Wed, 14 Apr 2010

From: Reuters

By Doug Palmer
WASHINGTON, April 13 (Reuters) - The United States and Indonesia signed an agreement on Tuesday paving the way for increased U.S. investment in Southeast Asia's largest economy and the world's fourth most populous country.

The agreement establishes a framework that "will allow a lot more capital to be deployed in Indonesia when the U.S. is ready" to take that step, Gita Wirjawan, Indonesia's chief investment coordinator, told Reuters.

"This will be important. It signifies that the U.S. view is rather different now in Indonesia," Wirjawan said.

The new agreement updates a 1967 pact between the United States and Indonesia by adding direct loans, co-insurance and reinsurance to the products the Overseas Private Investment Corp (OPIC) can provide to support U.S. company investment in Indonesia.

"Indonesia offers a large and dynamic market for U.S. investment, which in turn will support Indonesia's economic growth," said Lawrence Spinelli, acting president of OPIC.

Indonesia had hoped to sign the agreement last month during a planned visit by President Barack Obama. But that trip was scrapped when Obama decided to stay in Washington to lobby for final passage of healthcare reform.

U.S. companies now have about $18 billion worth of investment in the Muslim-majority country, with those funds heavily concentrated in the energy and mining sectors.

But Indonesian government actions have created problems for investors in both sectors in recent years.

Indonesia also maintains "significant and far-reaching foreign investment barriers" in many areas, including pharmaceuticals, telecommunications, health care, financial services, express delivery and education, according to the U.S. Trade Representative's office.


U.S. Commerce Secretary Gary Locke, in a March speech, said "economic nationalism, regulatory uncertainty and unresolved investment disputes" caused U.S. companies to hesitate about doing business in Indonesia.

Wirjawan acknowledged past problems, but said Indonesia is taking steps to become more investor friendly.

"We're not perfect, but we've fixed a lot of problems in the past five years," he said.

Indonesian President Susilo Bambang Yudhoyono will soon sign a decree clarifying a confusing set of laws governing foreign investment and opening up priority sectors for American companies, such as the creative industry, he said.

"We're opening up healthcare, which a number of American companies have been wanting to invest in ... We're opening up the education sector. We're opening the logistics sector. That's by virtue of a presidential decree," he said.

Indonesia also plans substantial investment in infrastructure and power projects over the next five years that should create opportunities for U.S. companies willing to get into the market, he said.

Locke will lead a clean-energy trade mission to Indonesia in May and Obama's visit to the country where he spent part of his youth has been rescheduled for later this year.

OPIC, over its 39-year history, has committed more than $2.1 billion in financing and political risk insurance to 110 projects in Indonesia.

Currently, OPIC is providing more than $94 million in support to six projects in Indonesia, in the energy, manufacturing and services sectors.