Door widened for foreign investment

Door widened for foreign investment

JAKARTA (JP): The Indonesian government has significantly
eased restrictions on foreign investors, freeing them from the
minimum capital requirements and ending compulsory equity
divestment for joint ventures.

The new regulations also include a dramatic opening of
seaports, telecommunications, power, railways, civil aviation,
nuclear power and the mass media to foreign ownership. The
strategic nature of these industries was previously given as a
reason to exclude foreign involvement.

Government Regulation No.20/1994 dated May 19, which was
announced yesterday, reduces the minimum equity holding for the
Indonesian partner in a joint venture from 20 to five percent and
removes the compulsory divestment previously imposed on t foreign
partners.

However, wholly-owned foreign companies are still required to
make divest starting in their 15th year, but without any
percentage of shares to be divested yet specified.

New investment

"We need Rp 660 trillion (US$305 billion) in new investment
during the current five year plan and 73 percent of the total is
expected from private investment, including foreign capital,"
State Secretary/ Minister Moerdiono said yesterday when he
announced the regulation.

Industry Minister Tunky Ariwibowo and Minister for Investment
Development Sanyoto Sastrowardoyo who accompanied Moerdiono said
the new policy is designed to make Indonesia more attractive to
foreign investors.

"We are now facing keener competition from such countries as
China, Vietnam, India and other Asian countries in attracting
foreign investments," Tunky pointed out.

Foreign investors have often complained about the severe
restrictions here, notably those related to minimum
capitalization, compulsory divestment and restricted areas of
operation.

Foreign investment commitments in the country declined
markedly last year due apparently to capital turning to "greener
pastures" in other Asian countries.

Prediction

Informed business sources predicted last week that the
government would issue a new package of deregulation soon. The
reform announced yesterday though, only addressed foreign
investment.

"We need to create a lot of jobs to accommodate the estimated
2.5 million new entrants to the labor market," Tunky added in
emphasizing the urgent need to revitalize foreign investment.

Government Regulation No.50/1993, which was revoked by the new
ruling, required foreign investors to gradually reduce their
shareholdings to 51 percent after the 20th year of business and
imposed a minimum capital investment of $250,000 and a minimum
Indonesian shareholding of 20 percent at the start of the
venture.

Government Regulation No.20/1994 lets both partners decide by
themselves any changes in the composition of their share-
ownership.

The new ruling also allows the investors to decide by
themselves the size of their capital outlays based on the
commercial viability of their projects.

The new regulation allows wholly-owned foreign companies to
operate anywhere in the country. This is different from the old
ruling that restricted their operations in remote areas, notably
those in the eastern part of the country.

30-year license

The new regulation specifically sets the validity of foreign
investment licenses at 30 years.

The license can be extended for another 30 years by the
minister for investment development as long as the company still
exists and remains a positive contributor to the economy and the
country's development as a whole.

Foreign companies, be they joint ventures or wholly-owned
foreign enterprises, are allowed by the new regulation to set up
new ventures and to acquire other foreign firms and domestic
companies as long as the acquired firms are not in an industry
closed to foreign investment.

The government will allow existing foreign companies to adjust
themselves to the new provisions. (vin)