails to reduce the transaction costs due to the increasing number of officials who have to be bribed. Consequently, business uncertainty increases, the investment climate becomes less predictable, and hence is far from being conducive. High logistics costs, particularly related to customs clearance for imports and exports, reduce the profitability of the tradable sectors, especially manufacturing. In fact logistics costs, including transportation costs and weighting station charges, comprise of 14% of total production costs (LPEM FEUI, 2005a). Unfortunately, manufacturing exporter cannot pass-through the high cost economy completely to consumers, because they are price takers in the world market. As a result, many businesses have to reduce its capacity, lay off its employees, or simply shut down. As for import competing producers, they also suffer from bribery, transportation and weighing station cost which reduce their profitability. As important as it is, one should however not over-emphasize the role of investment climate in explaining the performance of the industry in Indonesia. As Basri and Patunru (2008) argue, improving investment climate is necessary but not sufficient condition. A case study by LPEM-FEUI (2005b) found that Korean companies performed better than Japanese companies in Indonesia despite the fact that both were facing the same problem of poor infrastructure, labor-related impediments, high-cost economy and corruption. As it turned out, a more efficient supply chain management had helped the Korean companies to fare better. While a survey by LPEM-FEUI (2007) found that the perception of business agents regarding the constraints to investment in Indonesia between 2005 and 2007 and between mid-2006 and mid-2007 has improved, the biggest obstacles as perceived by the respondents remained to be macroeconomic instability, 2

3 transportation, corruption and economic policy uncertainty. Whereas the perceptions of infrastructure quality, financial access, and land procurement worsened, certain microeconomic indicators of the business environment showed improvement, particularly in terms of harassment visits and bribes to local officials, as well as the FDI approval time. The deterioration of the investment growth during the first six months of 2006 was therefore mainly driven by macroeconomic instability rather than deterioration of the investment climate itself. In addition, the study reports that the decline in harassment visits and bribes suggests that the on-going anti-corruption campaign might be having an impact at the local level. Furthermore, competition between regions might also help reduce the cost of doing business in those regions. Asian Financial Crisis as the Turning Point The Asian Financial Crisis that took place in 1997 has helped shaping up new paradigm in the Indonesian political economy. The economic crisis had caused the collapse of Suharto s regime and prompted the change from an authoritarian regime into more democratic regime and from a centralized to decentralized country. Prior to the crisis period, the relationship between the government and business group was relatively inclusive. However, when the crisis took place, policy and business uncertainty were very high. This led to a decrease in trust of the business sector towards government and hence caused massive capital flight. Compared to other Asian countries such as Malaysia, Indonesia has a very different political result due to the financial and economic crisis that took place in 1997 (Haggard 2000). In 1998, Indonesia experienced a clash between two groups of ethnics, Chinese and radical Islamic groups. Both represented different position 3

4 within the economy, the Chinese was perceived as the core of the business society and have a close tie with the former President Suharto; while Islam was seen as the group that has more access to the government via Soeharto s successor, Habibie. This situation was considered a key factor that brought up the uncertainty in the business community and resulted in the high capital outflow from Indonesia (and out-migration of many Chinese Indonesian business people). The vulnerable position felt by Chinese conglomerate was foreseen as the lack of trust from the business society to the current government capabilities to solve the crisis, which in turn jeopardized government economic policy. After the collapse of New Order Regime, the opportunity of and demand for a more democratic environment were granted by the issuance of much democratic laws and regulations, such as those dealing with freedom in journalism, anticorruption and elections. This democratization also went so far to reshape the relation between central and local governments in the spirit of decentralization, stipulated by the pressure of regional demand for local authorities to govern themselves, free from Jakarta control. The decentralization was started since the issuance of Law No 22 of 1999 (Regional Autonomy Law) and Law No 25 of 1999 (Fiscal Balance between the Centre and Regions). The urge to adopt a decentralized system was a result of a lengthy discussion around the imbalanced economic growth in Indonesia. Prior to the decentralization era, the development program was considered to concentrate on Jakarta and caused a high welfare gap between Java and outside Java. According to Simarmata, the centralized system adapted by New Order regime had destroyed the social system: the New Order politics of centralized power as set out in Law No. 5 of 1974 on Regional Government had a very destructive impact on local communities and institutions throughout the country. 4

