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Nationalist sentiment thwarts FDI plan

Difficulties persist for foreign investors in Indonesia, as a plan to open up more industries to outside investment has been shelved by President Susilo Bambang Yudhoyono amid growing nationalist sentiment

Satria Sambijantoro (The Jakarta Post)
Jakarta
Mon, December 2, 2013

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Nationalist sentiment thwarts FDI plan

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ifficulties persist for foreign investors in Indonesia, as a plan to open up more industries to outside investment has been shelved by President Susilo Bambang Yudhoyono amid growing nationalist sentiment.

A planned revision to the negative investments list (DNI) '€” a registry of industries that are wholly or partially closed to foreign investors '€” was expected to improve Indonesia'€™s investment climate and give a much needed boost to the growth of foreign direct investment (FDI), which has decelerated to a three-year low.

Coordinating Economic Minister Hatta Rajasa introduced the plan to pare down the DNI on Nov. 6 with an announcement that the government intended to allow for greater foreign ownership in several sectors, including pharmaceuticals, telecommunications and infrastructure management.

The following day, the proposed DNI revision dominated the news cycle, with several media outlets quoting critics who characterized the plan as '€œun-nationalistic'€.

As the DNI revision snowballed into a hot-button political issue, government officials began to speak out. Hatta quickly took to Twitter to rebuke online media sources claiming that he had already approved the plan.

In a Cabinet meeting held one week after the announcement, Yudhoyono denied that the DNI revision would be implemented in the near future. The President gave assurances that he would carefully weigh '€œnational interests'€ before making the final call.

'€œPrincipally, whether there will be a relaxation in the DNI will take into account many things, with national interests and benefit to local businesses being the priority,'€ Firmanzah, the presidential special staffer for economic affairs, told The Jakarta Post recently.

Under the DNI revision proposed by Hatta, foreign investors would be able to hold 100 percent ownership in airport and seaport management, a sector currently closed to foreign investors and run exclusively by state-owned operators such as PT Angkasa Pura and PT Pelindo.

Maximum foreign ownership in pharmaceutical, telecommunications and ecotourism firms was planned to be raised to up to 85 percent.

Despite the political hullabaloo over the issue, economists have said that a DNI revision was necessary to attract foreign investment, something that Indonesia desperately needed to propel its slowing economy and to strengthen its besieged balance of payments.

Bank Indonesia (BI), the central bank, has recommended the government accelerate reforms aimed at attracting more FDI to strengthen the nation'€™s capital account, which might face increased pressure in 2014 due to limited foreign portfolio inflows, on the back of a more volatile financial market and tighter global liquidity.

The World Bank has warned that implementing nationalist economic policies could be '€œdangerous'€ for the Indonesian economy. It has pushed the government to proceed with the DNI revision plan as increased FDI would generate more jobs and increase competition in the targeted sectors.

'€œTalking about FDI, we are sending mixed signals to offshore investors '€” it'€™s like we are saying to them: '€˜We want your money, but we do not want you'€™,'€ said Noke Kiroyan, the vice chairman for business association coordination with the Indonesian Chamber of Commerce and Industry (Kadin).

'€œJust look at the DNI, which was supposed to be revised already before the end of the year, but the President himself denied it. Such a thing frequently happens here,'€ he added.

Chatib Basri, former chairman of the Investment Coordinating Board (BKPM) and current finance minister, previously said that the DNI revision would be implemented in the third quarter this year.

According to Mahendra Siregar, the newly appointed chairman of BKPM who replaced Chatib in September, the DNI revision would drive growth of realized investments up to Rp 500 trillion (US$54 billion) next year, higher than the existing target of Rp 450 trillion.

'€œI don'€™t want to be drawn into debates '€” I'€™ll just keep on working on my part, because the credibility [of the government] depends on whether we can deliver something that we have committed,'€ he said.

'€œThe question that we should ask at the moment is not about the anti-foreign sentiment, but rather: How committed is the government to improving our investment climate?'€

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