Indonesia in "Big-Bang" Liberalization

Joko Widodo

By Reuters 2016-05-24 04:31:51

Indonesia has issued new regulations opening dozens of business sectors to foreign investors, a measure described by President Joko Widodo as a "Big Bang" liberalization of the economy.

Widodo signed the new presidential decree last week and his administration published it on Tuesday, easing restrictions on a range of enterprises including tourism businesses, transportation companies and movie theatres.

Restrictions on ownership of businesses in the retail and port services sectors were scaled back, although the regulations introduced stricter controls on telecommunications towers and on e-commerce.

The liberalization is part of Widodo's strategy to expand the manufacturing and tourism sectors in Southeast Asia's largest economy to reduce its reliance on exporting raw commodities.

The new regulation also eased the foreign ownership cap for maritime cargo handling at ports, several specific airport services and telecommunication services, as well as internet provision, to 67 percent versus the previous 49 percent limit.

In addition to the changes already announced, the new regulations allow foreigners to own 67 percent of department stores with sales floor area of 400 square meters to 2,000 square meters, as long as they are located in a mall, whereas previously they could only invest in a department store with a sales floor larger than 2,000 square meters.

As was announced in February, the restaurant business, film industry, cold storage, waste management and pharmaceutical raw materials sectors were among those opened up completely to foreign ownership.

However, the new regulation set a 49 percent foreign ownership cap on small e-commerce businesses, overturning the government's earlier statement that it will open up the sector 100 percent. It also bans foreigners from owning a business in telecommunications tower services and management.

"This is the first time in many years, maybe more than 10, that Indonesia has taken steps to open up investment rather than close it," said Lin Neumann, managing director of the American Chamber of Commerce in Indonesia, adding that American companies have expressed interest in the sectors the government said it would open.

But it may still take time before Indonesia sees more inward foreign direct investment, Neumann said. "Let's see how easy it is to come in. Hopefully the bureaucracy will respond."