Thu, 19 Jun 2003

'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.