'Uncertainty over investment law deters investment'

'Uncertainty over investment law deters investment'

Adianto P. Simamora, The Jakarta Post, Jakarta

Despite the improving political stability and strengthening
macroeconomic indicators, many foreign investors remain reluctant
to make new investments in the country due to uncertainty over
the issuance of a long-awaited new investment law, Chairman of
the Investment Coordinating Board (BKPM) Theo Toemion said.

"There have been positive progress in other areas, but
investors are still waiting for the (new) investment law," he
told lawmakers on Wednesday during a hearing session with the
House of Representatives Commission V on industry and investment.

Theo said that the draft of the investment law, which was
planned seven years ago, had been submitted to the Ministry of
Justice and Human Rights and was now in the hands of the office
of the State Secretary.

The new law will replace Law No. 1/1967 on foreign investment
and Law No. 6/1968 on domestic investment.

Under the draft law, the BKPM will be tasked to set up a one-
stop service for providing investment licenses in a bid to speed
up the licensing process and cut down on the bureaucracy. This
role is apparently opposed by some ministers and regional
administrations who would lose their licensing authorities.

Another controversial article of the bill involves a proposal
to provide investment incentives, including tax holidays, to lure
investors, which has been rejected by the Ministry of Finance.

The draft law also aims to ensure equal government treatment
to both foreign and domestic investors.

"This indicates that the government does not have the
political will to attract new investments to the country,"
legislator Irmadi Lubis said.

He urged the government to immediately submit the draft to the
House for deliberation.

Attracting new investments is seen as crucial in pushing the
country's economy to grow at its potential growth rate of 6
percent per year, in order to absorb the millions of people made
jobless by the late-1990s economic crisis. The government
projects a meager 4 percent growth for this year.

Analysts have said that the hard gained appreciation of the
rupiah against the U.S. dollar, the declining interest rate and
the benign inflation environment had not been able to lure a
significant amount of new investments due to lingering problems,
such as a weak legal system, rampant labor protests and smuggling
activities.

Theo said, however, that there had actually been positive
progress in resolving these problems.

For the past several years, investments -- particularly
foreign direct investments (FDIs) -- have been on a declining
trend. In 2002 for example, FDI approvals dropped by 35 percent
to US$9.7 billion from $15.06 billion the previous year, while
domestic investment approvals plunged by 57 percent to Rp 25.26
trillion from Rp 58.62 trillion.

The BKPM reported that realized investment in the first five
months of this year reached $918.2 million, out of $4.02 billion
in approvals. It did not provide a comparative figure for the
same period in the previous year.