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Investment In Indonesia?

Jakarta/Lei- Indonesia has almost 230 million populations, which represents an enormous market. Additionally, the country has abundant natural resources (timber, fish, oil, natural gas, metals) and enormous biodiversity. Internal demand is growing due to the development of the middle class. Indonesia natural resources has not optimally empowered for prosperity of the people due to limited capital, technology and human resources. To explore all potentials, Indonesia needs foreign investment. It must be accompanied by a set of rules that guarantee and protect investors as well as providing them a legal certainty without sacrificeing the national interest. So that the enactment of Law No. 25 of 2007 on Investment is to accommodate the various interests of parties regarding the certainty and legal protection for investors with regard to national economic interests.

Capital investment is significantly important to the growth of the national economy. There are two main benefits. First, rising income (as increase in the level of wages, the consumer or the increase in government revenue). Secondly, the indirect benefits such as the introduction of new technology and knowledge. On the other hand, investment is also expected to expand its role in Indonesia’s foreign exchange through the export of its production abroad.vestment today:

  1. Provision of employment
  2. Develop an import substitution industries to save foreign exchange, to help develop import substitution industries.
  3. Encourage the development of industrial goods non-oil exports to earn foreign exchange.
  4. Construction of the lagging regions. Foreign investment is expected as one of the sources of financing in development that can be used to build infrastructure such as ports, electricity, water, roads, railroads, and others.
  5. Transfer of technology.

Based on the investment competition with other countries and also considering to the UNCTAD report, the necessary breakthrough steps to attract foreign investors in Indonesia is the state of the art information investment. Regarding policies,   particularly in the areas of related law to the protection and legal certainty as well as the mechanism of bureaucracy. Handling of providing information on foreign investors can be done through diplomacy and between businesses themselves.

Increasingly developed economic globalization based on the principle of trade liberalization, drives regional economic cooperation among countries such as the North American Free Trade (NAFTA), Single European Market (SEM), European Free Trade Agreement (EFTA), the Australian-New Zealand Closer Economic Relations and Trade Agreement (ANCERTA), ASEAN Free Trade Area (AFTA), Asia Pacific Economic Cooperation (APEC) and the World Trade Organization (WTO). The robust economic globalization drive  the interdependence and integration in   finance, production and trade. This situation infuences  of the economic management of Indonesia.

The Joko Widodo -Jusuf Kalla – (Jokowi-JK) Government is targeting the state policy improvements since their reign that began in the early 2015. One of them in the improvement of investment. The   is targeting a IRD 3,500 trillion investment within five years. These efforts taken in order to boost the economic growth of 5 to 7 percent.

Investment is one of the driving processes to strengthen the country’s economy, so that some countries are trying hard to increase their investment. Foreign investments are invited to bring funds to boost the industries to drive the economic development of the country.

Implementation phase applicable investment in Indonesia today can be seen in the following figure:

Figure 1. Investment step by step

Incentives to investment are accessible to all investors, national and foreign. More specifically, these are reductions of duties on imports and equipment goods and additional incentives for export investors and investments made in certain regions. In 2006, the government launched a program for a better investment climate: bill on investment, drawing up of a new negative list applicable on investments, drastic reduction of the time required for the creation of a company, acceleration of the re-examination process of local regulations likely to harm the enterprising spirit, as well as rationalization of customs procedures and improvement of customs regulations. A privatization program mainly concerning key sectors such as transport and finance and which was initiated in 1998, is regularly updated.

In relation to the above notions and in order to improve and create a favorable investment climate   and in line with the direction and policies of national development K. Dhaniswara Harjono noted steps that have been made are:

  1. simplify the process andprocedures forlicensingandapprovalwithinthe framework ofthe investment;
  2. widelyopenfieldsthat was formerly closedor restrictedto foreign investment;
  3. providea variety ofincentives, bothtaxand nontax;
  4. developareasforinvestmentinvarious facilitieson offer;
  5. enhancevarious lawsby issuinglegislationguaranteeingthatnew, morehealthy investment climate;
  6. completethe process oflaw enforcement anddispute resolutionareeffectiveand fair;
  7. completetasks,functionsandauthority ofrelevant agenciesin order toprovidebetter services;
  8. open the possibility ofa largerforeign shareholding

The enactment of Act No. 25 of 2007 on Investment (Capital Market Law) is the first step in the investment law reform because this Act No. 25 of 2007 on Investment revoke Law on Foreign Investment (UUPMA) and old Law on Region Investment (UUPMD). By UUPM is expected to accommodate a variety of investment constraints that had occurred in order to achieve better economic growth in the future. UUPM philosophical reason of the least visible of preamble, point c : that “to accelerate national economic development and realize the political and economic sovereignty Indonesia needed to increase investment for making the economic potential into real economic strength by using capital from both domestic and from abroad”; and d. “In the face of global economic changes and Indonesia’s participation in various international cooperation is necessary to create a conducive investment climate, promotion, providing legal certainty, justice, and efficient by taking into account the interests of the national economy.”

Specifically, the main purpose of the Capital Market Law establishment are as follows; “Provide legal certainty and clarity regarding the investment policy by promoting national interests so as to increase the number and quality of investment that leads to economic growth, increased employment, increased exports and foreign exchange earnings, increased technological capabilities, upgrading national competitiveness, and in turn is expected to improve the welfare of society in general”.