5 The national government hierarchy was extended to the village level by Law No. 5 of 1979 on Village Government, which assigned sole authority for village government to the Village Head (Kepala Desa), a government official. The Village Head and Village Secretary were by law also placed in charge of the Village Community Council (LMD, the village parliament), and the Village Community Resilience Council (LKMD, the village development authority). Under this law, the village was identified as a unit of government, and not a social organization. (Simarmata 2002: 3). The other aspect to the demand for adopting decentralization, according to Simarmata, also rooted in the unfair treatment felt by the regions with natural resource abundance whereby all the revenues from these resources had been collected by central government and districts only received back a limited amount. The international donor institution such as the World Bank also supported the view of decentralizing the politic and economic system (Hadiz 2003). By delegating the authority to the local government, it would bring the public service closer to the people. Decentralization was also viewed as a way to ensure good governance and participatory planning. However, Hadiz argued that those who are in favor for decentralization have failed to capture the political dynamics in the local regions, which later have complicated the decentralization implementation. The dynamics between the central government that tried to maintain the authority and the local government that insisted to be left alone have somehow jeopardized and confused the implementation of regional autonomy: 5

6 [T]his is the case, for example, in Indonesia, where decentralization has resulted in sheer confusion about the distribution of power and authority between different levels of government. Rather than a technical governance issue, the confusion stems from a tug of war between competing interests that has a concrete, material basis. In this specific case, powerful interests entrenched in Jakarta obviously have a vested interest in maintaining some control over local resources and authority over investment policy while attempting to balance this against aspirations for greater local autonomy. On the other hand, local elites (especially at the sub-provincial level) are fully intent on taking direct control over these same resources, typically citing the injustice of past practices that allowed Jakarta to exploit Indonesia s vast riches at the expense of locals. (Hadiz 2003: 11) Decentralization and Investment Climate Issues Decentralization of power that took place in 2001 had brought a magnified impact to the political system in Indonesia. Prior to the decentralization era, the local government acted as a mere implementing agency of central government regulation. The only remaining authority left to the local government was that on the Local Revenues (Pendapatan Asli Daerah, PAD), which was exercised through the issuance of local regulations. The issuance of local regulations aimed to increase the Local Revenues unfortunately turned into a major cause for high cost economy. In line with the implementation of the Letter of Intent between Indonesia and the International Monetary Fund (IMF) in 1997, the central government published Law No. 18 in 1997 that prohibited any regulations that lead to high cost economy. However, with the implementation of regional autonomy through Laws No 22/1999 (Local Finance/ Keuangan Daerah) and No 25/1999 (Central-Local Financial Allocation/ Perimbangan Keuangan Pusat dan Daerah), the demand for revising the Law No. 18/1999 arose. The government finally revised it and issued the Law No 34/2000. (Saad 2003) 6

7 Several findings showed that the implementation of decentralization at the beginning was dominated by the euphoria of exercising control over Local Revenue (SMERU 2001; LPEM-FEUI 2002a). The National Trade and Industry Chamber (KADIN) reported the list of 1,006 local regulations (Peraturan Daerah: Perda) that were considered to be not business friendly. This list was presented to the President Megawati Sukarnoputri in Later, IMF reported 100 local regulations that were considered to be highly problematic and some of them were evoked by the Ministry of Home Affairs as the part of the IMF-Indonesia letter of intent implementation. (Simarmata 2002: 4). A survey conducted by LPEM-FEUI (2002a) in 20 provinces (covering 63 districts or kabupatens) and included 1,935 firms covering manufacture, services, and agriculture studied the investment climate issues in Indonesia including the impact of decentralization. In-depth interviews were conducted with local government officials, regional investment boards or offices dealing with investment, and regional statistic offices. The study investigated factors suspected to increase business uncertainties in local regions, namely infrastructure, local government attitude, socio-political condition, and local autonomy implementation. Using these proxies, the study constructed indices of cost of doing business at the local levels. At the time of the survey, the implementation of Law 22/1999 (Local Autonomy) and Law 25/1999 (Fiscal Balance) was relatively new. It is not surprising therefore that respondent did not have a strong opinion toward the policies. Instead, majority of them accused poor infrastructure and illegal collection (bribery) as the main factors behind business uncertainties. Interestingly, regions with low index on local autonomy (i.e. had problems in implementation of the autonomy law) tended to have higher illegal collection. 7

