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July 6, 2007

Indonesia’s Foreign Investment Law
After much debate, the government of Indonesia finally published a new foreign investment law earlier this year, which some describe as ‘the most liberal in ASEAN.’ Provisions include long-term land leasing, incentives for investment and reductions in bureaucracy. According to a press release from the General Affairs and PR Bureau of the Ministry of Trade states that the objectives of the new law are to deal with: “basic investment policies; types of business entities and locations; treatment towards investment; labor; business sectors; investment development for micro, SMEs, and cooperatives; rights, obligations and responsibilities; implementation of investment; special economic zones; dispute settlement and sanctions.”

The main features of the law are as follows:
1. Legal certainty by adopting such important principles as national treatment, transparency and accountability. The Law also emphasizes the guarantee against nationalization, and dispute settlement;
2. Clear guidance on the separations of authorities and responsibilities between Central and Regional Governments in accordance with the regional autonomy principles;
3. Simplification of investment procedures and licensing through the adoption of a one-door, integrated service mechanism along with facilities and access required. Hence, the Central and Local Governments are urged to reduce high-cost economy by adopting de-bureaucratization and improving public services so as to make them more efficient.
4. Investment facilities which include:
a. Fiscal Facility, which applies to investment by limited liability companies;
b. Services for Rights of Land Use which can be provided and extended in advance, and be renewed as requested by an investor. Nevertheless, the rights will be denied should the investor not use the land, the rights of land use is detrimental to the public interest, and the investor does not utilize the land as purportedly stated when the rights was granted;
c. Immigration Services, which can be extended to investments requiring foreign experts, and to potential investors undertaking business feasibility assessment; and
d. Import Licensing Facility for goods so long as they are in compliance with the existing regulations, and those that do not result in negative impacts on safety, security, health, environment, and the nation’s morale, or for relocation to Indonesia, and for meeting the needs of capital goods and raw materials for own production.

Of course, a foreign investment law in any country can be written in as ideal a way as can be imagined but be of limited value if it is not properly policed and maintained. The buoyant state of the Indonesian economy suggests that investor confidence continues at a good level and the country benefits from the rapidly declining level of investor confidence in alternative investment target Thailand. In order for the growth to continue and flourish, more emphasis needs to be placed on development of the labour market in the country and the provision of more skilled and motivated workers. Steps have been taken along this road and the use of migrant workers as engineers in the Middle East, for example, helps to increase skills and experience in the market.

The press release referred to may be accessed at:

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