New policy on foreign investment gets mixed reactions

New policy on foreign investment gets mixed reactions

JAKARTA (JP): The opening of a variety of strategic industries
to foreign investment has met with overall approval from
observers, but many remain skeptical about the government's
commitment to making deregulation work.

They said yesterday that the new regulations, permitting
foreign firms to run seaports, telecommunications, power,
railways, civil aviation, nuclear power and the mass media,
however, should be followed by adjustments of other rulings.

The government announced the measure in Government Regulation
No. 20/1994 on Thursday in a bid to prevent foreign capital from
turning to more attractive countries in Asia.

"It would be nice work if you can get it," said the director
of the Indonesian Business Data Center, Christianto Wibisono.

Christianto said that red tape and protectionism will surely
soon hamper the deregulation.

Economist Rizal Ramli also stressed that the new regulation
will not be effective if red tape still discourages foreign
investors to put their capital in Indonesia.

Government officials said that Indonesia needs US$305 billion
in investment during the current Five Year Development Plan
(Repelita VI), 73 percent of which is expected to come from
private sector companies, both foreign and domestic.

The new regulation also reduces the minimum equity holdings
for the Indonesian partner in a foreign joint venture from 20 to
five percent.

Encouraging

"It is very encouraging," said the manager of HongkongBank,
Peter Atkins.

Bernd Gottschalk of Mercedes-Benz and Alexander Chen, the
chief Taiwanese representative in Indonesia, also hailed the new
regulation.

They were quoted by Antara as saying yesterday that the new
rules will make Indonesia more attractive to foreign investors.

According to Christianto, the government cannot avoid
liberalizing the economy as the enforcement of the General
Agreement of Tariffs and Trade (GATT) is just around the corner.

He said without these sorts of measures Indonesia will be
outpaced by other growing economies like China, Vietnam and India
in attracting capital.

Atkins said, "The regulation makes it easier for investors to
come to Indonesia."

Meanwhile, Chen noted that "Taiwanese firms will surely feel
more safe to invest in Indonesia."

Atkins, however, added that the definition of divestment needs
to be clarified.

The regulation requires foreign companies to reduce their
equity starting in the 15th year of commercial operation, but
sets no specific figures on the amount of divestment required.

The State Minister for Investment said Thursday that one
percentage point will be enough Indonesian ownership after 15
years.

Competition

Legislator Thomas Suyatno said that the new regulations will
make the economy more efficient.

Suyatno, also the vice chairman of the Association of Private
Domestic Banks (Perbanas), commented that the regulation will
fight the high-cost economy and will spur more business
competition.

Christianto, who is a former journalist, also hailed the
government's decision to allow foreign investors to get involved
in the press business.

"Theoretically, it means that in the morning we can have
Jakarta editions of The New York Times, The Wall Street Journal
and Yomiuri Shimbun," he said.

He added that the regulation will surely benefit Indonesian
readers and create a competitive atmosphere among the media.

"It will be more difficult for the government to close down a
newspaper or to revoke a press license. Foreign companies will
surely file a law suit against such a practice," he said.

Impact

Hendrawan Supratikno, the dean of the school of economics at
the Salatiga-based Satya Wacana Christian University in Central
Java, however, stressed that the regulation is like a double-
edged sword.

Hendrawan said it will cut inefficiency and create
competition, but on the other hand, as it permits foreign
corporations to enter certain sectors dealing with public
utilities, it may kill small and middle scale businesses.

Ramli also stressed that the regulation may attract small
Japanese companies to come to Indonesia to avoid the depreciation
of the Japanese yen. "It will create a fierce battle," he said.

According to Hendrawan, foreign corporations are not only
equipped with better technology and management but also powerful
personalities.

Citing an example, Christianto pointed out the popularity of
Singapore-made cellular telephones among Batam Island residents.

The new ruling will allow not only Batam residents but also
people throughout Indonesia to buy the Singaporean telephones.

Christianto doubted whether the state-owned PT Telkom is
prepared to compete with its Singaporean counterpart.

"Telkom sells cellular telephones at Rp 20 million ($9,280)
each while the Singaporean company only Rp 2 million,"
Christianto said. (09)