OECD Investment Policy Reviews

English
ISSN: 
1990-0910 (online)
ISSN: 
1990-0929 (print)
http://dx.doi.org/10.1787/19900910
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OECD Investment Policy Reviews present an overview of investment trends and examine a broad range of policies and practices affecting investment in the economies under review. This can include investment policy, investment promotion and facilitation, competition, trade, taxation, corporate governance, finance, infrastructure, developing human resources, policies to promote responsible business conduct, investment in support of green growth, and broader issues of public governance. The reviews take a comprehensive approach using the OECD Policy Framework for Investment to assess the climate for domestic and foreign investment at sub-national, national or regional levels. They then propose actions for improving the framework conditions for investment and discuss challenges and opportunities for further reforms.

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OECD Investment Policy Reviews: Indonesia 2010

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English
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    http://oecd.metastore.ingenta.com/content/2010041e.pdf
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Author(s):
OECD
01 Nov 2010
Pages:
252
ISBN:
9789264087019 (PDF) ;9789264087002(print)
http://dx.doi.org/10.1787/9789264087019-en

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OECD Investment Policy Reviews: Indonesia charts Indonesia’s progress in developing an effective policy framework to promote investment for development. It focuses on policies towards investment, competition, infrastructure, finance and other areas of the business environment and suggests ways the climate for both domestic and foreign investment might be further improved.

It finds that Indonesia has undertaken a decade of political and economic reform, under very difficult circumstances. Democracy is now firmly established, and the economy is growing at a steady pace in spite of the global financial crisis. Reforms over the past decade have done much to improve the resilience of the Indonesian economy, and the government has made substantial progress in creating a better climate for investment. New laws have been enacted in almost all sectors, and new institutions have been created to advise the government, implement and enforce laws, regulate newly liberalised sectors and settle disputes.

Foreign investors have taken notice. Foreign direct investment in Indonesia in the past five years has exceeded the earlier peak achieved in 1996, before the Asian financial crisis in 1997-98 brought economic contraction and net outflows of foreign investment. This investment is also becoming increasingly diversified by sector and by country of investor.

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  • Foreword
    This first Investment Policy Review of Indonesia assesses the development of Indonesia’s investment environment on the basis of the Policy Framework for Investment. It testifies to the growing ties between the OECD and Indonesia, both through the Enhanced Engagement process with key emerging economies and as part of the strategic partnership between Southeast Asia and the OECD.
  • List of Abbreviations
  • Executive Summary
    Indonesia has achieved impressive success in overcoming immense political and economic obstacles since the late 1990s. New economic laws and policies, based on an increasingly transparent and accountable political system, are bearing fruit in the form of stable growth and a renewed rise in inflows of foreign direct investment (FDI). At the same time, fixed investment, both domestic and foreign, remains inadequate to meet the country’s requirements for basic infrastructure and higher productivity.
  • Overview of Progress and Policy Challenges
    Indonesia has successfully overcome immense political and economic obstacles since the late 1990s. New economic laws and policies, based on an increasingly transparent and accountable political system, are bearing fruit in the form of stable growth and a renewed rise in inflows of foreign direct investment. Both domestic and foreign investment are nevertheless still inadequate to meet the country’s requirements for basic infrastructure and higher productivity. This overview describes the tremendous political and institutional changes since the Asian financial crisis and suggests ways in which Indonesia’s investment performance could be improved through further reforms.
  • Investment Policies and Trends Over Time
    This chapter charts how much progress Indonesia has made in reforming its investment climate, encompassing the post-independence era, the New Order regime and the Reformasi period. The Asian economic crisis of 1997/98 damaged the country’s economic and political stability, causing many foreign investors to withdraw their capital, and new foreign investment was slow to come back to the country. The chapter describes the government’s policies to improve its investment climate, including the enactment of the new Investment Law of 2007, while transforming the country into a democratic and decentralised state with a more transparent governance structure. It also demonstrates how FDI flows have responded to policy changes over time and highlights contributions of foreign investment to Indonesia’s economy.
  • Investment Policy
    The investment climate was one of the worst casualties of the 1997-98 financial crisis. Over the past decade, the government has made considerable progress in creating a policy environment conducive to both domestic and foreign investment. This chapter describes efforts to reduce red tape, create a complete registry of land ownership, strengthen protection of intellectual property rights and improve systems to enforce contracts and settle disputes. A new Investment Law was enacted in 2007 which offers both national treatment for foreign investors and compensation based on market values in the event of expropriation. This chapter discusses the new Investment Law, as well as remaining restrictions on foreign investment contained in the Negative Investment List. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.
  • Investment Promotion and Facilitation
    Indonesia has been active in promoting and facilitating investment as part of overall investment climate reforms. This chapter examines various measures adopted by the government to reduce administrative burdens on investors such as one-stop integrated services at both central and local levels. The role of an national investment promotion and administration agency, the Indonesia Investment Co-ordinating Board (BKPM), is reviewed in the context of streamlining administration in a decentralised system. Investment incentives provided by the government are also explained, including a recently approved special economic zone scheme. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.
  • Competition Policy
    Indonesia’s regulatory framework for competition has strengthened since the enactment of the first Competition Law of 1999 and the establishment of the Commission for the Supervision of Business Competition (KPPU) in 2000. The government has also implemented sectoral reforms to promote competition and productivity growth in sectors dominated by state-owned enterprises. This chapter examines the performance of KPPU in implementing the Competition Law over a decade and points out remaining challenges. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.
  • Infrastructure Development
    Indonesia once outperformed many of its peers in infrastructure provision but, since the 1997-98 crisis, has lagged behind much of the region in terms of both public and private investment in infrastructure. The government has been forthright in acknowledging weaknesses in infrastructure and has taken major steps to increase funding, improve regulatory quality and allow for greater private participation. It has set a target for universal access in the power sector by 2020 and has imposed universal service obligations in other sectors, notably telecommunications. State monopolies have been eliminated in telecommunications over the past decade and currently also in the operations of major ports. Increased private participation is possible in toll roads, railroads and power generation. Where SOEs still operate, efforts are under way to ensure that they operate on commercial principles, under an independent regulatory authority. This chapter reviews these efforts to create an institutional environment suitable for private participation in infrastructure. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.
  • Financial Sector Development
    Weakness of the financial sector was one of the principal causes of the depth and duration of the crisis in Indonesia in the late 1990s. The chapter describes measures taken by the government to strengthen the banking sector and develop the domestic capital and bond markets. FDI policies in the financial sector are also reviewed. Through restructuring and regulatory improvements, the banking system has improved its health and performance, as evidenced by its ability to withstand the recent global financial crisis. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.
  • Public Governance
    The fall of the Suharto regime has generally improved conditions affecting the quality of governance in the country, promoting freedom of media and civil society activities. At the same time, a democratic and decentralised system might have caused corruption to spread into lower government levels and political parties. This chapter describes the measures taken by the government since anti-corruption was made a top priority by President Yudhoyono. The chapter also provides an overview of Indonesia’s regulatory reform framework. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.
  • Other Aspects of the Policy Framework for Investment
    This chapter examines other policy areas shaping Indonesia’s investment climate, including trade and tax policies, corporate governance, and policies for promoting responsible business conduct. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.
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