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Government Regulation No.50/1993, which was revoked by the new ruling, required foreign investors to gradually reduce their shareholdings to 51 percent after the 20th year of business and imposed a minimum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)