Indonesian Trade and Investment

Investment Reflections in Indonesia The Government of the Republic of Indonesia enacted the Investment Coordinating Board (Badan Koordinasi Penanaman Modal-BKPM) in 1973 to assist the President of the Republic of Indonesia in formulating national policies on Investment. This board is responsible for the planning, promotion licensing, control and evaluation of investments. Incooperation with Regional Investment Coordination Board (Badan Koordinasi Penanaman Modal Daerah - BKPMD) and other related agencies, it also undertakes the supervision of investment projects, and provides advises to solve difficulties faced during the period of implementation. Since 1985, it has progressively liberalized both its trade and foreign investment policies. Foreign direct investment has in most cases proven to be a stroger way to the develop outward-looking industries than infant industry protection policies under the inward-looking approach. Approval for foreign investment can be obtained in Indonesia either through the BKPM office in Jakara or the BKPMD office in every Province, and also through Representative Office of the Republic of Indonesia all over the world such as Indonesian Embassies, Consulate Generals and Consulates. Following the evaluation process, the Chairman of BKPM or Head of Corresponding representative of the Government of the Republic of Indonesia or the Chairman of BKPMD will issue the investment approval. To implement an approved investment project, the BKPM or the BKPMD will issue the following permits / licenses as proposed by the investors: customs approval letter, limited importer license (APIT), foreign manpower plan approval (RPTKA); and permanent business license (IUT). Under the current regulation, a foreign capital investment (PMA) company is granted a 30 year period to operate after establishment. During this time, if an additional investment to the original were undertaken, then a further 30 year period would be granted for the project. It is also possible to extend the termination by another 30 year. A foreign capital investment (PMA) company is generally considered to be a joint venture between foreign and Indonesian partners either as corporation partnership or individual partnership. There are no specific requirements on the minimum amount of investment as the parties concerned are left to determine their sums. In practice, the investment approval board requires minimum capital of US $ 25.000. The PMA company may also be established as fully owned by the foreign investor. However, no later than 15 years of its commercial operation, some of it shares must be divested to Indonesians through the local stock exchange.

The Policies on Manufacturing and Trade Development in manufacturing and trade refers to the Basic State Guidelines (GBHN) of 2000-2004, with a vision to develop the people's economy as a backbone of national development. In this context, the strengthening of long-and-medium term economic development, the development in manufacturing and trade primarily on agro-industry is directed towards utilizing national resources. The short-term economic development is focused on the increase of non-oil and gas export, development of small-and-medium-scale enterprises (UKM) and improvement of production of goods and services. The policy on exports is directed towards augmenting non-oil and gas exports as an effort to gain foreign revenues. They include among other :

