We welcome, yet with qualifications, the 15th reform package that focuses on the utterly inefficient logistics service, dubbed the main cause of the economic uncompetitiveness given the poor execution of earlier reforms. Even though the reforms were issued last Thursday after five months of delay, the package consists mostly of general directives that have yet to be translated into technical details and require the amendments of several presidential decrees and many ministerial regulations.
Chief economics minister Darmin Nasution himself acknowledged when launching the measures that one or two additional reform packages would still be needed to complete an overall reform of the logistics industry that covers transportation, freight forwarding, seaport handling and storage (warehousing).
But this package is at least on the right track because it emphasizes deregulating and streamlining bureaucratic services within the industry, expediting the Indonesian national single window (INSW) scheme at port handling, simplifying licensing requirements and removing foreign equity restrictions in joint venture logistics companies.
The litmus test for this reform is the effectiveness of the implementation of the INSW program, which was launched in 2007 in light of Indonesia’s commitment to the ASEAN NSW program, but was virtually stalled by lack of ministerial coordination and cooperation.
INSW represents a major effort at facilitating trade by expediting the clearance of goods across Indonesia’s borders by simplifying and streamlining customs clearance and cargo release procedures involving 18 ministries and institutions. When fully established, traders and government agencies will be able to process all official export/ import documents through a single point of contact.
President Joko “Jokowi” Widodo must set his mind on this logistics reform as strongly as he has been pushing with the massive infrastructure development program, which has removed one of the sources of inefficiency in logistics. The current reform package is also designed to eliminate other main barriers such as excessive regulations, red tape and corruption.
Inefficient port handling and sea transportation hinder connectivity between the islands, depriving least developed regions of links to growth centers on other islands and making it very difficult to connect resource producing regions on the outer islands such as Sulawesi, Kalimantan, Papua, Maluku and Nusa Tenggara to the more developed major islands, Java and Sumatra.
This connectivity problem has hindered the development of manufacturing industries on the sparsely populated outer islands because manufactured products have to be transported either to Java and Sumatra or the international market. However, inefficient sea transportation makes the supply chains extremely fragmented and prevents the integration of manufacturing companies into the global value chains.
This package should also address the problems arising from the highly fragmented regulatory environment, where each service component of the logistics system requires a permit from different institutions and is subject to different laws and regulations.