Indonesia- Economic and Social update- April 2007: Published on 21 April 2007

The World Bank released a paper last week entitled ‘Indonesia: Economic and Social Update- April 2007’. This paper has been prepared by Yoichiro Ishihara (World Bank Office Jakarta, Economist) under the supervision of William Wallace (Lead Economist).

According to this report, the Economic indicators of Indonesia are signaling a strong pickup, but multitudes of natural and man made disasters may dampen the upturn in the near term. The over all growth rates for 2006 is 5.5%, and expected to pick up to 6.3% in 2007, and 6.5% in 2008.

The government also approved a new ‘Investment Law’ on 29^th of March, which creates significant impact on the investment climate.

The key items of the new law are:

Equal legal status: Gives equal legal status and treatment to both domestic and foreign investors.

Investors’ protection: (i) Provides protection against nationalization and states that any expropriation must be based on law and compensated at market prices, (ii) guarantees the right to repatriate earnings in foreign currency, and (iii) omits the forced divestiture and limited duration of foreign investment under the old law (1967 Foreign Investment Law).

Dispute resolution: Mandates binding international arbitration in the event of disputes between the government and foreign investors.

Negative list: Makes all business activities open to investment unless explicitly closed or restricted and provides for a transparent investment negative list based on standard industrial classifications to be issued as a single Presidential Regulation

Property rights: Provides stronger property rights (e.g. land use rights for investors of up to 95 years)

Immigration procedures: Allows expatriate workers to be granted two year residence permits and two year multiple entry visas, and allows the two year residence permit to be turned into a permanent residence permit for expatriates living in Indonesia continuously for more than two years;

Tax incentives: Provides for special tax incentives for certain types of investment under certain conditions, including tax holidays for pioneer industries, income tax reductions, exemption or reduction of import duty and value added tax for capital goods and raw materials, accelerated depreciation and reduced property tax;

Reporting requirement: Requires all investors to submit periodic investment activity reports to the Investment Board (BKPM)

These changes are similar to the economic liberalization which happened in India during 1992. So, if any body is interested in business, come to Indonesia!!