Economy and Trade

Investment

Investment in Indonesia, bot domestic and foreign investment, is regulated under the Law No. 25 of 2007 which was passed by Parliament on 29 March 2007 and signed into law on 2 May 2007. (Investment Law No. 25/2007: download-pdf)

A government institution that manages investment in Indonesia is the Investment Coordinating Agency (BKPM), established in 1973. This agency, directly accountable to the President, is tasked mainly to: formulate and assess national investment policies; coordinate and perform investment promotion; and coordinate investment development activities among government institutions.

In provincial level, there is a Provincial Investment Agency, headed by a chairman of the agency who is accountable to local governor. In giving approvals to direct foreign investment applications, the country's representative offices such as embassies, consulate-generals and consulates abroad, are authorized to do that.

INVESTMENT TREND

Up to 1997 when monetary crisis hit the Asian countries, Indonesia had been one of most attractive investment destinations in the Southeast Asian region. Attributable to this was that the country introduced liberal investment policies and regulatory frameworks, and offered foreign investors good incentives and favorable investment climate. Unfortunately, the prolonged economic crisis since the middle of 1997, widespread security problems, and frequent disputes among labor associations and employers have to some extent withered away foreign investors' interest to invest, and they turn away looking for other promising countries.

In anticipation of such unfavorable situation, the Government has introduced various efforts, ranging from the issuance of measures as required by "the White Paper", to promotional activities such as road-shows to overseas in the context of improving investment to speed up economic recovery and widen job opportunities. Included in those measures have been plan to open more sectors for foreigners' ownership, and step to centralize the authority to license foreign and domestic investment in the Investment Coordinating Board (BKPM) aimed at relevant ministerial offices and regional administrations as well as making it easier for investors to get business permits.

DOMESTIC INVESTMENT PERFORMANCE

Approvals on domestic investment during the period of January-June 2004 or the first semester of 2004 were 72 projects with investment value of Rp15,773.7 billion. In addition, there were 45 expanded projects with investment value of Rp3,867.3 billion. In term of number, approved projects during the January-June 2004 noted a substantial decrease compared to those of the corresponding period in 2003, but in term of investment value recorded the contrary. Approved projects in the January-June of 2003 numbered 109 projects, with investment value of Rp10, 357.5 billion.

At the same time, the most attractive business sector for domestic investment was food-processing industry (14 projects). Trailing behind were transport, warehouse and telecommunications (8 projects), machine and electronic industry (7 projects), and rubber and plastic industry (5 projects).

By term of investment value, the electric, gas and drinking water sector ranked first by absorbing Rp4,994.3 billion; foodstuffs industry came second with Rp4,591.0 billion, and transport, warehouse and telecommunications third with Rp1,038.4 billion. By location, the Province of Central Java ranked first, followed by Riau, the Special Territory of Jakarta, the Province of West Java, and the Province of Banten.

DIRECT FOREIGN INVESTMENT

There were 551 approved projects of direct foreign investment worth US$3,049.2 million during the period of January-June 2004. In addition, there were also 118 expanded foreign investment projects with investment value of US$1,046.8 million.

Compared to that of the corresponding period of 2003, direct foreign investment in term of value, in the period of January-June 2004 suffered a decrease, but in term of project number was increasing. The total investment value during the period of January-June 2003 was US$ 4,649.7 million to finance 510 projects.

The most attractive sector for direct foreign investment during the period of January-June 2004 was metal, machinery and electronic industrial group that absorbed as much as US$729.8 million; followed by hotel and restaurant with US$536.4 million, textile industry with US$321.3 million, construction with US$312.2 million, and transport, warehouse and telecommunications with US$282.4 million.

By location, most investment, namely US$760.3 million, with 85 projects, went to West Java Province; followed by the Special Territory of Jakarta that absorbed US$590.1 million with 273 projects, Central Java that did US$315 million with three projects, the province of Banten US$271.9 million with 45 projects, and the province of Lampung US$256.6 million with two projects.

By country of origin, Japan ranked first with US$882.4 million for 30 projects, the UK with US$793.4 million for 42 projects, Malaysia with US$321.3 million for 44 projects, South Korea with US$230.1 million for 107 projects, and Singapore with US$131.8 million for 74 projects.

