New thirst for foreign investment

Foreign investment in Indonesia has been a favorite subject for woe-is-me stories among businessmen in Asia. Tales of red tape, long delays, and graft can be heard in almost any five-star hotel of the region. They complain -- but they keep coming to Jakarta.

The reason for the malcontent may be memories of the open-door days between 1967 and '74, when foreign money flowed in under the new Suharto regime. Of the three most populated developing countries, China, India, and Indonesia, this Southeast Asia nation was the most accessible and eager for Western and Japanese capital.

In 1974, however, economic nationalism cast its shadow over foreign investment. An ambiguity toward foreigners had lingered in post-independent Indonesia, but it was the sudden wealth and status of being a member of OPEC, and the riots against Japanese businesses that year, which signaled that the party might be over.

The party is not over. It just shifted to a new hall.

The rules are tougher, to be sure, but the Indonesians could not be more eager for help in reshaping their economy along new lines. ''Ten years ago, companies came in with small projects producing only consumer items and yielding quick turnover,'' says Mr. Suhartoyo, chairman of the Investment Coordinating Board, known as BKPM.

''Those can be taken over by Indonesians now. We want to catalyze certain industries,'' he adds. The new priorities include investments in timber, metal and metalworking, plantations, energy, and agribusiness.

Energy, mainly oil exploration, still takes the tiger's share of foreign investment (60 percent), but a sign that Indonesia has charted new courses was the signing this year by Exxon of a $1.7 billion contract to build an olefin plant in North Sumatra, a project to add value to a raw commodity, in this case, natural gas.

Thus, the new welcome mat extends to those willing to help industrialize the nation. In fact, BKPM just opened an office in New York, with ones already in Frankfurt, West Germany, and Paris, and it has plans for offices in Australia, California, and Britain.

Naturally, investment became sluggish in the late 1970s as foreign companies resisted the new rules. But last year investment in the non-oil area picked up, reaching $1 billion, and BKPM is aiming for $2 billion this year. Still, the complaints go on.

One rule requires that Indonesians own the land used by a foreign company's plant. Another requires 51 percent Indonesian ownership within 10 years after a plant opens. That one, perhaps, has scared off many investors, but Mr. Suhartoyo says it is being applied ''generally'' and only in manufacturing.

The latest outcropping of economic nationalism, however, has been a policy known as ''counterpurchase.'' This barterlike rule requires a foreign company gaining a contract with the government, such as to import fertilizer, to purchase an equivalent amount of Indonesian goods for exports.

Since early this year, when counter-purchase was announced, 10 foreign companies have agreed to such contracts, totaling $130 million, taking such items as rubber products. The policy raised the ire of investors and traders. But with massive unemployment in such areas as coffee plantations, caused by world recession, the government believes counterpurchase is the best alternative to boost exports and keep jobs.

Raising non-oil exports has dominated many new policies in the Suharto governemnt. A report by the World Bank last year sharply chastised Indonesia for protecting its own industries and putting up too many roadblocks for foreign investment, both of which will hurt export competitiveness as foreign exchange from oil shrinks.

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