Applicability of the Capital Market Law still needs effort to organize the investment laws and other legal institutions is critically important in achieving the formation of the Capital Market Law as described above. In this case, Ida Bagus Rahmadi Supancana mentions that  there are challenges and paradigms in the field of investments derived from internal and external factor. Among other things influential internal factors are

  1. Thechange of paradigmfromcentralizedadministrationtodecentralization one(decentralization andautonomy);
  2. democratizationin variousnational life;
  3. reforms ingovernance(in the direction of good governanceandclean government), includingthe eradication of corruption;
  4. Thereformsin corporate governancein the directionof good corporate governance;
  5. changes inindustry structuretowardsresource-basedindustries;
  6. improve the understandingandprotection of the environment
  7. Increasinghuman rights protection;

While external factors that influence it, among other things:

Theorderof globalizationof trade, investment and finance;

  1. Theglobal issues, such asdemocracy, the environment, andhuman rights;
  2. Theprotectionof intellectual property;
  3. globalpovertyalleviation programs;
  4. Theissue ofcommunity developmentandcorporate social responsibility;
  5. Theprotection ofthe basic rights oflabor, the laborof childrenandwomen;

Basically investment activities requires implementation of transparency and legal certainty, because these activities involve parties’ agreement which will then lead to the legal relationship. Certainty and clear legal protection will provide a sense of security and encourage foreign investors to invest in Indonesia. Legal certainty for dispute resolution is necessary to attract capital investors into the territory of a country due to the disputes resolution is an integral part of international transactions in foreign investment and trade. Globalization has produced a number of parties as well as large international transactions, followed stong disputes and litigation. In the legal relations arising from an agreement between the parties, both foreign investors with local partners and / or by the government through a cooperation agreement, may drive a difference of opinion or a denial against obligations and led to dispute. To resolve disputes and problems, then the parties will seek resolution through the general courts established by the state, alternative dispute resolution outside the court or arbitration.

In Article 22 of Law No. 1 of 1967 concerning Foreign Investment, there is determination of dispute resolution between the Indonesian government and foreign investors with regarding nationalization by the government through arbitration. This dispute is rooted from the two sides is not reached agreement on the amount, kind, and the manner of payment of compensation to the government’s actions in nationalization. Therefore, any act of nationalization would cause an obligation of the government to provide compensation / compensation amount, kind, and the method of payment agreed by both parties in accordance with the principles of international law.

The new arbitration institution be used if no agreement is reached on the amount of compensation. Arbitration body consists of three person appointed by the government and the owners of capital, and a third person as chairman chosen jointly by the government and the owners of capital. The arbitration decision binding on both parties. Article 32 paragraph (1) and paragraph (3) of Law Number 25 Year 2007 regarding Investment has set up the way the settlement of disputes arising under investment between the government and foreign investors. In that provision, be determined in two ways in the settlement of disputes between the Indonesian government and foreign investors. Both ways it is:

  1. deliberation and consensus; and
  2. Theinternational arbitration.

Setlement of disputes through international arbitration is a mathod to end a dispute between the Indonesian government and foreign investors, in which both sides agree to use arbitration institution or individual arbitrators outside the Republic of Indonesia jurisdiction.

Arbitration process which can be done through the Indonesia Investment Coordinating Board is as follows:

Figure 2: Arbitral Procedure of The Indonesia National Board of Arbitration

Legal reforms that have been carried out, in particular structuring investment law is not yet completed with the advent of the Capital Market Law. In the normative level (law making process) implementing regulations are still needed, such as government regulation and other regulations that also repeal regulations that are contrary and contradictory to the purpose of the establishment of the Capital Market Law. The strengthening of institutional arrangements that support the implementation of the investment law should also be a major concern that all policies and strengthening institutions both at the central and regional synergy in the granting of licenses in the field of investment, such as one-stop service institution set out in the Capital Market Law.

In this context the need for reform in all aspects (not just legal) and increase the role of civil society in monitoring the development is a key change in the development paradigm. So that all forms of in-efficiency is at the root of the economic crisis may be minimal, and structural reform efforts will improve the government’s credibility among the international community in particular. So that foreign investment will increase, the economy experienced significant growth to reduce unemployment and improve social welfare.

Structuring investment law in order to create the investment climate has begun with the presence of that normatively UUPM have to accommodate the various interests of foreign investors. For example the provisions and treatment that is discriminatory, given to local entrepreneurs or domestic arena for market share, the protection and guarantee of investments over the threat the risk of nationalization, and the guarantee of the right to be able to transfer profits and dividends, and the right to legal settlement through international arbitration.

So necessary in the future to further encourage investment is how the further implementation of the Capital Market Law in creating business and investment climate more attractive. In short, a positive investment climate needs to be improved in the future implemental policy level is in harmony with the continuous efforts made by bureaucrats and economic actors in the localities where the investment in such things as the following:

  1. Provide legal certaintyonthe rulesatcentral and local levelsas well as producethe law relating toinvestment activitiesso asnot to burden theadditional burdenonbusiness productioncosts.
  2. Maintainingthe securityofpotentialcriminalityinterferenceby unscrupulouspeopletovaluable assetsof the company,forthe distribution of goodsandwarehouseas well asinplaces of storage offinishedandsemi-finishedgoods.
  3. Providethe most basicconveniencesfor servicesaimed atinvestors, including investment licensing, immigration, customs, taxationanddefense ofterritory.
  4. Provide aselectiverange ofinvestmentincentive packagescompetitive.
  5. Maintainthe climatic conditionsof employmentwhichsupport business activitiesin a sustainable manner.

(This Artucle made by: Dr St Laksanto Utomo, S.H, M.H)

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