Investment Law, Hope or Obstacle of the Investment 

Will investors take a glimpse at Indonesia? Will country’s economics ever grow? This question is proper to be presented considering to the Investment Law (IL) that have been approved by the House of Representatives days before. Certainly soon enough the IL will be applied in public after getting legalization from government.

We are very aware, economic growth of a state is based on the investment climate. However investment policy of a state can not be self-supporting, it has to synergize with other factors from outside of the investment policy itself.

Policy and political stability problems, regulation and also legal certainty are hardly determined the economic stability and growth. If the financing sector, taxation, basic infrastructure condition like electricity, telecommunications, harbors and road infrastructures, labor condition are not in function, the investment climate will be not conducive.

Moreover, security,  unbureaucratic of bureaucracy, as in the case of time and expense, and also 'good governance', including corruption, certainty and consistency in governmental policy either indirect or direct it is certainly hard to influence the net advantages of long-range risk expense from the investment activity.

It can be said that an investment climate expresses a number of factors that related to certain locations which forms the incentives and opportunities for capital owners to do business or invest productively and develop.

Concretely, business climate or investment conducive is a climate which motivates someone to invest with expense and risk as low as possible in one side, and can gain long-range profits as high as possible in the other side. (Stern, 2002).

For example China and India which have repaired their investment climates at the decades of 80’s until in the 90’s, have dropped the investment risk and expense drastically, hence the private sector investment as a part of domestic product of gross (PDB) increase approximant of 200 %.

Among the ASEAN members, Indonesia is the only country which experienced a negative foreign investment current since the economic crisis in 1998 even though the negativity value have the tendency to get smaller since year 2000. It is related to the politics climates which progressively are better in the period of 1998-1999, that reduce the doubts of the investor for investing in Indonesia.

On the contrary the assumption of many foreign investments that left Indonesia reflects the badness of Indonesia’s investment climate. Especially for foreign companies or industries in electronics, textile, ready made clothes and shoes.

Some proofs shows that Japanese and Korean companies have left Indonesia. However, the most fundamental problem experienced by Indonesia is the bureaucracy permits problem and illegal taxes are still out of control which burden the business sector.


The World Bank noted that on ease of business in the beginning year of 2005 Indonesia in 115 of 155 countries.  Compare to China, which have the same procedures that is 12 procedures, to finish all of the procedures in Indonesia the investor will need 151 days while in China only  need 41 days.

Surely this matter will provoke us with big questions. What kind of procedure that should be taken care of? What took it so long?

In the case of permission procedures, Indonesia occupies rank 107. With this basis government then decided so that investor would finish the procedure through one stop service in starting their business.

It is stated in our new IL which newly ratified by the House of Representatives recently. Which means that the treatment of investment permissions should be quick, easy, coordinated and without needing any burden weighing the investor. With this kind of system, the procedure permission is expected to simplify and speeding up of the completion, which in Indonesia the treatment of permission is needlessly long completion.

For example is the foreign investment treatment system in Indonesia. For application of Foreign Investment Coordinating Board (BKPM) permit in Jakarta, normally the issuance of principle permit will take between 1 month until 1,5 months. Then an investor with the said principal permit will build a foreign investment limited liability company through Notary. Followed by authentication by the Department of Judgment, approximately take 60 days. Exclude the printing of Buku Tambahan Negara in 1 month until 1,5 months. Not to mention the, taxpayer identification number (NPWP), WDP and others.

When investments done in regional area it would take other regional areas permits. In the draft of law concerning limited liability has been agreed that the authentication of Limited Liability available within 14 day after clauses was fulfilled completely. This alteration is certainly exhilaration.

An investor should know the certainty of when its company will be a legal body. The legal body status will effected to the responsibility of a shareholders, from founding the foreign investment company against the actions done by of stockholders.

Aside from that, one stop services also concern problems of self government. Could local government permeate policy of central government, the authority problem, time and amenity of procedure?

Therefore, the Minister of Trade, Mari Elka Pangestu stated that government will compile Government Regulation concerning division of authority of regional and central. Distribution of responsibility and authority between the regional areas and central has been compatible with the self government regulation, but in some respects related to national importance remain to be decided by central government.

