Foreign Direct Investment Restriction Policy as an Effort to Empower Micro, Small and Medium Enterprises

Ary Zulfikar

doi:10.17304/ijil.vol16.4.772

Abstract

Foreign Direct Investment is one of the important means to increase a country’s economic growth through equitable development. However, countries such as Indonesia, often put restrictions on their foreign investment policies. The purposes of this research are: 1) to explain the restrictive policies which are imposed upon foreign investments in Indonesia and to compare them to those of other countries in Asia; 2) to explain the practical impact of such restrictive policies on foreign investments in Indonesia. The author uses a qualitative-descriptive research method. The research is also conducted through a juridical normative approach. This research shows that: 1) Restrictions on foreign investment is regulated under the Presidential Regulation of the Republic of Indonesia No. 76 of 2007 on Criteria and Requirements for Formulation of Business Fields Closed to Investment and Business Fields Conditionally Open to Investment; 2) In its implementation, Presidential Regulation No. 76 of 2007 has not yet been able to boost sustainable economic growth evenly via the empowerment of MSMEs or domestic investors.

Highlights

Foreign Direct Investment (FDI) is defined in the 2007 OECDBenchmark and the 2007 UNCTAD World Investment Report as “a category of cross-border investment made by a resident in one economy with the objective of establishing a lasting interest in an enterprise that is resident in an economy other than that of the direct investor.” The definition of FDI can be found in the Encyclopedia of Public International Law as: “A transfer of funds or materials from one country to another country in return for a direct participation in the earnings of that enterprise.” IMF defines FDI as “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor
The Negative List of Investment (NLI) has given an opportunity for the host state to protect MSMEs and domestic investors. This can be seen from the increase in the number of business fields allocated for MSMEs from only 36 business fields according to the 2014 NLI policy, to 25 business fields based on Presidential Regulation No 44 of 2016
The inter-relationship between foreign direct investment companies and MSMEs is very important in investment activities for development

Summary

INTRODUCTION

Benchmark and the 2007 UNCTAD World Investment Report as “a category of cross-border investment made by a resident in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor.” The definition of FDI can be found in the Encyclopedia of Public International Law as: “A transfer of funds or materials from one country (called capital exporting country) to another country (called host country) in return for a direct participation in the earnings of that enterprise.” IMF defines FDI as “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. The regulation on the criteria and requirements in compiling the list of business fields “closed to investment and conditionally open to investment” is, in principle, aimed at fulfilling national interests for the protection of natural resources, protection and development of micro, small and medium enterprises and cooperatives, supervision of production and distribution, growth of technological capacity, participation of domestic capital, and cooperation with Government-appointed business entities. The author will continue to discuss on whether or not the NLI Policy within the investment legal system is already in accordance with the national economic politics as mandated in People’s Consultative Assembly Decree No XVI/MPR/1998 on Politics of Economy in the Framework of Economic Democracy, which states that the national politics of economy is aimed at creating a national economic structure that generates strong and large numbers of middle entrepreneurs, and forms mutually beneficial connections and partnerships between economic actors involving small and medium enterprises, cooperatives, private large enterprises, and state-owned enterprises that mutually strengthen each other to create a highly competitive and efficient national economic democracy

DISCUSSION AND ANALYSIS

Business Fields subject to Partnership requirement with

Findings

Open with Conditions

CONCLUSION AND RECOMMENDATION