Indonesia Must Welcome Foreign Investors for Economy to Fulfill Potential: Experts

Jakarta Globe, Antara & Irvan Tisnabudi, March 28, 2010

The government must ease restrictions on foreign investors and overcome fears about opening up domestic markets to access the massive amounts of funding needed to build crucial infrastructure and stimulate growth, analysts, foreign envoys and government officials have said.

Indonesia is far ahead of the curve in terms of economic performance compared to rivals both regional and global. But to a large extent, the country’s brisk growth has been supported by household spending and high commodity prices that drive exports. Investment, especially from overseas, has lagged behind neighbors because of policies that make it frustrating to do business here.

Gita Wirjawan, chairman of the Investment Coordinating Board (BKPM), has said $140 billion to $150 billion in investment is needed over the next five years to retool the nation’s infrastructure and achieve the president’s target of 7 percent annual growth. The government, however, will only be able to provide as much as $60 billion of the total.

Ross O’Brien, corporate network director of the Economist Intelligence Unit, said at a seminar last week that he doubted local investors could cover the financing gap, making the need for overseas capital even more pressing.

Complicating this, however, was the government, which he said lacked the transparency and desire to transform the investment climate for the better, especially for foreigners.

“For something that should be as straightforward as investing, the Indonesian government, in my opinion, still lacks the consistency needed in order to make the process of investing easier,” O’Brien said.

He added that the government was dragging its feet in opening up the economy, pointing to the negative investment list’s (DNI) heavy restrictions on foreign participation in many industries.

“The negative investment list could bring in much needed investment to specific sectors but I don’t see the government trying its best to [make it happen]. Not all sectors will eventually be opened to foreigners and I think that’s a shame,” he said.

Despite the government relaxing investment road blocks in the health care, agriculture and creative industries, it still restrict foreigners from tapping 23 sectors such as telecommunication towers, broadcasting and alcoholic beverages, Gita told Reuters this month.

Responding to O’Brien’s criticism, Gita said the government had made a maximum effort to open the economy to foreigners, including cutting red tape to improve the investment climate. He said that the government deserved credit for lifting restrictions on the health care industry, in which foreign ownership of hospitals had been limited to a few cities such as Surabaya and Medan.

As part of reforms to attract investors, Gita said the BKPM was simplifying business licensing procedures. “At BKPM we now issue licenses faster. It previously took 30 to 40 days but now it can be done in seven days and five hours,” Gita said.

He acknowledged, however, that land acquisition and building permits still posed serious obstacles.

Zhang Qiyue, the Chinese ambassador, said Indonesia could learn a lesson from her country, where foreign direct investment has been the catalyst for unparalleled growth over the past 30 years.

“The government needs to realize that more potential will be uncovered if more foreign investment enters the country,” she said at the Economist seminar.

But with opportunity comes risk. The Asean-China Free Trade Agreement has stoked fears among textile and steel producers that they will not be able to compete with China’s industrial might. When asked about the impact of the trade deal, Zhang said that socialization and education were the key to overcoming public concerns.

“In China, we are trying to educate our people, not only those who live in the capital, but also in the provinces, on ACFTA and its implications,” she said.

Indonesian Trade Minister Mari Elka Pangestu agreed with Zhang that opening the economy to the world would require education.

“For a nation to thrive globally, its people and businesses have to be prepared,” said Mari.

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