a. To increase foreign competition of export commodities by enlarging export structures from primary product upstream products as well as by expanding market export destination. b. To develop superior products having competitive adge, among others by modernizing product processing system in industries in the eastern region of Indonesia. c. To improve business sector capability to enter global market through enhancement of knowledge in export procedures and requirements, and socializing prevailing statutory regulations to the business partner's countries. d. To encourage Indonesia's export banks and other banking institutions to improve the realization of trade financing as well as the utilization of counter - trade mechanism. e. To follow up on deregulation and de-bureucratization process in the field of foreign trade to remove obstacles, as to simplify exporting procedures that leads to market strength. Moreover to improve international trade cooperation in standardization technique to reduce obstacles in exports and prevent the practices of holding orders detention, and implement automatic detention. f. To develop and implement export-import information system and network in order to accelerating information flow to domestic business until regional / city level and to overseas. g. To optimize utilization of export processing zones and to develop Integrated Economic Development Zone (Kawasan Ekonomi Terpadu - KAPET). h. To develop export development institutions by reactivating Indonesia Trade Promotion Centers (ITPC) and to activate the role and reposition industrial and trade attaches in undertaking promotion activities and conducting business intelligence. i. To develop cross-border trading activities in the context of accelerating international market access. j. To develop the existing inter-institutuional and supervisory institutional cooperation networks and synergy both at home and abroad. k. To improve the role of industrial research and development agencies in order to help small and medium scale manufacturing industries or cottage industries to master processing and producing technologies, among other things through training, design and engineering and product design to improve their product quality, efficiency and productivity. In implementing a free market, some international agreements have been pursued, in cooperation with the ASEAN Free Trade Area (AFTA), the Asia Pasific Economic Cooperation (APEC), and the World Trade Organization (WTO). In line with the Government Programs, the Government policy is to create new conditions that demand manufacturing and trade development towards national potential empowerment in the context of utilizing domestic market and export opportunities through high-competitive business on a global scale.The Policies were implemented to rovise statutory regulation in the economic sector, such as prohibition of monopoly practices, and unfair business competitions. Other efforts include consumer protection, commodity-time market, simplification of import business procedure entry, revocation of national automobile facility and application of new measures on automotive, negative list of investment, certain business sectors/fields reserved for small enterprises, lifting of business barriers for foreign businessmen, and provision of export facilities. The Ministry of Industry and Trade has mandated to act as focal point on the implementation of Law No. 5 of 1999 on Prohibition on the Practice of Monopoly and Unfair Business Competition; Law No. 8 of 1999 on Consumer Protection; and Law No. 32 of 1997 on Commodities Periodical Trade.

Domestic Trade Policy The policy of domestic trade covers efforts to accelerate good distribution in order to stabilize prices and control inflation rate. It also aims to expand marketing of domestic production in the context of augmenting producer trade income, securing consumer protection, improving business acumen in implementing partnership in the context of a fair business competition as well as expanding access of information.

Overseas Trade Policy To determine the annual exports target, the policies were discussed with Senior Offials of the government (economic ministerial level). The Government encourages the analyses concerning potential of generating foreign exchange and earnings primary export commodities; arranging a comprehensive export to increase programs; diseminating international price and information on primary export Commodities through mass media; improving the role of associations to augment exports by taking actual steps in improving the association's capabilities in searching alternatives not contrary to the World Trade Organization (WTO).

International Industrial and Trade Cooperation The Government has been playing an active role in multilateral convention to strengthen Indonesias position at the international level as well as to gain facilities for domestic businesses in gaining access to international markets. The Government had strived to reduce trade barriers in the form of tariff and nontariff, to smoothen the countrys export flow; take part on trade disputes settlement in the WTO panels; as coordinator for commodity cooperation organizations, such as the International Rubber Organization (INRO), Association of Natural Rubber Producing Countries, International Pepper Community (IPC), and the Asia Pacific Coconut Community (APCC). Regional cooperation has been maintained among other things through the Nineteenth Session of the Coordinating Committee on Services, Study on Liberalization in other regions, such as the North American Free Trade area (NAFTA).

The National Export Development Board (NAFED) NAFED strives markets penetration to maintain, improve and expand export segments, both in traditional and non-traditional markets or new markets by conducting intensive lobbies. It also aims to send trade and investment missions to participate in international trade expositions, as well as development coordination with international expositions promotion agencies overseas. Data services and information on trade, such as country profile, exporters profiles, importers profiles, commodities, exhibition profile, market survey, market brief, inquiries and several other market information are distributed through off line network (especially for domestic of small-and-.medium scale enterprises). They are also distributed through online (http://www.nafed.go.id). Both are designed to promote domestic business circles activities and products.

Commodity Exchange Supervisory Board The Government is trying to keep on improving the activities of development and promotion of periodical trade undertakings managed by commodities periodical stock-exchange, privately owned companies, private corporation optimizing the utilization of export processing zones and developing integrated

economic development zones (KAPET). They are also giving wider role to small enterprises in distributing primary and raw materials and industrial products as well as helping small-and-medium scale enterprises (UKM) in marketing and promoting their products in domestic and overseas markets.