Economy of Indonesia - Investment

Investment

Since the late 1980s, Indonesia has made significant changes to its regulatory framework to encourage economic growth. This growth was financed largely from private investment, both foreign and domestic. U.S. investors dominated the oil and gas sector and undertook some of Indonesia's largest mining projects. In addition, the presence of US banks, manufacturers, and service providers expanded, especially after the industrial and financial sector reforms of the 1980s. Other major foreign investors included India, Japan, the United Kingdom, Singapore, the Netherlands, Qatar, Hong Kong, Taiwan and South Korea.

The economic crisis made continued private financing imperative but problematic. New foreign investment approvals fell by almost two-thirds between 1997 and 1999. The crisis further highlighted areas where additional reform was needed. Frequently cited areas for improving the investment climate were establishment of a functioning legal and judicial system, adherence to competitive processes, and adoption of internationally acceptable accounting and disclosure standards. Despite improvements in the laws in recent years, Indonesia's intellectual property rights regime remains weak; lack of effective enforcement is a major concern. Under Suharto, Indonesia had moved toward private provision of public infrastructure, including electric power, toll roads, and telecommunications. The financial crisis brought to light serious weaknesses in the process of dispute resolution, however, particularly in the area of private infrastructure projects. Although Indonesia continued to have the advantages of a large labor force, abundant natural resources and modern infrastructure, private investment in new projects largely ceased during the crisis.

As of 28 June 2010, the Indonesia Stock Exchange had 341 listed companies with a combined market capitalization of $269.9 billion. As at November 2010, two thirds of the market capitalization was in the form of foreign funds and only around 1% of the Indonesian population have stock investments. Efforts are further being made to improve the business and investment environment. Within the World Bank's Doing Business Survey, Indonesia rose to 122 out of 178 countries in 2010, from 129 in the previous year. Despite these efforts, the rank is still below regional peers and an unfavourable investment climate persists. For example, potential foreign investors and their executive staff cannot maintain own bank accounts in Indonesia, unless they are tax-paying local residents (paying tax in Indonesia for their worldwide income).

From 1990 to 2010, Indonesian companies have been involved in 3,757 mergers and acquisitions as either acquiror or target with a total known value of $137bn. In 2010, 609 transactions have been announced which is a new record. Numbers had increased by 19% compared to 2009. The value of deals in 2010 was 17 bil. USD which is the second highest number ever.

In 2011, the Indonesian government announced a new Masterplan (known as the MP3EI, or Masterplan Perceptatan dan Perluasan Pembangunan Ekonomi Indonesia, the Masterplan to Accelerate and Expand Economic Development in Indonesia). The aim of the Masterplan was to encourage increased investment, particularly in infrastructure projects across Indonesia.