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OECD Investment Policy Reviews: Indonesia 2010

image of OECD Investment Policy Reviews: Indonesia 2010

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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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.

English

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