Government to ease foreign investment restriction

Government to ease foreign investment restriction

JAKARTA (JP): The government, trying to grapple with the drop
in foreign capital inflows, plans to ease restrictions on foreign
portfolio and direct investment.

Ginandjar Kartasasmita, the state minister for development
planning, told around 200 businessmen from the six members of the
Association of Southeast Asian Nations (ASEAN) in a meeting
yesterday that deregulation will be necessary if Indonesia is to
continue to compete with the rest of Asia.

He said Indonesia needs to review its existing policies, which
restrict foreign participation on the capital market to 49
percent of listed shares. The regulation was designed to prevent
foreign takeovers of domestic companies.

"To the extent that domestic companies are better corporate
citizens and have the interests of their own nation at heart more
than a multinational corporation would, the ceiling is
justified," he said.

Ginandjar, also the chairman of the National Development
Planning Board (Bappenas), however added that in today's
increasingly global economy, it is no longer certain if domestic
companies are any better for the nation than foreign firms.

Being a guest can induce a level of social responsibility
equal to that of many domestic companies, he said, adding that as
more domestic companies move overseas the distinction between
foreign and local firms will be blurred.

The two-day meeting, held by the ASEAN Business Forum, is
discussing business opportunities, global trade and
infrastructure development.

Deregulation

Ginandjar said that reviewing the foreign ownership
restrictions on direct investment, especially in areas like
commodities, will be part of the government's next deregulation
step.

The measures will also include decentralizing the decision
making process to reduce costs, minimize red tape and end delays,
he said.

"In particular, it is expected that these reforms should
attract more small-scale foreign investors," he said. "In the
past, our policy favored large investors over small investors to
prevent small foreign companies from hurting small domestic
firms."

In fact, the experience has shown that small-scale foreign
investors can stimulate the growth of small-scale domestic
companies by opening up new markets to them, showing them new
skills and designing new high-quality products which appeal to
overseas consumers, said Ginandjar, who is a former chairman of
the Investment Coordinating Board.

Last October foreign ownership restrictions on direct
investment were revised to allow foreign investors to own 100
percent of a company if it operates in isolated areas, in
industrial bonded zones, in intermediary manufacturing or has a
paid-up capital of at least $50 million. Full ownership, though,
is allowed for 10 years of commercial production at most, with
the exception of industry in isolated areas.

Business analysts say that the October policy is not
attractive enough, because it does not really open the door for
small-scale investors or abolish mandatory divestment.(hen)