People Innovation Excellence

Indonesia View of FDI

Foreign Investment Law (1/1967) issued to attract foreign investment to build the national economy. In Indonesia is the authority of the Investment Coordinating Board (BKPM) to give approval for all foreign direct investment. In the last decade foreign investors are reluctant to invest their capital in Indonesia because of the unstable economic and political conditions. Now there are signs that this situation is changing: there are approximately 70% increase in FDI in the first half of 2005, along with the economic growth of 5-6% since the end of 2004. In early 2005, the United Kingdom, Japan, China, Hong Kong, Singapore, Australia and Malaysia are sources of FDI are considered important. According to UNCTAD statistics, the total amount of FDI inflows in Indonesia was US $ 1.023 billion in 2004 (latest data available); US $ 0.145 billion in 2002, $ 4,678 billion in 1997 and $ 6,194 billion in 1996 [in the summit].

Multinational companies that want to tap natural resources dominate the market (both existing and profitable and emerging) and lower production costs by employing cheap labor in developing countries, usually foreign investors. Classic examples of FDI include is a Canadian mining companies are opening mines in Indonesia or Malaysian palm oil company which took over the oil palm plantations in Indonesia. Cargill, Exxon, BP, Heidelberg Cement, Newmont, Rio Tinto and Freeport Mc MoRan, and INCO all have direct investments in Indonesia.

FDI is usually a long-term commitment. That’s why he is considered to be more valuable to a country than other types of investments which could be withdrawn at the first sign of problems.

FDI as Economic Indicator

FDI now plays an important role in the internationalization of business. Enormous changes have occurred both in terms of size, scope, and methods of FDI in the last decade. These changes occur because of technological developments, reduction of restrictions on foreign investment and acquisitions in many countries, as well as deregulation and privatization in various industries. The development of information technology systems and cheap global communication enables management of foreign investments with much more ease

An extraordinary increase of the FDI is a result of the rapid growth of transnational corporations in the global economy. From 7,000 multinational companies in 1960, that figure soared to more than 63,000 with about 690,000 affiliates or subsidiaries by the end of the 1990s.

Government pay attention to FDI because the investment flows into and out of their country could have a significant impact. Economists consider FDI as one of the drivers of economic growth as it contributes to national economic measures such as Gross Domestic Product (GDP / GDP), Gross Fixed Capital Formation (total investment in the economy of the host country) and the balance of payments. They also argue that FDI promotes development because, for the host country or company that receives the investment, it can be a source of new technologies, processes, products, organizational systems and new management skills. Further, FDI is also open markets and marketing channels for the company’s new, cheaper production facilities and access to technology, products, skills and financing..


The development of FDI in Indonesia

Foreign direct investment (FDI) in Indonesia has movement up and down every year. When compared with other regions who participated experienced a downturn after the economic crisis in 1997. Data from 1998-2002 show that FDI flows into Indonesia have decreased significantly compared to other countries. But in the next year, the volatility of FDI in Indonesia increased over the previous year. If the accumulated real problem, then there are two things that affect FDI activity in a country, the first is environmental or policy framework of a country. Basically investors know the potential and conditions of a country that will be used as an investment location. This policy framework in several ways, namely (1) the stability of the economic, political and social; (2) rules that support the entry and operation of a business; (3) international agreement standard; (4) policy in the functioning and structure of the market; (5) international agreements in FDI; (6) and privatization policies; (7) trade policy and taxation.

Government through coordination and investment agency (BKPM) has made some adjustments to the investment policy efforts, including the following:

1. The Government has renewed the list of business fields closed to investment for investors given the flexibility in choosing the business (Decree No. 996 of 2000 and No. 118 of 2000

2. Simplification process from 42 days to 10 days.

3. From 1 January 2001, the government replaced the tax exemption incentives with investment tax allowance of 30% for 6 years.

4. The value of investments is not restricted, entirely depending on the feasibility study of the project.

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  1. Written By: Selly Novela, ST, MM – IBM

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