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IndonesiaIndonesia’’s Investment Policys Investment Policy

Pratomo WalujoPratomo WalujoDirector for Bilateral and Multilateral CooperationDirector for Bilateral and Multilateral Cooperation

Indonesia Investment Coordinating BoardIndonesia Investment Coordinating Board

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB),

its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.

Terminology used may not necessarily be consistent with ADB official terms.

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A Brief About A Brief About IndonesiaIndonesia

World’s fourth most populous country, with young demography and rapidly growing middle class – large open market potential and competitive manpower;

World’s largest archipelago, 17,000+ islands – huge development potential of infrastructure, transportation and logistics;

World’s third largest democracy – balance of power between the state and civil society; dynamic stability;

2009 GDP: IDR 5,613.4 trillion (USD 610 billion dollars), the largest economy in Southeast Asia;

Large natural resources endowment – long-term business potential and raw material self sufficiency; and

Geo-political importance – comparative advantage in connectivity with other parts of the world.

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Our commitment to combating corruption is very high at every level of government.

The new administration has relentlessly spawnednew initiatives to significantly improve our investment climate (centralized OSS, more justified restrictive investment list, more targeted and collaborative investment promotion, etc.)

Significantly improved homeland security

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Economic Indicators 2004‐2009

4*) Indonesia’s forex reserve stood at US$ 69.7 billion per February 2010 – the equivalent of 7.6 months of imports.

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Global Rating

Rating Upgrades: Indonesia is on course to obtain an investment grade for its sovereign debt rating.* S&P: long-term foreign currency rating of BB,

with positive outlook (March 2010)* Fitch: BB+/stable (January 2010)* Moody’s: Ba3/stable (September 2009)

Bright investment prospect: Indonesia is the world’s top 8 FDI destination due to its large market and natural resource endowment (UNCTAD, World Investment Prospect 2009). 5

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Indonesia Indonesia –– Between Two Between Two International CrisesInternational Crises

Crisis in 1997/98 Crisis in 2008/09

Indonesia was the hardest hit: GDP contracted by 13.7% in 1998 (compared to growth of 7.8 % in 1996).

Indonesia is one of a handful of countries in the world maintaining positive growth rates. GDP slowed to 4.5% in 2009, from 6.1% in 2008.

Inflation jumped 77% and the rupiah lost 70% of its value vis-a-vis the US dollar.Stock prices collapsed, taking years to recover.

The rupiah exchange rate fluctuated, but inflation has been subdued. Stock prices tumbled by 50%, but quickly recovered.

Difficult political, economic and social transitions. Then government was brought down by people’s power.

Political, economic and social stability within the parameters of dynamic democracy.

High human cost, in terms of poverty and unemployment.

Domestic demand has continued to be robust, poverty and unemployment are declining.

Ballooning foreign debt, coupled with FDI outflows and sharp rating downgrades.

Declining foreign debt, with FDI inflow continuing and ratings being upgraded.

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Factors SupportingFactors Supporting the the ResiliencyResiliency

Structure of the Indonesian Economy:* Less dependency on export (29.8% of GDP in 2008)* Stronger domestic demand* More balanced economy*  The  number  of  Indonesians  that  invest  in  the  capital market  is  still relatively  small  so  that  the  crisis’ impact  on  the  society’s  income structure was limited.

Years of reforms – internal consolidation:* Sound macroeconomic management* Well‐established democracy, with a clear division of authority between the central and local governments

*  Various  domestic  institutions  have  been  established:  improving the level playing field

* Unprecedented number of new  laws/regulations and on‐going  reform programs, including public service management

*  Tax  law  revisions  in  2008  that  cut  income  tax  rates  in  2009  helped cushion corporate income  weakness.

Decisive pre‐emptive measures taken by the Government7

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Trend of Domestic and Foreign Investments in Indonesia –2002‐2009

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Both domestic and foreign investments have been increasing despite some 

fluctuations.

