Todung Mulya Lubis, Senior Partner, Lubis, Santosa & Maramis, on welcoming foreign direct investment (FDI): Viewpoint

In his state of the union speech, President Joko Widodo spent more than 20 minutes of his time reiterating his policy of welcoming FDI to Indonesia. In the last six months there have been 12 economic packages presented by the government offering more opportunities for foreign investment, simplifying and deregulating approval processes and offering various incentives in terms of tax and import-export duties. The government also designated special economic zones and bonded warehouses in which additional incentives are offered. If foreign investment is intended for remote areas such as Papua and East Nusa Tenggara, firms will be given more incentives and facilities.

It is understandable that the president took so much time to explain to the nation that Indonesia strongly needs FDI. The president’s key motive is to speed up growth, in order to catch up with economic development in other countries – including some neighbouring countries – whose level of development seems more advanced than ours.

As a country with all the potential we possess, it is inconceivable that we will not succeed. What does this country not have? We have abundant natural resources, onshore and offshore. We have unbelievably rich agricultural products. The country possesses productive manpower that can be employed in all of those foreign investment companies. Needless to say, we also have friendly governments, both national and local, that will guide foreign companies to invest and secure all the necessary permits and approvals. We would like to present Indonesia as a paradise for foreign investment, where things can be reasonably worked out.

Of course, there has never ever been any pure paradise for foreign investment, but we want to make Indonesia as a “darling” for foreign investors. It is undoubtedly possible. What is necessary has always been, among other things, cleaning up the country from corruption, collusion and nepotism, de-bottlenecking and deregulation, and on top of this, social and political stability. The perception that Indonesia is one of the most corrupt countries in the world has discouraged many potential foreign investors from coming. This is not to say that there has never been any improvement in perceptions of Indonesia’s level of corruption, for example as published by Transparency International, but improvements have been slow. There should have been more progressive action taken by the Corruption Eradication Commission to ensure regulatory compliance, transparency and accountability. It is interesting to note that majority of Indonesians support an open-door policy toward foreign investors in the sense that they will invest in projects, and not simply pour their money into capital markets. We need long-term commitments, transfer of technology and employment opportunities.

The fact of the matter is that foreign investment has been directed towards stocks and other capital markets products. This has definitely enlarged our capital markets, but these investments are mostly not long term. They may leave easily at any time. This type of investment will not bring businesses, technology and employment. What comes easily goes easily. Why? Is it because Indonesia is still perceived as a corrupt country? Is it because it is socially and politically unstable? Is it because other countries provide more incentives?

Whatever the answer, the truth is that Indonesia has not been regarded as the number one destination for foreign investment. In his state of union speech, the president re-emphasised his guarantee that FDI is most welcome in Indonesia.

It is our belief that the Widodo administration will do everything in its power to make Indonesia the most favourable investment destination for the region and beyond, as well as a gateway to ASEAN.

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The Report: Indonesia 2017

Legal Framework chapter from The Report: Indonesia 2017

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