Headlines that seemingly proclaim the government will go all out to attract foreign direct investment (FDI) by liberalizing investment rules, even at the cost of domestic enterprise, may add to political and social turbulence in deliberations. Such negative impressions have arisen because most mass media has failed to adequately explain the matter in full.

In assessing the bill, we should look back to why the government chose to use an omnibus bill specifically. The 16 major reform packages the government launched between 2015 and 2019 to reinvigorate investment have remained largely ineffective because their enforcement is hindered by overlapping and contradictory rules stipulated in about 80 laws and thousands of presidential regulations and ministerial decrees.

It would take more than 10 years to revise the numerous laws and regulations through the conventional lawmaking process, and the economy badly needs huge sums of investment right now to increase economic growth and create jobs to thereby reduce poverty and income inequality. This is why the government chose to create an omnibus bill on job creation, supplemented by another omnibus bill on taxation.

The omnibus bill is designed to remove inefficient bureaucracy, opaque regulations, complex procedures and high transaction costs that undermine business competitiveness.

Needless to say, FDI brings potential benefits to the country through a variety of channels, including linkages with the local private sector. Linkages between foreign firms and local suppliers enable knowledge and technology transfer, including know-how and practices that allow domestic suppliers to upgrade the quality and efficiency of their production. Linkages also expand the multiplier effect on the local economy.

Fortunately, we see provisions in the bill that design investor-targeting policies that will not woo FDI indiscriminately but will focus on a defined set of investments in select categories of industries that the government wants to develop in line with the national objective to promote development with equity.

Such a strategy would allow the government to choose the kinds of investment it prefers in order to support national objectives related to employment, technology transfer, export competitiveness, skills development, the empowerment of local business competence and other development goals.

An investor-targeting concept will also help the government screen foreign investors by their different motivations: those who intend only to exploit Indonesia’s static comparative advantage (natural resources), those who want to benefit from the potential of the vast domestic market and those who seek a more efficient business landscape to improve their competitiveness in global value chains.

The government should make the country competitive in attracting FDI by offering a wide range of incentives while at the same time ensuring that the benefits will outweigh the costs.