0

5000

10000

15000

2002 2003 2004 2005 2006 2007 2008 2009

Realiz ation  of F oreig n  Direc t Inves tment (Million  US D)

0

500010000150002000025000300003500040000

2002 2003 2004 2005 2006 2007 2008 2009

Realization of Domestic Investment(Million Rp)

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INVESTMENT REALIZATION FROM OECD COUNTRIES

2,9110,42CANADA15

381,12DENMARK14

18,3112,94NORWAY13

28,535,61LUXEMBOURG12

30,1171,85BELGIUM11

52,13541,111ITALY10

147,11261.198,732NETHERLANDS9

307,36029,012FRANCE8

32010979,726AUSTRALIA7

335,774103,918GERMANY6

343,434132,111SWITZERLAND5

533,3125171,527UNITED STATES4

2029,1672624,6186KOREA3

3447,4230587,761UNITED KINGDOM2

3565,3480678,9124JAPAN1

IPIP

2006 – 20092009

INVESTMENT REALIZATION

COUNTRYRANK

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INVESTMENT REALIZATION FROM OECD COUNTRIES

‐‐‐‐PORTUGAL30

‐‐‐‐CZECH REP.29

0,22‐‐MEXICO28

0,21‐‐ICELAND27

0,22‐‐GREECE26

0,31‐‐SLOVAK REP.25

0,41‐‐HUNGARY24

0,530,42POLAND23

0,620,62IRELAND22

0,830,62SWEDEN21

1,331,33NEW ZEALAND20

1,660,31AUSTRIA19

271,24SPAIN18

2,571,32TURKEY17

2,740,81FINLAND16

IPIP

2006 – 20092009

INVESTMENT REALIZATION

COUNTRYRANK

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Investment Target

• Investment Needs:– For Infrastructure 2010 – 2014: Rp. 1,429 Trillion (3,94% from GDP) *)

– For Electricity 2010 – 2014: Rp. US$ 50.390,9 Million **)

• Investment Target: Rp. 2000 Trillion p.a. 

Note:*) Statement from the Head of the National Development Planning Agency Republic of Indonesia (BAPPENAS) **) Statement from the Minister of Energy and Mineral Resources Republic of Indonesia

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Oil Boom Era (1970s-early 1980s)

Liberalization Era (mid-1980s to 2003) Consolidation Era (2003-present)

Background Economy relying on oil revenue

Economy seeking diversification A more balanced economy, with various sectors contributing to growth

Policy Process Full government discretion

Government discretionRise of economic technocracyIMF-mandated reform (from 1997/98 through 2003)

Various new laws and regulationsPolicy Transparency, involving stakeholder consultationsDecentralized administrationReforms are internalized and extended

FDI Policy High FDI restrictionsLimited number of

sectors open to FDI (“positive list” of investment)

Strong Divestment requirements

Period of reformTransformation of “positive list” to

“negative list” in 1986Allowed 100% foreign equity

ownership from 1994Reduced divestment requirementsReduced minimum initial capital

requirementEased restrictions to expatriates

and use of imported machineryIncentives for export-oriented

investment

Liberalization adjusted to domestic conditions and capacity

Clarity and regular review of investment list

Equal treatment of foreign and domestic investors

Better investment servicesIncentivesCSR provisions

Developments of Indonesia’s Investment Policy

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Improving the Investment and Improving the Investment and Business Climate Business Climate 

20102010‐‐201420141. Legal Certainty: Gradual process of regulatory reform to harm1. Legal Certainty: Gradual process of regulatory reform to harmonize onize

regulations at the national and subregulations at the national and sub--national levels, and reduce the lack of national levels, and reduce the lack of clarity and inconsistent implementation;clarity and inconsistent implementation;

2. Procedure Simplification: Adoption of the Electronic System f2. Procedure Simplification: Adoption of the Electronic System for Investment or Investment and Information Services (SPIPISE) at the PTSP centres in severaand Information Services (SPIPISE) at the PTSP centres in several cities l cities starting with Batam. Review of licensing process for simplificatstarting with Batam. Review of licensing process for simplification;ion;

3. National Logistics: Development of a national system to impro3. National Logistics: Development of a national system to improve the flow of ve the flow of goods;goods;

4. Information System: Full operation of the Indonesian 4. Information System: Full operation of the Indonesian National Single National Single Window Window (NSW) for imports and exports. Implementation of (NSW) for imports and exports. Implementation of Integrated Integrated Custom Services AreaCustom Services Area ((KPPTKPPT) in the ) in the JababekaJababeka (Jakarta Industrial Park) as a (Jakarta Industrial Park) as a pilot projectpilot project;;

5. SEZs: Development of SEZs using the PPP scheme;5. SEZs: Development of SEZs using the PPP scheme;

6. Labour policies: Adjust policies to business climate conditio6. Labour policies: Adjust policies to business climate conditions.ns.

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On investment roadmap: setting up long‐term investment strategy, divided into four phases: low hanging fruits  boost infrastructure development  industrialization knowledge‐based economy.

