FOR ADVERTORIAL purposes

FOR ADVERTORIAL purposes

A stable investment partner for Indonesia

Investors from the EU have traditionally shown a strong
interest in Indonesia. Reforms in Indonesia's Foreign Direct
Investment (FDI) regulations, which took place in 1994, triggered
a substantial increase in investment activity by EU companies.

From 1995-1998, Europe (including EFTA and Eastern Europe) was
the largest foreign investor in Indonesia. This predominant
position has been maintained over a longer period of time: since
1967, when FDI flows were first measured, the EU has consistently
been the largest investor in Indonesia according to the
Indonesian Investment Coordinating Board (BKPM).

This confirms the deep-rooted economic and other historic ties
that exist between Europe and Indonesia. As such, Europe has
proven to be among the most stable and reliable partners of
Indonesia, both in trade and in investment.

Even so, the economic and monetary crisis did have an adverse
impact on overall FDI. Many projects, especially those involving
large infrastructure works, were canceled or postponed. Investors
reacted to increased uncertainties by adopting a cautious and
wait-and-see approach.

Despite this adverse scenario, European investment flows kept
coming, although at a smaller scale. In the crisis year of 1998,
and while Indonesia experienced an overall net FDI outflow, the
EU was the only part of the world with a net FDI inflow into the
country, of approximately US$600 million.

Research indicate that a structural characteristic of EU
investment in Indonesia is its focus on the domestic market as
final destination for products and services. This distinguishes
European investors from their Asian counterparts, who have
concentrated more on developing export-oriented industries, such
as garments and consumer electronics.

For their part, American investors can be found mostly in the
oil and gas sectors.

Evolution

The evolution of European investment in Indonesia will largely
depend on the implementation of recent policy measures approved
by the Indonesian authorities. The tendency towards increased
openness to foreign investment is expected to continue. There is
also the hope that under the new government, the regulatory
environment for FDI will improve.

Two main areas of concern remain. The first one is the growing
importance of China as destination for European investment. This
is a growing trend that will likely be reinforced by the recent
accession of this country to the World Trade Organization. In the
short term this could lead to a displacement of European and
Western investments towards China at the expense of other Asian
countries. However, in the medium term, the increasing
integration of the Asian economies could also be a factor for
additional investment in countries like Indonesia.

The second issue of concern is linked to the current
international situation following the Sept. 11 attacks. These
events came at a time where the major world economies were only
starting to recover, and have reinforced the uncertainties faced
by foreign investors.

A gradual stabilization of the international political climate
and the recovery of the global economic growth will certainly
help the redirection of investment flows towards the emerging
economies in South East Asia.