Indonesia eases foreign investment restrictions

Following modifications to the "negative investment list" that specifies areas in which foreign participation is banned or restricted, the limit on investment in pharma companies will rise from 75% to 85%.

Overseas players will also be able to full ownership of power plant projects constructed as public-private partnerships, where participation is currently capped at 95%. Investment in advertising agencies by groups from member countries of the Association of Southeast Asian Nations will increase to 51% from 49%.

However, a proposal to allow foreign investors to fully operate airports and ports was not carried forward. They may only own up to 49%.

"The commitment is to maintain Indonesia's economic growth and anticipating a slowdown in the global economy by encouraging investment, particularly in domestic and foreign investment," Hatta Rajasa, Indonesia's chief economic minister said, Reuters reported.

The country's current account deficit has contributed to the rupiah falling 21% against the US dollar in 2013 to a five-year low of INR12.260 on December 23. There are concerns that the impending reduction in the US monetary stimulus, plus uncertainty ahead of next year's elections, will lead to further foreign outflows.

The World Bank said in its most recent quarterly review of the Indonesian economy that growth is likely to slow in 2014 - 5.3% is the expected base case, down from 5.6% in 2013 - and reversing the trend requires additional and more focused policy responses.

"The monetary policy and exchange rate adjustments seen in 2013 are broadly positive for macroeconomic stability, however, they also carry costs and bring with them risks," the World Bank said. "Therefore, moving into 2014 the recent, necessary focus on near-term macroeconomic stability should continue to be augmented with more steps to support a virtuous cycle of strong investment, including foreign investment, and output growth."

It recommended supporting exports to capitalize on greater international competitiveness generated by the weaker rupiah, increasing investment efficiency, and supporting, and enhancing, foreign direct investment inflows.

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