On policy front: speed up centralized “one‐stop shop”investment licensing, computerized licensing system, less restrictive negative‐list, regional champions, Special Economic Zone, etc

On promotional strategy: Targeted investment promotion:diversified by area, by prospective sectors, and done with an integrated approach

3-FRONT STRATEGY

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Long Term Long Term General Investment General Investment 

PlanPlano Currently being conceptualizedo 15-20 years horizono Focuses on three priority sectors: Infrastructure,

energy, and food/agricultureo First Target : quick wins and low hanging fruitso Shifting from consumer centric to industrial centrico Provide Incentives for pioneer projects (e.g. Coal

gasification, oil refinery, aluminium and nickel smelters) and priority projects (maritime product processing, cocoa processing, strategic infrastructure, components manufacturing, etc.).

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Investment enhancementin RPJMN

In the newly prepared government’s medium‐term development plan (RPJMN) for 2010‐2014, investment enhancement is one of the national priorities targeted, which could be achieved by :

Procedure simplification;Regulatory reform;Information system improvement; andDevelopment of Special Economic Zones (SEZ). 

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REGULATIONS ON INVESTMENT1. Law No. 25 of 2007 concerning Investment;2. Negative List on Investment:

a. Presidential Regulation No. 76 of 2007 concerning Criteria and Requirements for the Determination of Business Fields Closed and Open with Conditions to Investment;

b. Presidential Regulation No. 77 of 2007 concerning List of Business Fields Closed and Open with Conditions to Investment;

c. Presidential  Regulation  No.  111  of  2007  concerning  Amendment  to  Presidential Regulation Number 77 of 2007  concerning  List of Business Fields Closed and Open with Conditions to Investment.

3. Presidential Regulation No. 27 of 2009 concerning One‐Stop Integrated Service on Investment (PTSP);

4. Implementing Regulations on “one Stop Integrated Service” (PTSP);a.  Head of BKPM Regulation No. 11 of 2009 concerning Procedures on  Implementation,Development, and Reporting of One‐Stop Integrated  Service on Investment;b.  Head of BKPM Regulation No. 12 of 2009 concerning Guidelines and Procedures of Investment Application;c.  Head of BKPM Regulation No. 13 of 2009 concerning Guidelines and  Procedures of Investment Control and Implementation;d.   Head of BKPM Regulation No. 14 od 2009 concerning Electronic System  forInformation Servicing and Investment Licensing (SPIPISE).

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Law No. 25 of 2007 Law No. 25 of 2007 on Investmenton Investment

Embodies an important milestone of the Government’s investment policy:

* Division of authority on investment affairs.

* Equal treatment for domestic and foreign investors.

* Tax and non-tax incentives.

* Dispute resolution mechanism.

* Integrated one-stop service.

* Freedom to transfer and repatriate profits.

* Protection against nationalization.

* Corporate social responsibility (CSR) requirements.

* Special Economic Zones.

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Investment ListInvestment ListBackground:* Switch from a Priority List (“positive list”) to an

Investment List (Business fields that are closed and open to investments with certain requirements)

Main considerations * environmental protection, * conservation of non-renewable natural resources, * protection against health hazards, * preservation of national culture and heritage and

empowerment of MSMEsReview Mechanism: * regular evaluation, * involving various stakeholders

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1. Business fields closed for Investment (Domestic and Foreign)

2. Business fields open for investment withcertain requirements (Conditional List)

* Reserved for MSMEs* Partnership with MSMEs* Foreign Equity Participation* Certain Locations* Special Licenses

The The Investment List comprises Investment List comprises ::

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New ApproachComprehensive: all sectors of the economy, including oil/gas, mining, banking, non-bank financial institutions, that used to be covered separately.Better coordination: close coordination between various ministries and consultations with relevant stakeholders. This reduces potential regulatory conflicts.Greater Transparency promoting business certainty: * Limitations are clearly stated.* More specific sectors using 5-digit ISIC codes are

identified. Example: used to be in one big “telecom”sector but now is only for specific sub-sectors.

* Grandfather Clause – protects investors that received investment approval prior to Presidential Regulation No.77/2007

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Sectoral PoliciesSectoral Policies

Sectoral and cross-sectoral initiatives by relevant ministries, e.g. National Policy for Industrial Development, National Energy Road Map, National Logistics Blueprint.Development of General Plan for Investment(RUPM), which focuses on investment policies for three priority sectors, i.e. Infrastructure, energy, and food/agriculture.

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In line with:‐ Law No. 25 of 2007, Art. 30 para (4) and   para (7)‐ Government Regulation No. 38 of 2007, Annex P‐ Presidential Regulation No. 27 of  2009,  Art. 8

1.Investments that are: • Across Provinces;• Related to nonrenewable natural resources with high environmental damage risks;• In Industries that are of high national priority scales;• Linked to the functions of uniting and linking regions; • Linked to national defense and security strategy; 

2. Foreign Investment & Foreign Investors that use foreign capital:• Conducted by foreign governments & foreign nationals or foreign business entities; • Using foreign capital derived from foreign government, based on agreement made by the Government & Foreign Government.