8 The study also found that one of the main impacts of the autonomy law on the attitude of local government officials was their treating local government ownrevenue (PAD) as the key performance indicator of the implementation of local autonomy. As a result, local governments were racing to increase PAD (mostly via local taxes and retributions) without proper consideration on economic efficiency with respect to both local and national economic development. While there were clear indications of bribery, the study found no evidence to support efficient-grease hypothesis that corruption helps ease business. On the contrary, corruption reduced economic efficiency. The econometric test confirmed that there was a positive (rather than negative, i.e. efficient-grease) correlation between the times needed by private business to entertain visits of government officials (a proxy for harassment) and the amount of bribe they had to pay. On average, respondents paid 10 percent of total production cost to bribery. Interestingly, they said that they were willing to pay additional tax of 8.7 percent of the total production cost to get rid of illegal collection. This alone suggested that bribery had become major impediment, as the average bribe was higher than the tax increase respondents were willing to accept to increase business certainty. It is also interesting that those who got squeezed the most were medium-scale businesses. The study explained that this class became the main target of harassment by government officials simply because it was easier and more rational to do. There was not as much rent to be extracted from smaller businesses. As for the bigger businesses, government officials seemed more reluctant to harass them, as they usually had close connection with political leaders who might as well be the officials superiors. 8

9 The other study by LPEM-FEUI (2002b) was conducted to analyze how local governments (and local actors in Indonesian cities) could assist in growing their local economies and in reducing poverty through local economic development given the opportunities and challenges presented by the newly decentralized regime. The study focused its investigation on six cities/kabupatens, namely Malang, Semarang, and Bandung in Java, Makassar in Sulawesi, Palembang in Sumatera, and Pontianak in Kalimantan. These areas represented advanced industrial cluster, with three categories of business index (based on the 2001 LPEM-FEUI s Cost of Doing Business survey): high (Malang and Semarang), medium (Makassar and Palembang), and low (Pontianak and Bandung). The study consists of four components: economic analysis, business needs analysis, local government analysis, and intermediaries role analysis. In doing so, the team surveyed micro, small, medium, and large businesses (about 235 business respondents overall) as well as government officials (governor, mayor, regents, head of key regional offices, and intermediaries (financial institutions, training institutions, bankers, NGOs, etc). Arguably the most interesting finding from this study is that there was a little correlation between economic growth and business climate. Malang, for example, was one of the best performers with regards to the cost of doing business survey, yet its growth was behind the other five cities. In contrast, Palembang that fared worse than Malang in cost of doing business grew significantly higher above Malang. Of all the six cities investigated, only Makassar showed a consistent co-movement of growth and business climate. Another interesting finding is that the correlation between business climate and the availability as well as the quality of basic infrastructure was rather strong. The better the infrastructure is, the more likely business sector express dissatisfaction due 9

10 to the burden of bureaucratic red tapes and new retributions. Java cities fared better in infrastructure than their off Java counterparts. It is therefore not too surprising that the main priority of business sector in Bandung, Semarang, and Malang was the streamlining of business regulation and lowering of burden from retributions. In contrast, business sector in Palembang, Pontianak, and Makassar concerned more with basic infrastructure. The study also found that there were large gaps between strategic plans ( Renstra ) and budget allocation. The vision documented in Renstra was usually ambitious and rhetorical. Yet, 70 to 90 percent of local government budget is allocated for routine expenditure. This was higher than 50 to 60 percent norm in Soeharto s era. The study concluded that the main interest of local officials in the six cities was self-welfare. The promise to maintain and to improve regional competitiveness was therefore a mere lip service. The number of local regulations has a high correlation with local governments objective to increase Local Revenue. With regional autonomy, the key issue was fiscal decentralization. Districts with natural resource abundance will obviously have no problem since they will receive transfer from the central government. However, for those that lack the natural resources, the local governments have no options but to rely on the Local Revenue. The local revenue usually comes in the form of local taxes and user-charges, which are legalized by the local regulations. (Simarmata 2002:5; Henderson and Kuncoro 2004) These revenues were used to finance operational costs and salary of the officials, including the members of local parliamentarian (Dewan Perwakilan Rakyat Daerah, DPRD). This condition had created incentives for DPRD members to approve issuance of Perdas leading to 10

