Thu, 10 Jun 2010

From: The Jakarta Globe

By Irvan Tisnabudi & Faisal Maliki Baskoro
In a bid to attract more foreign investment, the government announced on Wednesday that it has opened the door to a range of sectors a little bit wider.

Coordinating Minister for the Economy Hatta Rajasa said the president had signed a decree revising the negative investment list (DNI), easing restrictions on foreign investment in sectors such as construction, health care and electricity generation.

“This decision will give foreigners more assurance about investing in Indonesia,” Hatta said.

However, telecommunication towers, a highly attractive sector poised to boom, remains completely off-limits to foreigners.

With its huge population and strong domestic demand, Indonesia is increasingly attractive to companies overseas. However, limits on foreign participation, as well as corruption, infrastructure problems and bureaucratic hurdles, have deterred many investors.

The decree will allow foreigners a greater stake in the country’s economy, but only by degrees.

It permits, for example, foreign companies to own 67 percent of construction businesses, up from 55 percent.

Meanwhile, foreign companies will be able to own 67 percent stakes in hospitals nationwide, up from 65 percent in specific health-related enterprises that were restricted to a few cities.

Desperate to address a power shortage, however, the government has granted foreign investors the right to own up to 95 percent of joint ventures in power plants with a capacity above 10 megawatts.

Meanwhile, in movie production, the government is allowing foreigners to own 49 percent of such companies, up from zero.

But the government has heeded fierce opposition from domestic companies opposed to allowing foreign investment in cellular towers, keeping the sector off limits.

There was also no change in the postal services sector, where foreigners will still be limited to 49 percent ownership.

In some industries, investors from Asean member countries will be given preference over those from outside the grouping.

Asean investors in maritime cargo-handling services, for example, are now allowed to own 60 percent of joint ventures, while others are limited to 49 percent.

“This is one of the steps taken to further show Indonesia’s commitment to be a vital part of the Asean economic community,” Deputy Trade Minister Mahendra Siregar said.

After the announcement, Gita Wirjawan, chairman of the Investment Coordinating Board (BKPM), said LG Electronics and Caterpillar were among foreign companies interested in raising their stakes in Indonesia, at least partly because of the new rules.

Ichsanuddin Noorsy, an economist at Gadjah Mada University, questioned the effectiveness of the changes.

He said health care, construction and film-making were not strategic sectors where foreign investment was crucial.

“The 2 percent increase in the hospital sector is not significant,” he said. “Investors are more concerned about the property sector. I doubt that foreign investors would invest heavily in the film-making industry.”