Indonesia eases investment curbs for foreigners in select industries

Indonesia will allow increased levels of foreign investment in power plants, pharmaceutical industries and in advertising as part of the government's efforts to revitalise the economy.

After months of dithering by the various ministries, the Indonesian government finally decided to prune the "negative investment list" of industries in which foreign investors are either barred or restricted.

Under the amended policy, Indonesia will increase the maximum foreign investment in pharmaceutical companies to 85 per cent from 75 per cent, and in advertising agencies to 51 per cent from 49 per cent.

The ''negative investment list'' limits foreign involvement in sectors or industries that are deemed sensitive for the Indonesian economy.

The amendments have to be formally signed into law by President Susilo Bambang Yudhoyono for it to be effective and no date has been given as to when the changes will become effective.

Indonesia, Southeast Asia's largest economy, is faced with rising levels of current account deficit and a falling rupiah, which have combined to make Indonesia not an attractive proposition to foreign investors.

The Indonesian currency, the rupiah, had declined more than 20 per cent against the dollar this year.

The changes in rules are intended to assure investors that the country is open to foreign investments, at a time when the country is likely to see further outflows of foreign capital due to political uncertainty ahead of next year's elections.

Like other emerging markets, Indonesia also fears a negative impact from the proposed tapering of the monetary stimulus by the US Federal Reserve.

Easy money from the US has for long been fuelling demand for emerging market assets.

"The commitment is to maintain Indonesia's economic growth and anticipating a slowdown in the global economy by encouraging investment, particularly in domestic and foreign investment," chief economic minister Hatta Rajasa said.

Indonesia allows 100 per cent foreign investment in power plant projects under the public-private partnership programme, up from 95 per cent earlier.

A foreign investor can now own an entire power-plant during a concession period, after which some equity transfers to the government.

The Indonesian government had, earlier, dropped its proposal to let foreign investors fully operate airports and ports, dealing a blow to India's GVK Power & Infrastructure, South Korea's Incheon International Airport Corp and others looking for a bigger presence in Indonesia.

Investors and economists have suggested more policy changes in Indonesia to make the country more attractive to investors.

The World Bank and International Monetary Fund had also, earlier this month, warned the country that stronger economic growth would depend on Indonesia implementing more profound economic reforms.