Feb 22, 2012 | 09:24 PM

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Indonesia Allows More Foreign Investment

Indonesia is leading ASEAN in attempting to attract investment has issued a new presidential regulation that increases foreign ownership limits for certain local businesses and properties. The negative investment list was issued to improve the nation's investment climate for both foreign and domestic investors, and also in order to comply with the ASEAN Economic Community commitment, officials say. The government, for example, raised the maximum ownership for foreign investors in the construction sector to 67 percent from 55 percent, and the hospital services sector to 67 percent and 65 percent under the new negative investment list. Hospitals owned by foreign investors can expand their activities nationwide, the regulation states. "Foreign investors can also own up to 95 percent of power plants," said Investment Coordinating Board (BKPM) head Gita Wirjawan in a press conference Wednesday. Coordinating Economic Minister Hatta Rajasa also attended the press conference. A crucial article in regulation No. 36/2010 rules that a foreign investor owning a controlling stake larger than allowed under then new regulation after a rights issue must release their shares within two years to comply with the limits set by the regulation. Foreign investors can then sell their shares to domestic investors, or through Indonesia's stock market, or the company can buy the shares, to be treated as treasury stock. The regulation does not cover portfolio investors who buy shares from the stock market, Gita said. "If there are foreign investors considered as a controlling stakeholder, then the regulation becomes effective," he said. The regulation also recognizes a grandfather clause, meaning the new regulation will not affect investors that have complied with the previous regulation issued in 2007, he added. "This regulation also recognizes law hierarchy, so other regulations whose hierarchies are below this regulation are not effective," said Gita, adding that Indonesia wanted to eliminate investment uncertainties. In line with the ASEAN Economic Community commitment, the regulation sets out an attachment providing ASEAN investors higher maximum ownership in some sectors, including cargo handling, foreign sea vessels and recreation. ASEAN investors may own up to 60 percent of cargo handling services, higher than the 49 percent regulated for other foreign investors. ASEAN investors can also own up to 60 percent of foreign sea vessels and 100 percent of recreation businesses. "Therefore, there will no longer be inconsistencies between domestic and ASEAN [regulations]," said Deputy Trade Minister Mahendra Siregar. Also in the regulation, the government stipulates ownership of base transceiver stations must be 100 percent local, after an intense debate between BKPM and the Communications and Information Technology Ministry.