JP\/13\/Y-Invest<\/p>\n
Investment climate still weak; brighter outlook ahead<\/p>\n
Dadan Wijaksana
\nThe Jakarta Post\/Jakarta<\/p>\n
Despite all the efforts to help revive the business climate
\nhere, little improvement has been made this year as direct
\ninvestment remains weak and is struggling to get back to the pre-
\ncrisis level.<\/p>\n
While signs of improvement are apparent, direct investment
\nlags way behind the rapid pace of recovery seen in portfolio
\ninvestment in the stock market, which until early December was
\nthe best performer in Asia.<\/p>\n
Although domestic investment approvals were on the rise in the
\nJanuary-October period this year as compared with the same period
\nin 2003, the Investment Coordinating Board (BKPM) reported that
\nforeign direct investment (FDI) approvals dropped by 11 percent
\nduring that period.<\/p>\n
Overall, however, net investment in the country rose by 8.3
\npercent during the first semester, much higher than the 0.4
\npercent posted during last year's second semester.<\/p>\n
As of October, domestic investment approvals had risen by 46.6
\npercent to Rp 28.8 trillion compared to the same period last
\nyear. However, FDI approvals fell to US$8.85 billion from $9.94
\nbillion despite a rise in the number of foreign-funded projects
\nto 969 from 876.<\/p>\n
FDI is very important to the country, it not only helps create
\nnew jobs, but also provides financing for the development of
\nprojects, especially for infrastructure, which are crucial to
\nensure sustainable economic recovery.<\/p>\n
Various studies by both domestic and foreign experts have
\nconfirmed that the unfavorable business climate is attributable
\nto the sluggish growth in investment.<\/p>\n
For instance, the World Bank, and its private lending arm the
\nInternational Finance Corporation (IFC), have pointed out that
\nlegal uncertainty, security issues, and poor implementation of
\nregional autonomy were all major turn-offs for investors --
\nadding to the already die-hard problems of endemic red tape and
\ncorruption.<\/p>\n
"Despite signs of recovery, Indonesia's investment climate
\nremains weak compared to regional competitors," the World Bank's
\nDoing Business Survey 2005 showed.<\/p>\n
It pointed out as an example that it takes 151 days in
\nIndonesia to start a business due to the long process of
\nlicensing, against 33 days in Thailand, 30 days in Malaysia, 56
\ndays in Vietnam, 50 days in Philippines and 41 days in China.
\n(see table)<\/p>\n
The report said that, to reach a 6 percent growth in the
\nperiod 2007-2008 -- "on the assumption that the pace of reform is
\nat a historical average, investment growth would need to average
\napproximately 20 percent."<\/p>\n
Investment was one of the country's main economic engines
\nbefore the late 1990s financial and political crisis. Now,
\ninvestment accounts for less than 20 percent of the country's
\ngross domestic product (GDP).<\/p>\n
In the latest economic data released by the Central Statistics
\nAgency (BPS), investment accounted for 18.3 percent of GDP in the
\nthird quarter of the year.<\/p>\n
Still, one would be forgiven for thinking that the prospect of
\ninvestment in times to come is not that bleak.<\/p>\n
The remarkably peaceful, democratic, and trouble-free
\nelections this year should send out strong signals to the
\ninternational business community that the country can proceed
\nwith its democratic process, without shaking up the political and
\nsecurity stability.<\/p>\n
Many experts have said that the election would pave the way
\nfor the return of investment to the country, due to rising
\ninvestor confidence in Indonesia.<\/p>\n
Investors and industry players are also encouraged by pledges
\nmade by president-elect Susilo Bambang Yudhoyono and his
\nadministration, that efforts to boost the investment climate
\nwould top his list of priorities.<\/p>\n
Among other measures, the government will soon be introducing
\na one-stop investment service, which is expected to help cut the
\ntime needed to obtain necessary licenses in opening a new
\nbusiness.<\/p>\n
Under the new concept, investors will only have to send an
\napplication form to the BKPM, which will handle the processing
\nwith related offices, including investment authorities at the
\nregional level.<\/p>\n
This is a further development of the existing one-roof system,
\nunder which investors still have to go a number of agencies,
\naside from the BKPM in order to get approvals for their business
\nlicenses, despite the fact that they are all coordinated by the
\nBKPM.<\/p>\n
Progress has also been made in the form of legislation that
\ncould positively affect the investment climate, most of which
\nshould be credited to the previous administration of president
\nMegawati Soekarnoputri.<\/p>\n
For instance, the high-profile Bankruptcy Law was amended in
\nSeptember, which requires the approval of the minister of finance
\nto declare an insurance firm bankrupt.<\/p>\n
Many hailed the amendment as a step forward in addressing
\nconcerns of investors, sparking optimism that controversial cases
\nsuch as those against giant foreign insurance firms Manulife and
\nPrudential would no longer occur.<\/p>\n
Another piece of legislation was the Decentralization Law,
\nwhich was seen to have posed more obstacles than incentives for
\ninvestment. The long-awaited amendment of the law was endorsed by
\nthe House of Representatives in September.<\/p>\n
The amendment to the Fiscal Decentralization Law should also
\nopen up more opportunities for investors to invest funds in the
\nregions, as it allows local governments to issue bonds in rupiah
\nas long as they gains approval from local lawmakers and the
\nminister of finance.<\/p>\n
All of the above should lay the foundation for an upbeat
\noutlook on the country's investment showing in the near future.
\nIt could have even been brighter had the drafting of the crucial
\ninvestment bill gone smoothly.<\/p>\n
BKPM chief Theo Toemion said that the investment bill, which
\npromises some "sweeteners" and ensures equal treatment for local
\nand foreign investors, was crucial to speed up investment
\nrecovery.<\/p>\n
However, the process has been stalled because of various
\nreasons, including "sectoral ego" that prevails among certain
\nministries -- perhaps knowing that their authority would be
\nreduced if the bill becomes law.<\/p>\n
"We are facing tough competition from other countries in
\nattracting investment. Any incentives or sweeteners would help us
\ncompete with them," Theo said.<\/p>\n
One such sweetener includes the removal of an existing ruling
\nrequiring foreign investment companies to divest part of their
\nshares to local investors after a certain number of years of
\noperation.<\/p>\n
Also, the bill aims to scrap the 30-year limit on the validity
\nof business licenses for foreign investors, allowing them to
\ncarry on their business as long as they deemed economical. It
\nwill also lift a ruling that foreign investors divest their
\nprojects to local partners after a certain period.<\/p>\n
Acknowledging the slow progress in the drafting of the bill,
\nthe World Bank urged an acceleration of the process to "provide
\nthe legal framework for both domestic and foreign investors."<\/p>",
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