Business

Foreign Investment

Banking and foreign Exhange System.

Exchange rates are issued by the central Bank on a daily basis for commercial banking purposes, however for tax purposes (in calculating the indonesian income tax liability on foreign company income) the exchange rates are issued on a weekly basis by the Indonesian Ministry of Finance. Foreign exchange controls do not exist currecntly in indonesia however transfer of funds exceeding USD 10.000 fromand within indonesia should be reported to central bank.

Openned to Foreign Investment

Indonesia encourages private sector-led growth and foreign investment. Investors have reduced investment in the last few years, with balance of payment statistics counting to reveal net negative investment flows.

Foreign Investment approval in 2002 declined to USD 9.7 billlion, from USD 15 billion and USD 16 Billion for 2001 and 2000, respectively. Investment approvals for indonesians firms trended evem more steeply downward, amounting in 2002 to only USD 2.8 Billion, from USD 5.8 Billion and USD 11 Billion in 2001 and 2000, respectively.

Indonesia courts three categories for new investment, expansions, and changes in status, which inflate investment approval figures. Changes in status occur when a foreign investor purchases a domestic company, either partially or wholly, in which case the entire awuity of the indonesian firms is added to the investment approval totals. Recent privatisation sales greatly increased the amounts in the change in status category and resulted in inflated investment figures for 2002.

Draft Investment Law

Indonesia’s cabinet has not yet approved a new investment law to replace the existing law of 1967. The draft law provides for equal treatment of domestic and foreign investors, as wll as a range of incentives, including tax holidays. It also creates a ‘one-stop shop’ concentrating investment approvals for all sectors within The Capital Investment Coordinating Board (BKPM).

Under Indonesia’s current investment law, the BKPM plays a key role in promoting foreign investment and approving many project proposals, including investment in bonded zones (Kawasan Berikat) and Integrated Economic Zone (KAPET).

However, the ministry of industry and trade and relevant technical government departements responsible for oil and gas, banking and insurance industries also have investment approval powers, leading to confusion among potential investors.

Investors may also apply for investment approvals with indonesian embazzies abroad or provincial regional capital investment.

Coordinating Board (Bipeds), Regional autonomy legislation also appears to permit each province, district and city to accept and approve investment applications. Therefore, additional regulation are needed to clarify the situation.

Following the economic and financial crisis that hit the nation in 1997, the indonesian government recognized the important role that foreign investment needed to play in reconstruction of the economy. During following years, succesive goverments enacted legal regulatory reforms designed to facilititate the process of investing in indonesia and thereby the country’s competitiveness as a destination for foreign direct investment.

The Role of the BKPM.

Foreign direct investment in manufacturing, industrial or non-financial services sectors is licensed by BKPM. Investment in the areas of banking, insurance, general mining, oil and natural exploration, production and related activitied are licensed by other regulatory bodies.

It is also the world’s largest islamic nation, where a constitutional freedom to practice other religions sees major groups of christans, buddhist, hindus and other faiths existing side by side. There are approximately 336 district recognized cultures that share more than 250spoken languanges. The lingua franca, bahasa indonesia, was addopted only 77 years ago and is now widely used throughout this vast land, serving as a means of communication and as a unifying factor.

Indonesia id diverse and is among the most culturally rich countries on earth. Add to this its enormous mineral, marine and natural resources and it is evident that it ranks as a major economic force in the region.

Following the economic and financial crisis that hit the country in 1997, the indonesian goverment recognized the important role that foreign investment needed to play in the reconstruction of the indonesian economy. During following years, succesive goverment enacted legal and regulatory reforms designed to make indonesia a competitive destination for foreign direct investment.

Acceleration of economic growth and trade

The central statistic agency (bps) announced that indonesia’s gdp grew 5.60% in 2005 per capita income rose to idr 12.45 million from idr 10.64 million in 2004. Bps also annouced that indonesia’s export grew by 19.53% compare to previous year, meanwhile total imports increased by almost 24% in 2005 to usd 57.6 billion.