IGH cost economy is considered  a real threat to the inter-regional competition in economic development.   Businessmen are  discouraged to start or run their businesses  due to the high cost. High cost economy is indicated by illegal taxes, as well as legal taxes which are in accordance with the rules of taxation but requiring a relatively  higher rate of tax, imposition of double and multi-taxation, and long bureaucracy.        

 

Therefore, this research is proposed to identify the important factors causing high cost economy in Aceh and to describe how they work during both conflict and post-conflict period.                

 

Based on literature studies, economic cost of conflict is potentially to create three effects. Firstly, there will be external and internal displacement of people. Secondly, the government will decrease the national budget for public sector, but make the budget for security sector become higher instead.  Thirdly,  investment risk will also tend to be higher. Thus, it will cause the increase of  investment cost. Fourthly,  productions will no longer be effective. These all are  considered unlikely to promote competitive investment and productions.

 

Lindgren observed that there is a loss of production showing a difference between actual production (percent of actual GDP in conflict) and counterfactual production. Counterfactual production value is the change of  invesment value due to the increase of the budget for military. Such increase might lessen the  potential investments to actually come to the region. Surely, it will slow down the economic development. (Lindgren; 2004).

 

Ra and Singh (2005) accounted for economic cost of conflict and its effect on developmental expenses as to lower in economic development in Nepal; by classifying the periods into three, i.e. ‘no-conflict, ‘conflict’, and ‘high conflict’. Their research found that in “conflict” period (2005-2009), if the governmental expenses decline by 4,4%, GNP will automatically decline by 8,3%. It interprets that the average number of the decline of GNP is 1,7% per year. During ‘high conflict’ period, if the governmental expenses decline by two times lower than that in “conflict period” (8,4%),  GNP will decline  by 10,3%. They conclude- that the average decline of GNP is 2,1% per year.        

 

In addition, Knight (1996) said that war  has significant influence on slowing rate of  investment. According to Collier (1997), GNP per capita declined by 2,2% per year compared with that of the GNP before war. Staines (2004) concluded that during a conflict in 1990, the number of real GNP was 1,7% under the normal rate. But after the conflict, it turned to be 12,3% under the normal rate.

 

Deng (2004) explained that there is a number of strategies for post-conflict economic recovery and reconstruction process in Sudan. Those are institutional infrastructure reconstruction, physical infrastructure rehabilitation, human capital reinvestment, social capital revitalization, and also, improvement of economic development. 

 

This research which was conducted in 2006, held a number of interviews to 300 respondents coming from three districts/cities in Aceh, i.e. Banda Aceh, Aceh Utara, and Langsa. Those respondents are working as businessmen, industrial investor, governmental officers, and business organizations.                                             

 

If we look backward, there was an amazing increase of Aceh GDP from 1982 to 1987 when PT.KKA (Paper Kraft Aceh Industry) was working very productively. This increase reached the number of 800.000.000, but then it turned to be lower gradually , especially from 1989 to 1996, when Military Operation Zone (DOM) took place. Afterwards, from  2000 to 2005, the number of the increase changed to be much lower. But then, it got higher in 1998 as PTPN (State Owned Tree Crop Company) increased its activities in Aceh Timur.

 

Now let us see what was going on from 1968 to 2005. Amazing! Foreign Direct Investment reached out their glory from 1968 to 1980, when PT SAI (Cement) and PT KKA (Kraft) performed their greatest productivities (1968-1980). It was also well supported by the safe condition in Aceh. But afterwards, their productivities were trapped in an up-and-down situation where the productivities went down from 1986 to 1989, and then turned to go up again in 1993 when PT Humpus Aromatic was operating its activities. After that, the productivities changed to be on the decrease in 1994 Even, there was absolutely no productivity 1999 to 2005.

 

There are three influencing factors in the matter of economic development, observed by this research, i.e. (1) bureaucracy, including long and overlapping procedures to get permits, permit costs, and illegal taxes, (2) infrastructures, covering quantitative and qualitative infrastructures for supporting business in Aceh, and (3) stability of security.   

 

Besides the above factors, this research also found a number of factors causing the investment not  growing as smoothly in Aceh. One of the most affecting factors is security, lending 50% of the cause. Then, 25% is due to unfavorable  bureaucracy and 20% by bad infrastructures. The illegal taxes during both military and civil emergency period are also one of the important factors slowing down the economic development in Aceh (71%). During the peace process, illegal taxes turned to slow down (54%).        

 

Apart from the above problems, there is another problem in getting enterprise permit. In fact, the cost for that matter is different with those officially stamped. For example, the real cost of SITU (premises permit) is only IDR 200.000, but in the implementation, the cost  to be paid is IRD 300.000. 

 

Lastly, bureaucracy also plays  bad role in hampering invesment in Aceh. It can be observed by the existing illegal taxes that should be paid in  process (81%), long procedure of permit (70%), high legal cost (60%), and overlapping procedure as well (57%). Strong infrastructures are considered to be very important to stimulate investors to develop their business in Aceh. But the research meets with a lot of low quality of infrastructures which are still existing in Aceh. (Translated by Cut Famelia)