Foreign investors need judicial security

By T. Mulya Lubis

JAKARTA (JP): It is only natural that there should be some euphoria after the announcement of Government Regulation No. 20/1994 (PP 20/1994), which opens up the Indonesian market wider. It cannot be denied that this is the regulation that has been most anxiously awaited by foreign investors, and logically the new decree should make Indonesia more attractive.

I do not believe that PP 20/1994 will make Indonesia the sweetheart of foreign investors because their first love is still China, and possibly also Vietnam. But it does not seem exaggerated to say that the Indonesian maiden will not be too lonely and certainly there will be more attempts to seduce Indonesia.

Generally speaking it can be said that PP 20/1994 provides foreign investors with diverse opportunities which so far have been closed or contingent on links with domestic investors. Now, foreign investors can control 100 percent of their investment without being limited by minimum investment requirements and without obligation to invest only in eastern Indonesia.

Should a foreign investor wish to form a joint venture, it will be possible for him to retain 35 percent of the shares. What makes it even more attractive, virtually no divestments will be required. His majority share ownership position could practically be maintained. Thus, any fears that he will eventually be pushed aside by his local partner become totally unfounded.

What is also interesting is the opening up to foreign investors of public sectors such as seaports, shipping, commercial aviation, electricity, telecommunications and the mass media, all of which have been considered off limits. The "negative list" that has so far barred the free entry of foreign investments has thus been disposed of. Moreover, PP 20/1994 allows an expansion of ventures by acquisition of take-over of other businesses, or to set up affiliate companies. Market shares can thus be enlarged. In this country, foreign investors need have no fear of anti-monopoly or anti-oligopoly measures.

Another aspect of PP 20/1994 is the simplification of investment procedures and easing of restrictions with regard to location. Location in bonded and industrial zones are no longer mandatory. This is most helpful since foreign investors can now choose their own locations and do no longer have to deal with high costs imposed by the owners of such zones.

This deregulation package must therefore be welcomed, particularly in the light of the adjustments which we have to make to accommodate the globalization trend and the GATT requirements. However, it must in all honesty be admitted that deregulation alone is not enough. Foreign investors, particularly those with long-term business operations, demand political stability and legal certitude. Foreign investors need a climate of security. Therefore efforts must be made to make sure that such a climate of security prevails and the only way to do this is by ensuring legal certitude. This means that our laws must be conducive to the achievement of such a climate and this must be supported by the presence of a clean, fearless and authoritative judicial apparatus.

Any neglect to ensure such a legal certitude will discourage foreign investors from investing their capital in Indonesia. In addition, we must also promote the emergence of a government that is clean of corruption and manipulation. Our economy must not be a high cost economy. If this situation continues, foreign investors will be reserved in investing their capital in Indonesia.

In essence, the problem of economic growth is not merely one of luring foreign capital. Of no less importance is the provision of legal protection for investors as well as the presence of a free, clean and authoritative judiciary. It is in this context that we must view the PP 20/1994 regulation. Not all views that are critical of the regulation must be regarded as being against foreign capital and against deregulation. We accept foreign capital and deregulation. However, we must keep in mind that PP 20/1994 without strong legal guarantees could very well turn the regulation into an empty and meaningless document.

We have entered an era of regard for the law. The time has come that the factor of law becomes a determining element in this country's economic development efforts.