Capital investment related to the non renewable natural resources with level of high environmental impact and risk would remain to be arranged by central, where [the] mentioned is part of based on externality principle on Law on Self Government No. 32 Year 2005.

So that if (there are) any investment in sub-province region, hence the investment truly become sub-province government responsibility and authority. However when the investment enter the category of non renewable natural resources with level of high damage of environment, the investment will pulled to central because it as externality aspect. Worried it would harm other sub-province, or province or even state.

Besides concern about the permission and problems of self government, government also regulate the land right matters which assumed very pro-foreign investor where Right to Cultivate (HGU) allowed for 95 years, Right to Build (HGB) for 80 years and Right to Use (HP) for 70 years and can be extended in advance at the same time.

However these regulations not as much of explain what kind of locations by the government. In China HGU is given for 100 years, but only on locations which is far in hinterlands so that will develop infrastructures network in hinterlands. That is the reason why development in China is well distributed than in Indonesia.

Unlike Indonesia, Malaysia, Philippines, and Thailand eases of investment which gave three incentives types to foreign investors, namely incentive regional, sectoral incentive, and free trade area and exporting incentive. Singapore has two incentives type namely sectoral incentive and free trade area and exporting incentive.

Those three counties proved to increase their investment climate compared with Indonesia which only gave fiscal incentive that remain could not attract foreign investors to come to Indonesia.

Fiscal incentive which given by Indonesia only give a small impact to investor’s enthusiasm to invest in Indonesia. The non fiscal incentives are the one required by investor.

Various non fiscal incentives which possibly can be recommended by are: certainty of guarantees of investment, possibility of the investment growth and public support, government and political stability and macroeconomics especially the matter of ease and investment permissions.

Learn from the neighboring countries’ experience, Indonesia’s policies may be broadened in the form of area incentives, sectoral, free trade and exporting, and also in the form of other incentives, so that the development in this country can be well distributed.

All of us are aware that Indonesia is a rich country of natural and man resources, however foreign investor remain to invest in foreign countries. Singapore is one of the examples, though compared with Indonesia, their man and natural resources are minim, Singapore still chosen by the investor.

Clearly Indonesia is far wealthy from Singapore. Then what happened? Government’s attention to ease permissions and incentives were not as intensively as Singapore. Singapore’s infrastructures are more enormous than Indonesia’s.

Therefore how great Indonesia economic potency is, if it is not supported by adequate infrastructures investor would not come to Indonesia. And this is what has done by China. A country with 1,3 people million population has 88.775 artery roads and 100.000 km high ways, or  ratio road length of a million resident is 1.384 km.

Indonesia with 220 million people only has 26.000 km of artery roads and 620 km of high way (121 km per million residents). Harbors in China can serve one fifth of volumes 'of world’s containers and still build new harbors and high ways.

Hence, China has an extraordinary fascination for capital investment. The entries of foreign companies also stimulate domestic companies to grow. China hardly realize as a developing countries (which is sure of capital deficiency for develop its country) deliver foreign capital is the best choice to optimal the country’s potency.

But, China can point foreign investment at industrial orienting exporting which available to transfer of technology. Thereby, the attendance of foreign capital in the country gives impact significantly to increase the domestic economics value.

Indonesia experienced a very complex problem. All problems whether it is concerning investment climates or natural disasters, altogether would point at Indonesia citizens it self. We, Indonesian, have to learn not to be a hypocrite and like to blame others.

For that reason, the IL should not be told as a form of pro-foreign investors. The new IL should be treated wisely. Then how about Malaysia? Malaysia also allows HGU for 90 years but they are not colonized by foreign investors.

What about China? They proved that they are still able to maintain their identity. Lots of domestic companies in China were as the same level as the foreign companies.

We have to learn to be positive. Do not have to be emotional. We can regulate the essentials matters so that foreign can not dominate the area.

We have to realize that without foreign investment, our wheel of economics will not rotate better. And we have to aware about the unemployment that already in ten millions of people. Without foreign fund and work along with foreign companies we afraid that the economics will turn down progressively.

If it is so, when we will be able to move forward and compete with other countries. Are we always going to be the spectators?