New negative investment list 'treading water'

Urip Hudiono, The Jakarta Post, Jakarta

The government has issued its latest so-called negative investment list, which sets out a more comprehensive description of which business sectors are closed to foreign investors.

The new list, required under the recently enacted Investment Law, governs a total of 338 business sectors, of which Trade Minister Mari Elka Pangestu said 69 sectors would now be more open than before, with 11 becoming more restrictive.

The previous 2000 and 2001 negative investment lists covered 83 sectors.

The list increases the number of closed sectors to 25 from 11 previously so as to protect the national interest in such areas as public health, the environment, culture and natural biodiversity. It also prioritizes 43 sectors for small and medium enterprises (SMEs).

Other sectors will, however, be more open to foreign investors than before. Under the new rules, non-national investors will be allowed to take controlling stakes in banks (up to 99 percent), the power sector, oil and gas industry, tollway operators, water companies, agriculture and plantation firms (95 percent), insurance firms (80 percent), the pharmaceutical industry (75 percent), health services (65 percent) and construction (55 percent).

In the telecommunications sector, foreign investors will be allowed to own up to 65 percent of cellular operators, but only 49 percent of fixed-line phone companies.

Other sectors that will also be opened up to overseas investment include transportation and education, although these are limited to 49 percent. Foreign investors can also join up with local firms in the tourism and recreational sector in designated parts of the country.

Mari said the list would not be applied retroactively.

Coordinating Minister for the Economy Boediono said he expected the new negative investment list to provide more clarity and transparency as it summarized the prevailing rules governing investment in each sector.

He also said that the government would set up a team to regularly review the list.

The list comes into effect three years from the date of its issuance, that is, in 2010, and applies throughout the country, including special economic zones.

The business community cautiously welcomed the new list.

However, Indonesian Chamber of Trade and Industry (Kadin) chairman M.S. Hidayat criticized the use of the unusual formula, "50 percent foreign ownership", in a number of sectors, saying that this was uncommon in normal business practice.

"There's no such thing as a 50:50 business. It's either a majority stake or a minority one. It has to do with decision making," he said.

Hidayat said Kadin would evaluate the list with representatives of the overseas chambers of commerce and others from the business community so as to elicit suggestions and comments about it, including the question of incentives for investments in pioneering sectors.

International Business Chamber chairman Peter G. Fanning questioned how the list would be applied, although he admitted it offered more clarity and transparency, while the restrictions it imposed would be unlikely to have adverse consequences for investment in Indonesia.

"It's not a step back. But it's not a leap forward either," he said.