3. Other investment fields which by law become the Government’s Affairs.

The Central Government’s investment Administration is carried out by BKPM

Investment Administration

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a. Investment in the scope of cross‐District/City;b. Investment which becomes Provincial Government affairaccording to Government Regulation No. 38 of 2007; and 

c. Investment which becomes Central Government affairs, and  which has been delegated to Governors.

Province Govt. Affairscarried out by PDPPM  

a. Investment in the scope of one District/City;b. Investment which becomes District/City Government affairaccording to Government Regulation No. 38 of 2007; and 

c. Investment which becomes Central Government affairs, andwhich has been delegated to District/City Governments. 

District/CityLevel Govt.Affairscarried out by PDKPM

Investment Administrationby Local Governments

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What is the facilitation?To minimize time and cost of investing Equal treatment of domestic and foreign investors

PrinciplesSimplicity of procedure, EfficiencyTransparencyBetter accesibility

Forms of facilitationOne Stop Integrated Services (PTSP) and Electronic System for Investment and Information Services (SPIPISE)SEZs (Special Economic Zones)Tax and non tax incentivesNational Logistics BlueprintNational Single Window (NSW)

Investment Facilitation

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Administration of One-Stop Integrated Service

on Investment

1. Administration  of  PTSP  by  Central Government  is  carried  out  by Indonesian  Investment  Coordinating Board (BKPM)

2. Administration of PTSP by Provincial Government is carried out by PDPPM

3. Adminisration  of  PTSP  by District/City  Government  is  carried out by PDKPM

Pursuant to the mechanism for authority delegation from:•Minister/Head of LPND, • Governor,

•Regent/MayorIn accordance with their respecitive auhorities.

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The One Stop Integrated Service on Investment

BackgroundBackground DefinitionDefinition ObjectiveObjective

Mandate of Art. 26 para (3) Law No. 25 of

2007

Administration of licensing and non-

licensing pertinent to investment started from application to

the phase of issuance of

documents in one place.

.

Simplicity of service, fiscal facilities, and

investment information, with the

acceleration, simplification of

service, and alleviation or

elimination of cost.

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Electronic System for Information Servicing and

Investment Licensing (SPIPISE) • SPIPISE  is  an  electronic  system for 

investment administration that  enables investors  to  apply  for  licenses and  non‐license services online

• SPIPISE  also  provides  investment information.

• Established to facilitate PTSP• Launched in  January  2010  in  the  Free 

Trade Zone and Free Port of Batam• To  be  implemented in  all  provinces  and 

districts/cities in stages.

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Objectives of SPIPISE

To integrate data, license, and non-license services;

To provide easy, fast, accurate, transparent, and accountable license and non-license services;

To synchronize investment service policies of various sectoral ministries and also between the Central and local governments.

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INVESTMENT AND BUSINESS CLIMATE

Priority Themeinvestment enhancement by improving legal certainty, simplifying procedures, improving information systems, and developing Special Economic Zones (KEK)

Core substance‐ Legal Certainty‐Simplification of Procedures‐ National Logistics‐ Information System

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Special Economic Zones (SEZs)

SEZs are established to accelerate development in certain areas that are strategic for national economic advancement and to safeguard the progress of local communities within the national economy

An SEZ is a bordered area appointed to implement a special economic function and equipped with certain facilities.

Businesses in SEZs enjoy additional, non-fiscal “incentives”such as:

Simplified administrative procedures;

Relaxed labour and immigration regulations;

No equity ownership limitation for foreign investors;

Negative List of Investment is not applicable in SEZs area;

High quality infrastructure will be provided.

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To harmonize regulations on logistic sectors

To improve coordination among agencies

To strengthen global competition of national Logistic Service Provider (LSP)

To enhance the provisions of logistic infrastructure

To optimize the usage of Information Communication Technology (ICT)

To improve human resource competency

To enhance the role of Logistic Training Institutions

Objectives of the National Logistic Blueprint

Objectives of Objectives of the National Logistic Blueprintthe National Logistic Blueprint

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Technically, the National‐Single Window (NSW) is a system which enables :‐ a single submission of data and information‐ a single and synchronous processing of data and information‐ a single decision‐making for Customs release and clearance

Concept of NSW

Technical Definition of 

NSW

DEFINITION OF NSW

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Main Goal of NSW System

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Benefit of the Benefit of the INSWINSW

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INDONESIA’S POLICY FRAMEWORK TO SUPPORT

GROWTH REBALANCING, AND GREEN GROWTH

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GOI Understanding of GOI Understanding of Green GrowthGreen Growth

Green growth aims to achieve sustainable developmentClimate and environmental challenges are considered development issuesThese challenges should be addressed not only through sound environmental policies but also solid economic policies, incl. macro-economic management, fiscal policy plans, revenue-raising alternatives, carbon pricing, and long-term investment options.

