Foreign Direct Investment in Indonesia: Fifty Years of Discourse

Abstract

The topic of foreign direct investment (FDI) has been prominent in assessments of economic development in Indonesia during the past 50 years. In this article I review Indonesia's FDI record in a historical perspective; the current urge to control FDI inflows and the need to augment domestic savings and facilitate technology transfers are not at all new in Indonesia. I draw in particular on the discourse on FDI in this journal, the Bulletin of Indonesian Economic Studies, giving special attention to contributions by this journal to the international literature on FDI and its impact. The article demonstrates that the relation between FDI and economic growth has been less straightforward in Indonesia than elsewhere in Southeast Asia. Although FDI has grown in a restrictive investment climate, on occasion it has failed to do so despite more liberal conditions. This may be attributed to the sustained role of natural resources in determining Indonesia's attractiveness as a host country of FDI.

Two Decades ofReformasiin Indonesia: Its Illiberal Turn

“…Absolute rates of poverty began to fall during the Wahid and Megawati presidencies, but growth scarcely reached 3%. Economic growth and poverty reduction thus remained the key pillars of the Yudhoyono government's development plans and Indonesia improved markedly on both fronts, despite the impact of the global financial crisis commencing in late 2008 (Lindblad 2015). More recently, both a steady decline in growth from 6.5% in 2011 to around 5% throughout Jokowi's first term and the end of the commodity boom have ensured that economic stimulus and efforts to maintain strong growth remain a policy focus.…”

The Ambiguity of Implementation of Full Protection and Security Principle in Indonesia Investment Law

“…Law No.1/1967 was enacted in Soeharto's New Order Government that radically changed the FDI climate. Lindbland [10] said that Law No.1/1967 was liberal in nature which part of the deal under which IMF bailed out bankrupt Indonesia. He added, the first stage was characterized by investment on exploitation on natural resources.…”

“…The second stage was signed by changed pattern of FDI inflow. Previously, FDI was concentrate in natural resources sector but after oil prices decline in 1982-1983 Indonesia shift orientation to more open up FDI for manufacture sector [10]. In 1986, Indonesia start to shift from positive list into a negative list scheme as a way to control FDI in which what sectors were prohibited for FDI.…”

“…FDI inflows declined by $1.3 billion in 1998. Lindbland [10] paragraphed out this era as third stage of FDI development in Indonesia. He added, unstable political situation and legal uncertainty during this era makes foreign investors to adopt a wait and see attitude.…”

“…In the explanation section also not further elaborated. Based on the interpretation of Jan Knorich and Axel Berger [10] the unclear form of protection for foreign investment will provide room space for Indonesia to make policies related to the application of the FPS principle.…”