11 increase in the amount and number of local taxes and user-charges that can be collected. DPRD has a very significant influence to the political economy of the district. According to the law, DPRD has the right to approve and veto the regulation proposed by local government including the local budget proposal. According to the PP (Government Regulation) No 110/2000 on the Expenditure Budget of DPRD, the budget of DPRD is set at 5% of local revenue. This regulation thus has provided incentives for DPRD to increase local taxes and/or user charges. A study by von Luebke drawing from a survey in several districts in Central Java (Kebumen and Klaten) and West Sumatra (Solok and Pesisir Selatan) showed that business people dissatisfaction toward local parliament attitudes had increased significantly (von Luebke 2006) In addition to the unclear business regulation, corruption was also another issue arose from the decentralization. Large number of red tapes created by the need to increase local fiscal capacity had opened the opportunity to corruption. Henderson and Kuncoro (2004) argue that the fiscal decentralization has forced districts/cities to rely on the local incomes to strengthen the bureaucracy i.e. financing daily operational and salary of local officials. The lack of capabilities has then made the local government enact red tapes to create additional income. This high number of red tapes links closely to the high amount of corruption and briberies. Henderson and Kuncoro found that the local districts with high transfers (DAU/DAK) from central government are less likely to impose red tape. The study also found that the largest amount of red tapes appear in the form of licenses which were imposed in two aspect, the application process and the monitoring process. The application process of business licenses is unclear and complicated, thus resulting in 11

12 business decision to bribe the officials for easing up of the process. The officials also monitored business for the licenses that they have for the expiration and the completeness of the licenses. Usually managers or owners have to spend a significant amount of time just to deal with harassment visits by the local officials. As a consequence, they bribe them to speed up the process and to reduce hassles. A number of nationally-scoped studies had found that corruption in Indonesia was far worse than that in other developing countries in the region. Hill (1999) pointed out that the main cause of Indonesia s against the crisis was the New Order s centralistic governance that at the same time was heavily characterized by corruption. MacIntyre (1999) further added to the list the fragile banking and financial regulation. Kuncoro (2002) was among the first to warn that corruption culture had expanded to the local bureaucracy. Henderson and Kuncoro (2004) also concluded that following the massive decentralization the number of corruption and bribery cases had also increased. Motivated by corruption studies on Indonesian national level, Riyanto (2008) extended the analysis into the local ( regional ) levels. Riyanto looked into the relation between corruption and political economic and cultural factors at the local levels. He proxied political economic factors with, among all, corruption index, quality of bureaucracy, transparency of public services, etc. Many of these political economy proxies were drawn from a survey conducted by The Committee for Monitoring of the Implementation of Regional Autonomy or KPPOD (2005). As for the cultural factors, based on previous social studies, he used dummy variables to characterize whether or not a region was considered feudalistic or paternalistic. He also conducted three case studies (mainly with FGDs and interviews with stakeholders, including 90 firms) in the regencies of Solok (West Sumatra), Sukoharjo 12

13 (Central Java), and Kutai Kertanegara (East Kalimantan) to look further into the processes of budgeting as well as regulation making in the local level. The three regencies were selected in purposive manner, based on KPPOD data, to represent different nature of regencies: good institution and relatively egalitarian (Solok); bad institution and less egalitarian (Sukoharjo); and resource-rich and bad institution (Kutai Kertanegara). Riyanto found that 1) political economic factors significantly contributed to the prevalence of corruption in the local level, and increased in the aftermath of decentralization; on the other hand social/cultural factors were less significant they affected more directly on the quality of bureaucracy rather than directly on corruption index ; 2) corruption was evident even in the early process of budgeting with the interplay between the executives and legislatives, and 3) district that was characterized by implementation of good governance (Solok) had less corruption cases compared to those that were not (Kutoharjo and Kutai Kertanegara). It is also interesting to note that Riyanto found that leadership mattered: the higher the leadership quality (a KPPOD index) the lesser the corruption prevalence. Another study by von Luebke found that bribery on public employment (PNS) selection process has also resulted in the high corruption done by local bureaucrats (von Luebke 2006: 23). Interviews done in several districts in Central Java and West Sumatra showed that there were proofs of link between bribe done by candidates of public officials and the amount of illegal fund collected later during their service. The bribe was therefore considered as an investment, which was often funded by loans, thus should be repaid later once he or she took office. Since the salary and official rewards are not sufficient to repay the loan back, the government officials (PNS) then took the money from corruption and illegal payments for the public officials. 13