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Regulatory SupportRegulatory Support

Investment should promote

environmental sustainability

Investment Priority List:criteria to screen investment, incl. environmental criteria

Incentives and disincentives

Finance Ministerial Regulations

Line Ministerial Regulations

Investment Law 2007

Fiscal Incentives: tax, custom, tariff

facilities

Incentives for green investment (e.g. renewable energy: geothermal, biofuel)

Promotion or restriction of certain activities within a sector/sub-sector (e.g. in forest and land use sector)

Incentives and disincentives

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Economic and Fiscal Policies

MOF’s Green Paper on Economic & Fiscal Policy Strategies for Climate Change in Indonesia: 1) strategies to guide longer term policy reform for climate change mitigation; 2) strategies to access international financing and canvassing the need for policy reform and institutional development

Energy: discussion on carbon tax/levy on fossil fuel combustion is being processed, in parallel with removal over time of energy subsidies. This will be coupled with policy to access international carbon markets; introducing incentives for energy efficiency anddeployment of low emissions technology, exemplified by a specific geothermal policy strategy.

Land-use and forestry sectors: incentives will be given for carbon abatement measures through the inter-governmental fiscal transfer system, working towards the creation of a Regional Incentive Mechanism for climate change.

MOF’s Green Paper on Economic & Fiscal Policy Strategies for Climate Change in Indonesia: 1) strategies to guide longer term policy reform for climate change mitigation; 2) strategies to access international financing and canvassing the need for policy reform and institutional development

Energy: discussion on carbon tax/levy on fossil fuel combustion is being processed, in parallel with removal over time of energy subsidies. This will be coupled with policy to access international carbon markets; introducing incentives for energy efficiency anddeployment of low emissions technology, exemplified by a specific geothermal policy strategy.

Land-use and forestry sectors: incentives will be given for carbon abatement measures through the inter-governmental fiscal transfer system, working towards the creation of a Regional Incentive Mechanism for climate change.

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Law No. 40/2007 on Company: Definition of Social & Environmental Responsibility

Social and Environmental Responsibility is a corporate commitment to participate in 

sustainable economic development in order to improve the quality of life 

and the environment so as to make it beneficial to the companies 

themeslves, local communities and the society

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Regulatory Framework

Law No. 40 of 2007 on Companies: obliges limited companies to fulfill  their  social  and  environmental  responsibility (Corporate Social  Responsibility – CSR).  It is  also  stipulated  in  the  2007 Investment  Law,  the  Environmental Management  Law  and  the Mining Law.Law No. 8 of 1999 on Consumer ProtectionSuccessive laws on trademark – Law No. 21 of 1961,  Law No. 19 year  1992, Law No.  14  of 1997 (in  line with  the  agreement  in TRIPs – Agreement  on  Trade  Related  Aspects  of  Intellectual Property Rights), and Law No. 15 year 2001.Successive  laws on patent  ‐‐ Law no. 6 of 1989,  Law No. 13 of1997 and  Law No. 14 of 2001.Successive  laws on copyright – Law No. 6 of 1982, Law No. 7 of1987, Law No. 12 of 1997, and Law no. 19 of 2002.Law no. 23 of 2002 on Child Protection. 

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CURRICULUM VITAE1. Name : Pratomo Walujo, SH, MSc2. Address  : Jl. Kahayan No.6 

Depok Timur – Kota Depok Phone.021‐ 77105773. Position : Director for  Bilateral and Multilateral Cooperation

Investment Cooperation Deputy Unit,      Investment Coordinating Board 

4. Office Address : Jl. Gatot Subroto No.44 JakartaPhone. 021‐5202045

5. e‐mail  :  pratomo@bkpm.go.id6. Status : Married  with 3 children7. Education : 1. Faculty of Law, University of Indonesia (UI), 1984

2. Master of Science in Business Administration University of Illinois at Urbana – Champaign, USA, 1992

Job Experience : 1. Ministry of Finance, 1978 ‐ 19822. Investment Coordinating Board (BKPM)1982 ‐ now.