Nusa Dua, Bali – Having steered its new Investment Law through parliament, the government's next step will be to lay out the red carpet for local and international investors by easing the bureaucratic obstacles to doing business in Indonesia.

"We want to convert the red tape into a red carpet," Muhammad Lutfi, chairman of the Investment Coordinating Board (BKPM), told the Indonesia-Australia Business Conference on Tuesday.

The board is now working to slash the number of days needed to satisfy bureaucratic requirements in areas like starting a business, securing licenses, registering property, paying taxes, trading across borders, exporting, importing and enforcing contracts, Lutfi said.

He recognized that Indonesia was trailing behind its neighbors in attracting foreign direct investment, but said the new Investment Law, enacted in April, along with improvements in BKPM administration, would help redress that.

The former entrepreneur, recruited by President Susilo Bambang Yudhoyono to lead the investment agency, appears to mean business.

"If Indonesia currently ranks 135th in the world in terms of the ease of doing business, we should be in 55th place this time next year," he said, qualifying his statement, however, by saying that this was provided that other countries did nothing to improve their own investment climates.

That could be a dangerous assumption given the fierce competition among Asian countries to attract foreign direct investment. China has been taking the lion's share, followed by India, and other Southeast Asian countries like Malaysia, Singapore and Thailand.

Vietnam, a relative newcomer, has been the most aggressive in laying out the red carpet, slashing the time and cost of starting and doing business.

Improving the investment climate was one of the 2004 election promises of President Yudhoyono. But while he succeeded in introducing the new Investment Law, a new taxation reform package is still a work in progress. Meanwhile, the government has completely given up on reform of the labor legislation, another main bone of contention among investors.

Lutfi gave some examples of where bureaucratic improvements would be made, largely through the introduction of a one-stop service and better coordination with local administrations.

To start a business, 12 procedures are currently involved and these take 105 days to complete. The government hopes to slash this to three procedures taking a maximum of 23 days, bringing Indonesia up to 63rd place from 168th at present

As for securing licenses, 19 procedures and 196 days are required. This will be reduced to 8 procedures and 103 days, which will bring Indonesia up to 33rd place from 99th at present.

Lutfi outlined the main features of the new Investment Law, which include equality of treatment, no minimum capital requirements, freedom to repatriate investments and profits, better legal guarantees, new dispute settlement mechanisms and better investment services.

One area of concern in the new Investment Law is the so-called negative list of sectors that are off-limits to foreign investors. Lutfi said the government was currently discussing this issue with the representatives of business organizations.

The government was also looking at introducing fiscal incentives, ranging from tax allowances, tax deductions and possibly even tax holidays, he said, adding however that there was some resistance within the administration to the idea of extending tax holidays.

On the labor front, he said the BKPM, with the agreement of the labor unions, plans to introduce specific packages of regulations in areas designated as a special economic zones, which, if successful, would be replicated in the rest of the nation.

Indonesia's investment climate seems to be improving, and Lutfi said that the value of investment commitments this year had reached the 1997 level, when Indonesia was struck by the Asian financial crisis.

The BKPM, which approves investment licenses outside the oil/gas, mining and financial sectors, approved US$19.51 billion worth of new domestic investments between January and October, up significantly from $15.96 billion in the same period of 2006.

The figure for foreign investments, which usually takes its cue from domestic investors, was even more impressive. The BKPM approved $36.75 billion during the 10 month period, compared with $13.29 billion for the corresponding period of 2006.

The two-day conference of the Indonesian Australian Business Council ended Tuesday.