Sat, 04 Jun 1994

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.


"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.


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.


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)