14 The condition then created deterioration to the local investment climate. Business complained about the lack of clarity in regulation and variation of licensing procedure combined with high amount and large number of user charges applied. In other words, the decentralization that was expected to give rise of better public service instead had also prompted rent seeking attitude. Regional autonomy had been seen as a factor that caused business uncertainty to increase. The major contributors of the uncertainty were political situation, regional autonomy implementation and government attitude towards business. The power shifting towards parliaments and local government have an impact to the business sector. Prior to the decentralization era, it was less complicated to do business in Indonesia. Good relationship with central government used to be enough to guarantee strong relationship with local government, but that was not the case in the decentralization era. Regional conflicts and labor issue are also considered as the main causes of the political changes in Indonesia (LPEM-FEUI 2002a) The findings of the LPEM-FEUI survey also showed that the uncertainty caused by regulation and licensing, along with the tax and charges burden had become the primary constraints faced by non-farm enterprises. However, at the micro level of investigation, it is found that the burden caused by local tax have less impact compare to the cost of dealing with licenses and regulation. In terms of taxation, investors complaints focused on the very low significance of tax and charges collected by the local government. It is also important not to overlook the difference between investment climate in urban areas and that in rural areas. The former is dominated by large and medium size enterprises, while the latter by more of smaller size firms (i.e. micro- and small enterprises). This latter group employs majority of Indonesian workers. Therefore, if 14

15 the objectives of investment climate improvement are increase in economic growth and improvement in people s welfare, this group should not be overlooked. Logically, any pro-poor economic development should bias toward sectors or regions where the poor population is dominant. In the case of Indonesia, as also evident in almost every other country, this means rural areas. With this motivation, the World Bank in cooperation with LPEM-FEUI conducted a survey of rural investment climate in Indonesia (World Bank, 2006) covering 2,700 households, 700 small and microenterprises and 150 communities in rural areas in six main districts. Most of the firms surveyed were informal enterprises that were not registered with the local governments. Their markets were mostly limited to the area where the firms are located. The survey found that there was indeed significant difference between investment climate problems faced by medium and large urban enterprises and those faced by micro and small enterprises at rural areas. The main constraint for the latter group was the lack of demand, followed by insufficient access to credit and poor transportation facility/infrastructure. As mentioned above, the main problems faced by the former group include macroeconomic instability, policy uncertainty, and corruption. Therefore focusing improvement on tackling only these problems faced by urban, large firms might not help much for those smaller firms in rural areas, let alone to invite new investment. 15

16 Concluding Remarks The brief review above might give a false impression that decentralization was a bad decision. This is of course not the case. Obviously decentralization also induces good improvement in many aspects. Even though it has brought up some degree of adverse effects to the investment climate, it also creates competition among districts, which forces the local government to think carefully about implementing regulations that are unfriendly toward business sector. There were also some initiatives to speed up licensing process by the establishment of one stop services or OSS (ADB 2005). There are some examples of local government initiatives in the establishment of OSS but the most striking one would be that of Sragen, Central Java. Dominated by agriculture sectors and SME, in 2001 the new head of district with assistance from ADB promoted the One Stop Service (OSS) to improve the investment climate within the district. The OSS has significantly improved the time to obtain local licenses in Sragen and economy has also improved within time. This kind of initiative also took place in several districts with high variation and it was regarded as an effect of decentralization. The important question then is what has made the districts to come up with such initiative? Was the initiative introduced by the business sector, by local government or by head of district as the leader? What would be the motives to implement an investment friendly attitude within the district? It seems that the leadership of mayor (bupati) as the head of district plays a key role that has brought upon business friendly attitude in the district level (von Luebke 2007). There are strong positive impacts of leadership of the head district toward local regulations, license administrations and fairness in public tendering process while there is on the other hand a strong negative impact toward bribery related to the permit. Meanwhile, 16

17 the same study showed that business voice has a slightly weaker position in the license administration and tender process and insignificant effect to the regulations and bribery. From the study, it can be concluded that the leadership factor i.e. the head of district (bupati/mayor) plays a dominant factor compared to business sector to the improvement of business/investment climate. The extent to which this leadership factor influence the business climate should be put in the context of the relation between the leader (or in general, the policy makers) and the private entities. Another dimension that needs to be examined further is what factors other than leadership that gives rise to a fruitful relationship between public action and private initiatives. This cries out for more research into the political economy dimension of the investment climate in the local levels. Understanding the interplay of political actors, executives, and business communities at large is important to provide a more balanced picture of investment climate. It also provides fairer assessment on the impact of relatively new policy such as decentralization. As argued by Azis (2007), the outcome of decentralization depends very much on the local accountability and other institutional settings, e.g., local capture, people s participation, pro-growth incentive system. 17

