Indonesia 2010 ORGANISATION for ECONOMIC CO-OPERATION and DEVELOPMENT
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OECD Investment Policy Reviews INDONESIA OECD Investment Policy Reviews Indonesia has undertaken a decade of political and economic reform, under very diffi cult circumstances. Democracy is now fi rmly established, and the economy is growing at a steady pace in spite of the global fi nancial crisis. Reforms over the past decade have done much to improve the resilience of the Indonesian economy, and the INDONESIA government has made substantial progress in creating a better climate for investment. New laws have been enacted in almost all sectors, and new institutions have been created to advise the government, implement and enforce laws, regulate newly liberalised sectors and settle disputes. Foreign investors have taken notice. Foreign direct investment in Indonesia in the past fi ve years has exceeded the earlier peak achieved in 1996, before the Asian fi nancial crisis in 1997-98 brought economic contraction and net outfl ows of foreign investment. This investment is also becoming increasingly diversifi ed by sector and by country of investor. OECD Investment Policy Reviews: Indonesia charts Indonesia’s progress in developing an effective policy framework to promote investment for development. It focuses INDONESIA Reviews Policy Investment OECD on policies towards investment, competition, infrastructure, fi nance and other areas of the business environment and suggests ways the climate for both domestic and foreign investment might be further improved. In the same series China Egypt India Morocco Peru Russian Federation I Viet Nam DN The full text of this book is available on line via this link: www.sourceoecd.org/finance/9789264087002 Those with access to all OECD books on line should use this link: www.sourceoecd.org/9789264087002 SourceOECD is the OECD online library of books, periodicals and statistical databases. For more information about this award-winning service and free trials, ask your librarian, or write to us at [email protected]. ISBN 978-92-64-08700-2 20 2010 04 1 P www.oecd.org/publishing -:HSTCQE=U]\UUW: 202010041.indd 1 21-Sep-2010 10:56:43 AM OECD Investment Policy Reviews Indonesia 2010 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where governments work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. ISBN 978-92-64-08700-2 (print) ISBN 978-92-64-08701-9 (PDF) Series: OECD Investment Policy Reviews ISSN 1990-0929 (print) ISSN 1990-0910 (online) Also available in French: Examens de l’OCDE des politiques de l’investissement : Indonésie 2010 Photo credits: Cover illustration: © Laserspit/Shutterstock © Denis Babenko/Shutterstock © Xebeche/Shutterstock Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD 2010 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. FOREWORD Foreword This first Investment Policy Review of Indonesia assesses the development of Indonesia’s investment environment on the basis of the Policy Framework for Investment. It testifies to the growing ties between the OECD and Indonesia, both through the Enhanced Engagement process with key emerging economies and as part of the strategic partnership between Southeast Asia and the OECD. The Review describes the extensive reforms undertaken in Indonesia over the past decade to improve the climate for both domestic and foreign investment. It documents the rise in investor confidence, as seen in a resurgence of inflows of foreign direct investment, and highlights areas where further improvements in policies and practices could produce levels of investment commensurate with higher growth targets for the Indonesian economy. The Review is based on a background report that facilitated a review by the OECD Investment Committee of Indonesia’s investment policies in March 2010. The Indonesian delegation was led by Vice Minister of Trade, Mahendra Siregar. An early draft of the report was also discussed at a seminar organised by the Government of Indonesia in Jakarta in February 2010. The Government of Indonesia created a Task Force to prepare detailed answers to the questions in the Policy Framework for Investment and to provide support to the process, including extensive comments on the draft report which have been incorporated in the Review. The OECD Investment Committee approved the report on 9 July 2010. The Review has been prepared by Stephen Thomsen and Kenneth Davies, Senior Economists, and Misuzu Otsuka, Economist, in the Investment Division, headed by Pierre Poret, of the OECD Directorate for Financial and Enterprise Affairs. Secretariat inputs were received from the Anti-Corruption, Competition, Financial and Corporate Affairs Divisions and from the Centre for Tax Policy and Administration. The report also benefited from the views of the Indonesian authorities and consultations with the private sector and other partners. OECD INVESTMENT POLICY REVIEWS: INDONESIA 2010 © OECD 2010 3 TABLE OF CONTENTS Table of Contents Preface by Agus D. W. Martowardojo, Minister of Finance, Government of Indonesia. 9 Preface by Angel Gurría, OECD Secretary General . 11 List of Abbreviations . 13 Executive Summary. 19 Overview of Progress and Policy Challenges . 23 1. Overview . 24 2. Policy challenges and options to address them. 30 Notes . 37 Chapter 1. Investment Policies and Trends Over Time . 39 1. The setting: economic reform . 40 2. FDI trends . 46 Notes . 60 Chapter 2. Investment Policy. 61 1. Laws and regulations. 62 2. Effective land ownership registration . 65 3. Intellectual property rights . 67 4. Contract enforcement and dispute resolution. 71 5. Expropriation procedures . 74 6. The non-discrimination principle . 75 7. Investment promotion and protection agreements . 80 8. International arbitration instruments. 81 Notes . 82 Chapter 3. Investment Promotion and Facilitation . 85 1. Investment promotion strategy . 87 2. Investment promotion agencies . 88 3. Monitoring IPA performance . 90 OECD INVESTMENT POLICY REVIEWS: INDONESIA 2010 © OECD 2010 5 TABLE OF CONTENTS 4. Streamlining administrative procedures . 92 5. Dialogue with investors. 95 6. Investment incentives . 96 7. Promotion of investment linkages. 100 8. Drawing on international expertise. 102 Notes . 104 Chapter 4. Competition Policy. 107 1. Transparency and non-discrimination . 109 2. Implementation of competition laws . 114 3. Anti-competitive practices . 116 4. Policy evaluation and intra-governmental communication . 117 5. Industrial policies. 120 6. Competition aspects of privatisations . 120 7. International co-operation . 120 Notes . 122 Chapter 5. Infrastructure Development. 123 1. Setting infrastructure policy. 127 2. A framework for private participation . 129 3. Telecommunications . 132 4. Electricity. 137 5. Transport . 140 6. Water . 144 Notes . 145 Chapter 6. Financial Sector Development . 149 1. Financial sector regulation . 151 2. Bankruptcy proceedings, collateral use and credit information . 158 Notes . 160 Chapter 7. Public Governance . 165 1. Regulatory reform framework . 167 2. Co-ordination across government . 169 3. Regulatory impact assessments. 172 4. Public consultation. 172 5. Removing red tape . 173 6. International anti-corruption and integrity standards. 174 7. Enforcing anti-corruption laws and regulations . 177 8. Reviewing the effectiveness of anti-corruption laws . 183 9. International anti-corruption initiatives . 184 Notes . 185 6 OECD INVESTMENT POLICY REVIEWS: INDONESIA 2010 © OECD 2010 TABLE OF CONTENTS Chapter 8. Other Aspects of the Policy Framework for Investment. 189 1. Trade policy. 190 2. Tax policy . 195 3. Corporate governance . 198 4. Policies for promoting responsible business conduct. 208 Notes . ..