Openness to Foreign Investment
sound macroeconomic policy paired with gross domestic product (GDP) growth of 6.5%
in 2011 make
2011, Indonesian government officials verbally welcomed increased FDI, aiming to
create jobs and spur economic growth, and courted foreign investors, notably focusing
on participation in a large number of public private partnerships to develop
infrastructure. However, vague and conflicting regulations, poor infrastructure, and
corruption continued to be significant concerns for foreign investors.
lamented the lack of ministerial coordination and a body empowered to act as a final
authority in the case of regulatory uncertainty.
Restrictions on FDI are, for the most part, outlined in presidential decree 36/2010,
commonly referred to as the Negative List. The Negative List aims to consolidate FDI
restrictions from numerous decrees and regulations to create greater certainty for foreign
and domestic investors. The 2010 iteration of the Negative List clarified that companies
are grandfathered in the case of increased foreign ownership restrictions. However,
exceptions remain; in the case of wholly foreign owned security service companies, their
licenses were not renewed, despite grandfathering provisions. In 2010, the share of
foreign ownership permitted was increased in health services, creative industries,
construction services, and multilevel marketing, but decreased in cell towers, security
services, and inspection services. For investment in certain sectors, such as mining and
higher education, the Negative List is useful only as a starting point, as additional licenses and permits are required from individual ministries. Foreign capital investment, through the stock market, is not governed by the Negative List. Foreigners may
purchase equity in state-owned firms through initial public offerings, and capital
investments in publicly listed companies through the stock exchange are not subject to
The Investment Coordinating Board (BKPM) is responsible for issuing investment
licenses to foreign entities and has taken steps to simplify the application process
through better coordination between various government institutions. BKPM launched a
National Single Window for Investment which will eventually allow foreign investors to
apply for licenses and other services online. Although BKPM is meant to act as a onestop service institution, investments in the mining, oil and gas, plantation, and other
sectors require further licenses from related ministries and authorities. Likewise, certain
tax and land permits, among others, typically must be obtained from local government
authorities. Though Indonesian companies only require one approval at the local level,
businesses report that foreign companies must obtain both administrative and legislative
approval in order to establish a business.
The Coordinating Ministry of Home Affairs, Ministry of Administrative Reform and
Bureaucracy Reform, and BKPM issued a circulating letter on September 15, 2010, to
clarify investment that crosses provincial and regional boundaries. Investment in one
regency is managed by the regency government; investment that lies in two or more
regencies is managed by the provincial government; and investment that lies in two or
more provinces is managed by central government, or central BKPM.
Natural Resources:
foreign investment over the last century. Though the potential for gain is evident, a
variety of government regulations have made doing business in the resources sector
increasingly difficult. For example, Government Regulation 79 retroactively removes
previously-agreed recoverable oil and gas production costs from some production
sharing contracts (PSCs). Also, the 2009 mining law requires mining companies to
renegotiate their contracts of work to increase government tax and royalty rates.