Benget Simbolon Tnb., Jakarta – Despite fairly free elections at a regional level, democracy in Indonesia is still at the procedural stage, promoting the "practices of a shadow state and informal economy" which could discourage foreign investors, a researcher says.

Syarif Hidayat, a researcher at the Indonesia Institute of Sciences (LIPI) said here over the weekend that procedural democracy – as opposed to substantive democracy, which is indicated by the existence of democratic behavior – would only play into the hands of political and business elites in the country's regencies.

"That's why almost every (election) was dominated by the local elites," he told The Jakarta Post. He said that this led to the practice of a "shadow state" in which the bureaucracy was powerless to deal with the local elites who forced the political process for their own benefit.

It also caused what he termed an "informal economy", in which elites force government officials to manipulate public policies and distort the market mechanism in regencies. He said the undemocratic behavior would generate bribery and corruption, which would in turn prolong the existence of the high-cost economy inherited from the New Order era.

The absence of democratic behavior might also lead to regencies pursuing unproductive projects that did not bring any economic benefit to residents, he said. "How can we manage to attract foreign investors with an absence of legal certainty and market mechanisms?" he said.

Syarif said his views were based on the results of a survey he recently conducted in several provinces, including Jambi, South Kalimantan and Bengkulu, which have seen the establishment of democratic institutions and have governors and regents directly elected by the people.

The government revised the 1999 Regional Autonomy Law in 2004 with an additional regulation governing the direct elections of regents and governors.

But Syarif believes that the 2004 regulation only produced a procedural democracy. The central government needs to make sure that legal enforcement of the law is strictly conducted in the regions as part of the creation of conditions suitable for foreign investors, he says.

Indonesia badly needs foreign investors to stimulate its economy, which has grown by an average of only five percent a year since 1997's economic crisis. The government is currently designing a comprehensive investment law that is expected to draw foreign investment, but analysts have expressed doubt over its success.

Analysts believe that the undemocratic behavior that can lead to legal uncertainty at a regional level in Indonesia is a factor that could hamper the government's efforts to encourage investment.