Indonesia Being a part of it
Chandra A Nataadmadja and Stella A Nataadmadja of Suria Nataadmadja & Associates present a primer on investment in Indonesia
ment has increased by 30.2% on an annual basis to Rp56.1 trillion ($5.92 billion) in the second quar- ter of 2012. The FDI increase was stable at 30.3% in the first quarter, mainly supported by invest- ments in mining and base chemicals. On July 5 2012, the United Nations Conference on Trade and Development stated in an annual survey that Indonesia ranked fourth among FDI destinations due to a stable political climate, vast natural resources and a large consumer market, the first being China, followed by the US and India. This shows that Indonesia is making leaps towards progress and eco- nomic development. It is not surprising that the Indonesian economy has maintained steady growth despite the euro-
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zone debt crisis and the slowing economies of other countries. The protectionist nature of the Indonesian authorities and the lack of dependency on other countries in terms of export and import have allowed Indonesia to come out of the recent global financial turmoil relatively unscathed. This increase in FDI is not, however, due to loosening up created by the nation’s policies, but rather by the introduction of government regulations that limit the freedom of foreign investors. These new rules include a new bank-ownership law that caps single ownership of Indonesia’s banks in some cases at 40%. There are those who rightly claim that these new rules and regulations are protectionist in nature; however, authorities argue that they are simply trying to ensure that the latest economic boom trickles down to all parts of the economy. It is not unique for a government to seek profit from a booming economy and a successful industry such as mining. This could be seen when the Indonesian government asked the mining company Freeport McMoran Copper & Gold to pay higher royalties on its Grasberg mine and reduce its stake in the company’s Indonesian unit. The company had already been subject to a 25% mining tax (which will be increased to 50% in 2013). Despite all this, Indonesia is still attracting an abundance of foreign and domestic investors, allow-
ing for a bright future in foreign and domestic investment. To understand the state of foreign direct investment in Indonesia one must first look at the histo-
ry of the nation. During the south-east Asian financial crisis of 1997, Indonesia was not exempted from the harsh economic meltdown that affected the region. During this time, Indonesia went through dramatic political turmoil that shifted its political stance from the harsh dictatorship of Suharto, that had lasted 32 years, into becoming the democratic nation we see today. Although there were many disadvantages caused by the Asian financial crisis, the silver lining of this incident was that in an attempt to attract a flow of foreign capital and investment, the Indonesian government opened up industry sectors which were previously closed to foreigners and implemented legislation aimed at making certain aspects of business, such as mergers, consumer rights, antitrust and bankruptcy, more efficient and transparent. This has helped both the Indonesian community and foreign investors hop- ing to become a part of the rising economy of the quickly developing country.
Legal and regulatory framework There are many laws regarding foreign direct investment in Indonesia, the earliest being Law No. 1 of 1967 regarding Foreign Investment, and Law No. 6 of 1968 regarding Domestic Investment. More recently, however, the government has declared that Law No. 25 of 2007 regarding Investment super- sedes the previous laws in regard to investment, although all three are still used today. In comparison
www.iflr.com IFLR|FOREIGN DIRECT INVESTMENT 011 “ It is not unique for
a government to seek profit from a booming economy
”
ith the recent events of the global recession mainly occurring in the West, investors are looking to the East in hopes of reaching a booming middle class and an abundance of natural resources. The Indonesian government has announced that foreign direct invest-
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