World Report

Tax breaks and reduced bureaucracy are helping to attract foreign interest

The ultimate goal is to offer a one-stop service to investors where interested parties can gain access to all they need for decision making

he Indonesian government recognises that investment, both foreign and domestic, is one of the most important factors in driving economic growth. As a result, it is constantly looking for ways to improve the investment climate with the streamlining of policies and the reduction of other barriers, such as red tape.
Spearheading the government’s investment drive is the Jakarta-based Investment Coordinating Board (Badan Koordinasi Penanaman Modal, BKPM). It is the primary agency responsible for coordinating and promoting investment in Indonesia.

Established in 1973, BKPM replaced the former Technical Committee on Investment in response to changes in policy and the need for a more coordinated approach and greater efficiency.

Its mission is to implement government investment strategy. This includes formulating national investment policy, coordination and promotion activities, and management and administration services. Headed by Theo Toemion, BKPM is a non-departmental government agency serving directly under the President. Although investment suffered a setback in the wake of the 1997 financial crisis, officials at BKPM are confident that they can put Indonesia back on the map. Immediately after the crisis, investment fell and lagged behind other Southeast Asian states. As the economy gathers momentum, however, investors are starting to return.

The political environment is relatively stable; GDP growth during 2003 was 4 per cent and the national currency – the rupiah – is comparatively stable against the dollar. A ratings upgrade by Moody’s, Standard & Poor’s, and Fitch helped boost investor sentiment in both the bond and equity markets. This is expected to continue to raise foreign investor confidence in 2004.

Investment policy in Indonesia is very open to foreign investors. Only a small number of sectors are restricted. The availability of various fiscal incentives designed to entice investors underlines the government’s intentions. There are no limitations on the value of investments and foreign companies are entitled to own local enterprises outright. BKPM facilitates foreign access to the market through a simplified investment process.

The ultimate goal is to offer a one-stop service to investors where interested parties can gain access to all they need for investment decision-making.

A key part of the board’s work is in promoting the various opportunities available and highlighting the potential of the country. This means specific opportunities as well as broad areas with potential. It also produces a range of marketing material and provides guidance on issues such as licensing and application procedures.

The prospects for investment are improving. Analysts are more confident than they have been for some time despite the uncertainties surrounding this year’s election process. On the financial markets, last year saw an upturn in interest for corporate bonds, which provided a good source of finance for private and state firms. This year the government is expected to issue more treasury bonds, partly to replace maturing stock.

Lower interest rates contributed to the demand for fixed-rate bond issues, with investors keen to lock in their funds on higher yield paper in anticipation of further falls and rising prices.