New car policy an aid to investment

JAKARTA (JP): A senior official yesterday defended the government's controversial national car policy, saying that it will not have an adverse effect on the flow of foreign investment into the country.

The Investment Coordinating Board (BKPM)'s deputy chairman for industry assessment and licensing, Wardijasa, said that foreign investment approvals have actually increased since the policy was introduced in February.

"Our data shows that foreign investment approvals are on the increase," Wardijasa said after a ceremony for the signing of a memorandum of understanding on investment cooperation between BKPM and small and medium-scale South Korean industries.

According to BKPM data, the government approved US$11.2 billion worth of foreign investment projects during the first three months of this year. Last year saw $39.9 billion worth of foreign investment projects approved.

Under its national car policy, the government will provide tariff and tax breaks to PT Timor Putra Nasional. The company, owned by President Soeharto's youngest son Hutomo Mandala Putra, will develop a national car under the Indonesian brand name "Timor" in cooperation with Kia Motors Corp. of South Korea.

Industry analysts fear that the policy, which they view as inconsistent with other government policies, will slow the flow of foreign investment into the country.

According to the Econit economic advisory group, Toyota Motors of Japan and its Indonesian partner have postponed their plans to invest US$500 million here to boost their vehicle production capacity. The Indomobil Group, the second largest car assembler in Indonesia, has also canceled its plan to invest some $100 million.

A number of local car assemblers have expressed their interest in developing "national" cars to benefit from the tariff and tax exemptions. They include the Indomobil, Bimantara and Buana groups.

However, the government has decided that Timor Putra will be the only firm to get the exemptions, which it will enjoy for a duration of three years.

Wardijasa said that none of the companies interested in developing a national car have submitted proposals to his office.

"If there is a new proposal we will study it for sure," Wardijasa said. "However, I think it is better to allow this one (Timor Putra) to grow and develop first."

He said that the new policy, which links the tax and tariff facilities to local content requirements, will attract more investment into the automotive component industry.

The government requires Timor Putra to develop its car with a local component content of 20 percent by the end of the first year of operation, 40 percent by the end of the second year and 60 percent by the end of the third year.

Wardijasa said that component manufacturers from a number of countries, including South Korea, Taiwan, Japan, Germany and the United States, already have made investment commitments.

He declined to mention the value of their investment plans, saying only that his office "has approved many new investment projects to produce automotive components".

"When we have our weekly meetings on Tuesdays, we always hear reports on new component investment projects," Wardijasa said. (rid)