Developing Potential & Creating Opportunities
by Ir. Sanyoto Sastrowardoyo
Indonesia has opened its door to the foreign business community since the promulgation of law No. 1 of 1967 on Foreign Investment. One year later, Law No. 6 of 1968 on Domestic Investment was also promulgated in order to attract both foreign and domestic investment. Prior to 1967 private investment in country was very small or we may say insignificant and the great majority of investment were conducted by the in-efficient state-owned enterprises.
The domestic and foreign investments in Indonesia are, therefore, expected to play a very important role in Indonesia’s economy; in particular, to increase production and at the same time to increase export and to create job opportunities to Indonesia’s labor force. In addition, foreign investment also expected to involve in the capital and technology intensive investment projects, and to conduct the transfer of technology, expertise and skill to the Indonesians.
In the past two and a half decades, the annual domestic and foreign investment approvals in Indonesia have experienced ups and downs. There is no doubt that internal as well as external factors have contributed to such trends. In the 1970s and the early 1980s, the inflow of domestic and foreign investments was not very smooth. Most of new investments were either in the downstream, small and medium scales or inward looking. The domestic and foreign investments actually began to pick-up in the 1990s only after a series of new investment policy measures were introduced.
Although there is no direct correlation, however, during the world economic recession in the late 1970s and the early 1980s, private investment inflow in Indonesia was quite low. It was aggravated by the foreign investment climate where in this period, Indonesia’s policy towards foreign investment was considered “unfavorable” and “restrictive”. The adoption of Indonesia’s new economic development strategy afterwards which is outward looking instead of inward looking has triggered the momentum for an open economy era. Every year, the domestic and foreign investment approvals have soared at unprecedented levels. In turns, it gives a positive impact on Indonesia’s export of non-oil and gas commodities.
Political stability and security are prerequisites for fostering economic growth. These two factors-stability and security have been the main focus of the Government since it embarked on a journey of national development in 1966. It success in achieving continuos economic growth and development has made in Indonesia a model for other developing countries. Without doubt, the Government’s ability to manage the political climate and the security of the country has been a major contributing factor.
Until 1966, Indonesia was in dire straits. It suffered from negative economic growth: domestic production was very low and exports were virtually nil. Imports were dominated by consumer items unavailable in the domestic market. Infrastructure in the regions was in shambles while domestic capital, which could have been utilized to maintain the infrastructure, remained a scarcity.
For the Government, there was no alternative other than to harness the nation’s vast potential to create growth opportunities in the economic sector. The main requirement in this effort was capital. So the Government conducted a campaign to attract foreign capital to operate commercially as investors.
Numerous missions were sent abroad to persuade foreign investment to invest in Indonesia. The Government officials and private sector executives in these missions outlined to potential investors the prospects and advantages of investing in Indonesia. In the country itself, domestic investment was encouraged. To maximize the flow of capital for investment purposes, domestic consumption was reduced. The Government opened its doors to encourage foreign and domestic capital participation in the economic development of Indonesia.
Since then the first phase of Indonesia’s long-term development plan (Pembangunan Jangka Panjang Tahap Pertama-PJPTI) has been completed and the fruits of development have benefited the people. This is recognized the world over as an outstanding achievement. Indonesia has proven that it is capable of rehabilitating its economy and molding it into a powerhouse with the foundations to sustain growth. By improving its infrastructure and its investment regulations, Indonesia has become an investment destination promising high returns for the investor.
Ir. Sanyoto Sastrowardoyo, is the Minister of Investment and Chairperson of the Investment Co-coordinating board 1996
Published in Roving Insight Magazine