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RI, US ink updated agreement to woo American investors
Indonesia and the US signed an agreement on Tuesday in Washington, DC that is expected to encourage US firms to invest more in Indonesia
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ndonesia and the US signed an agreement on Tuesday in Washington, DC that is expected to encourage US firms to invest more in Indonesia.
Indonesia and the US were represented by Investment Coordinating Board (BKPM) head Gita Wirjawan and Overseas Private Investment Corporation (OPIC) acting president Lawrence Spinelli, respectively.
The new agreement updates the 1967 pact between the two countries by adding OPIC products such as direct loans, coinsurance and reinsurance to already existing support that US companies may use to invest in Indonesia, the US Embassy said in a press statement.
“Indonesia offers a large and dynamic market for US investment, which in turn will support Indonesia’s economic growth — a prospect that is only improved by the conclusion of today’s agreement,” Spinelli said in the statement.
“We look forward to working closely with both US and Indonesian companies to facilitate new levels of investment in Indonesia.”
He said OPIC had provided more than US$2.1 billion in financing and political risk insurance to 110 projects in Indonesia for more than 39 years.
OPIC is now providing Indonesia with more than $94 million in support to six projects in the sectors of energy, manufacturing and services, the press statement said.
US manufacturing companies operating in Indonesia mostly run their businesses in the fields of food and beverages, pharmacy and petrochemicals.
The International Pharmaceutical Manufacturers Group (IPMG) says the agreement is unlikely to give a boost to the pharmaceutical industry because each industry faces its own problems, and legal uncertainty plagues this industry.
“In the pharmaceutical industry, for example, there are types of drugs that manufacturers cannot produce domestically, so they have to import them in finished products,” IPMG executive director Parulian Simanjuntak told The Jakarta Post on Thursday.
“But there’s a dilemma here because manufacturers are now not allowed to import finished products to be marketed domestically according to a new rule while [Indonesian regulations] also forbid manufacturers from appointing a general importer to bring in such drugs.”
IPMG is an Indonesian group representing foreign pharmaceutical companies.
US companies that are IPMG members include Merck, Sharp and Dohme (MSD), Pfizer, Abbott and Johnson & Johnson.
Standard Chartered senior economist Fauzi Ichsan said the agreement would not automatically draw US investors to invest in Indonesia as there were many other factors in foreign direct investment.
“What can accelerate the materialization of foreign direct investment are improvement in infrastructure — such as electricity, toll roads and sea ports — revisions to the 2003 Labor Law, improvement in legal uncertainty in
terms of land acquisition, corruption eradication efforts and improvement in the systems of excise and customs, as well as tax,” he told the Post.
Moreover, he said, the $94 million support was too small if it involved an energy project.
“We are talking about billions of dollar when it comes to projects in the oil, gas, electricity and coal fields,” Fauzi said. “One energy project needs at least $500 million.”