18 References Asian Development Bank and World Bank (Joint Report), Improving the Investment Climate in Indonesia, Asian Development Bank, Indonesia. Azis, I.J., Disappointing Results After Six Years of Decentralization. Paper presented at the international seminar on decentralization Six Years of Indonesia s Decentralization, Nikko Hotel, Jakarta, July 4-5, Basri, M.C After Five Years of Reformasi : What Next? In M.C. Basri and P. van der Eng (eds.), Business in Indonesia: New Challenges, Old Problems. Singapore: Institute of South East Asian Studies. Basri. M.C., and Patunru, A.A., Indonesia s Supply Constraints. Background paper for OECD Economic Survey on Indonesia. Hadiz, V.R., Decentralisation and Democracy in Indonesia: A Critique of Neo- Institutionalist Perspectives, SEARC Working Paper Series No 47, Hong Kong Hagaard, S., The Political Economy of Asian Financial Crisis, Institute for International Economics, Washington DC Henderson, J. V. and Kuncoro, A., Corruption in Indonesia, Working Paper No , National Bureau of Economic Research. Hill, H., The Indonesian Economy in Crisis: Cause, Consequences, and Lessons. Singapore: Institute for South East Asian Studies KPPOD, Daya Saing Investasi Kabupaten/Kota di Indonesia [Investment Competitiveness of Indonesian Districts]. Jakarta: KPPOD. Kuncoro, A., Corruption and Economic Growth in Indonesia. Ekonomi dan Keuangan Indonesia XLX(1). LPEM-FEUI, 2002a, Construction of Regional Index of Doing Business, Universitas Indonesia, Jakarta LPEM-FEUI, 2002b. Local Economic Development Urban Competitiveness Study. Report in collaboration with The World Bank. LPEM-FEUI. 2005a, Inefficiency in the Logistics of Export Industries: The Case of Indonesia. Report in collaboration with Japan Bank for International Cooperation (JBIC), Jakarta. LPEM-FEUI, 2005b. SCM Strategies of Korean Electronic Companies in Indonesia: in Comparison with Japanese Companies. LPEM-FEUI, Monitoring Investment Climate in Indonesia: A Report from the Mid 2006 Survey, Report in collaboration with the World Bank, Jakarta. MacIntyre, A., Political Institutions and Economic Crisis in Thailand and Indonesia. ASEAN Economic Bulletin 15(3): von Luebke, C., Political Economy of Local Investment Climate: A Review of the Literature. PAPI Background Paper. IDS, University of Sussex. 18

19 Riyanto, Korupsi dalam Pembangunan Wilayah: Suatu Kajian Ekonomi Politik dan Budaya (Corruption in Regional Development: A Political Economic and Cultural Analysis), doctoral dissertation, Bogor Institute of Agriculture (IPB) Saad, I., Implementasi Otonomi Daerah Sudah Mengarah Pada Penciptaan Distorsi dan High Cost Economy, SMERU Working Paper, Jakarta Simarmata, R., Regional Autonomy and the Character of Local Government Laws and Regulations - New Pressures on the Environment and Indigenous Communities. Perkumpulan Pembaharuan Hukum Berbasis Masyarakat dan Ekologis, Jakarta. SMERU Research Institute, Otonomi Daerah dan Iklim Usaha: Temuan dari SMERU, Jakarta von Luebke, C., 2006, Politik Ekonomi Peraturan Daerah tentang Usaha di Daerah: Temuan tentang Praktek Perpajakan dan Prosedur Perijinan dari Empat Kabupaten di Jawa Tengah dan Sumatera Barat [Political Economy of Local Regulations on Business: Findings on Tax Practices and Licensing Procedures in Four Districts in Central Java and West Sumatra]. RICA, Indopov World Bank, Jakarta. von Luebke, C., Local Leadership in Transition: Explaining Variation in Indonesian Subnational Government, Doctoral Philosophy Thesis, Crawford School of Economic and Governance - Australian National University, Canberra, Unpublished. World Bank, Revitalizing the Rural Economy: An Assessment of the Investment Climate Faced by Non-Farm Enterprises at the District Level. RICA, Indopov World Bank, Jakarta. 19