Cumulatively, there had been 1,597 projects, worth Rp114,831.1 billion, of domestic investment given permanent business permits from 1997 to June 2004. At the same time, the cumulative number of direct foreign investment having received permanent business permits had been 8,626 projects with investment value amounting to US$114,890.1 million.

CAPITAL MARKET

The Indonesian capital market during the year of 2003 posted a strong performance. Improvements to several macroeconomic indicators-economic growth, inflation and rupiah exchange rate were supported by a stable political situation.

It successfully restored confidence toward the Indonesian capital market and enhanced improvement in trading activities on the Indonesian stock exchanges-the Jakarta Stock Exchange (JSX) and the Surabaya Stock Exchange (SSX) in East Java.

As a result, the composite share price index (CPI) during the year reached a higher level. On the JSX, the highest CPI was noted at 818.159 points on April 27, 2004. This was the highest level of the index since the revival of the Indonesian capital market.

In the first-five month, from January to May 2004, the index declined solely. It was 752.93 points in January, 761.08 points in February, 735.67 points in March, 783.41 points in April and 732.51 points in May.

In 2003, the highest index was 693.033 points toward the end of the year and closed at 691.895 points on its closing level in 2003, or an increase by 63.08% compared to 2002.

Compared to the development of composite index of other countries in the Southeast Asian Countries (ASEAN), Indonesian index development ranked second after Thailand, which recorded an increase by 109.50 pct.

The table below shows the index development in the ASEAN countries:

The composite price index development on the JSX was noted at 676.91 points in 1999, at 416.32 points in 2000, at 392.03 points in 2001, at 424.94 points in 2002, and at 691.90 points in 2003.

The significant increase of index marked an awakening of the securities industries in Indonesia. This was a reward of hard work by capital market elements to fight for coping with the crises which had hit the country for several years.

Meanwhile, the Surabaya Stock Exchange (SSX) had posted a slow development. It was seen from the composite price index, which was at 566.57 points in 1999, at 267.63 points in 2000, at 220.89 points in 2001, and at 252.51 points in 2003.

In the first five months of 2004, it was noted at 410.81 points in January, 414.85 points in February, 399.61 points in March, 432.81 points in April and 402.24 points in May. The SSX was mostly known as the second class market as it specialized in bond trading activities.

ISSUERS

Up to May 2004, there had been 488 companies issuing stocks and bond while the total fund mobilization was Rp320,821 trillion. Some 410 companies had launched initial public offering (IPO) and listed their shares on the stock exchanges. Six companies were unlisted as they did not carry out IPO.

Meanwhile, 137 companies issued bond, consisting of 127 launched IPO, 2 Syari'ah Bond (Islamic Concept), 7 Convertible Bond (CB) and 1 Credit Securities (CS). In addition, two bonds wits the US dollar denomination had also been available in the Indonesian bourses worth US$ 105 million.

In March 2003, the Indonesian Capital Market Supervisory Agency (Bapepam) promoted new launch of Syari'ah Capital Market by signing a memorandum of understanding with concerned institutions.

MARKET CAPITALIZATION

Till the end of December 2003, market capitalization on the JSX, the main stock exchange, was noted at Rp462.578 trillion, or an increase by 72.33% compared to Rp268.4223 trillion in 2002.

Meanwhile the value of transaction totaled Rp124.55 trillion, or an increase by 3.13% compared to that in 2002 which was only Rp120.765 trillion. Daily transactions lose by 3.84% from 492.91 billion in 2002 to Rp516.79 billion in 2003.

During 2003, nine companies launched IPO. This figure decreased by 60.87%, while the value of fund mobilization was up 525.0% in 2003, from Rp 1.2 trillion to Rp7.5 trillion in 2003.

In addition, 11 companies launched rights issue with a value of Rp2.5 trillion, a decrease by 70% compared to 2002 with a value of Rp8.6 trillion.

The Indonesian Capital Market Supervisory Agency (Bapepam), a government institution authority, announced that in 2003 there were 54 bonds issued with the total value of Rp 25.2 trillion, or an increase by 306.45% compared to 2002 which was only Rp6.2 trillion.

By that way, all bonds issued in the capital market had reached 254 corporations and 133 companies with a value of Rp62.99 trillion.

In line with the development of securities industry in Indonesia, the Bapepam during 2003 issued 4 licenses to new four securities companies, making a total of 191 companies.

MUTUAL FUNDS

In terms of mutual funds as a market instrument of the bourses, its number had also increased to 182 companies in 2003, up by 38.93% compared to only 131 companies in 2002.

Net Asset Capital (NAB) rose by 56.25% from Rp46.61 trillion in 2002 to Rp 72.83 trillion in 2003. As such, the unit holders also made a significant reward in number, from 125.820 in 2002 to 174.892 in 2003.

Market instruments on the Indonesian stock exchanges consist of 336 stocks, 137 bonds, convertible bonds, 7 warrants, margin, rights, and 199 mutual funds. They are traded in regular market, cash market, non-regular market, negotiated market, crossing and others through main and development boards mechanisms.

Investment Management activities showed an increase by 47.05% as its number increased from 13 in 2003 to become 98 companies. Fund mobilization from third party was worth Rp56.9 trillion in 2002 to Rp82.48 trillion in 2003.

To complete the run of the capital market, in 2003 the Bapepam recruited 206 professionals, consisting of 7 appraisals, 96 civil law notaries, 20 legal consultant & offices, 45 legal advisors, 33 public had accountants (partners) and 17 accountants (public). Up to 2003, all professionals who had registered in the agency were 105 appraisals, 593 civil law notaries, 242 legal consultants. The government institution also registered 20 custodian banks and 12 securities administration bureaus.

In the sector of regulation, the Bapepam obliges all capital market supporting elements to improve their synergy. A company which has function as securities underwriter needs to have paid-up capital Rp50 billion and net adjusted capital of Rp 25 billion.

A company which has function as securities broking and trading with client's account needs to have paid-up capital of Rp30 billion and net adjusted capital of Rp 25 billion. A company dealing with broking and trading with client's account needs to have paid-up capital of Rp 500 million and net adjusted capital of Rp 200 million. A securities company which has function as investment management is obliged to have paid-up capital of Rp 5 billion with net adjusted capital of Rp 200 million.

A securities company, which has function as broking and trading activities concurrently an investment management, is deemed necessary to have paid-up capital of Rp55 billion with net adjusted capital of Rp25,200 million. A securities company functioning as broking and trading with client's account and investment management also should come up with paid-up capital of Rp35 billion and net adjusted capital of Rp25.200 million.

The Bapepam also issued eight regulations in 2003, among others on management system of securities account in the Indonesian Central Securities Depository (ICSD), client's principles, bonus shares, futures contract, option, index, accountability of board of directors of the issuers on financial reports, work of auditory committee, net adjusted capital, listing procedures, right issue, the use of proceedings from IPO, asset-backed securities, public accountant and periodical financial reports.

With the issuance of the new regulations, the Bapepam until 2003 had issued 151 regulations on capital market, and revised regulations on script less and remote trading in the Jakarta Stock Exchange.

To tighten monitoring system in 2003, the institution had posted administrative sanctions to 83 listed companies, 23 securities companies, six custodian banks, three securities administration bureaus, 3 trustees, two appraisers and one commissioner of a listed company, liquidated 17 mutual funds, lifted out licenses on investment management, frozen one investment management, written warning to nine investment managements, fines to 23 investment managements and investigated custodian banks.

Crucial to foreign investors, in September 1997, the foreign ownership limitation was abolished, except for banks (49% of the total listed shares). In May 1999, the maximum number of listed shares and foreign ownership on Banks Company was set to 99%, based on the government regulation dated May 7, 1999.

BIGGEST MARKET CAPITALIZATION

Ten Biggest Market Capitalizations until June 2004 were as follows: 1. Telekomunikasi Indonesia Tbk (10.079.999.640), 2. Unilever Indonesia Tbk (7,630,000,000), 3. Gudang Garam Tbk (1,924,088,000), 4. Bank Mandiri Tbk (19,800,000,000), 5. HM Sampoerna Tbk (4,500,000,000), 6. Bank Central Asia Tbk (12,163,377,060), 7. Astra International Tbk (4,048,355,314), 8. Indosat Tbk (5,177,500,000), 9. Bank Rakyat Indonesia (11,647,057,950), 10. Bank Negara Indonesia Tbk (13,148,870,526).

MOST ACTIVE STOCKS (VOLUME)

Ten most active stocks until June 2004 on the JSX were as follows: 1. Bank International Indonesia Tbk, 2. Bumi Resources Tbk, 3. Artha Pacific Securities Tbk, 4. Bakrie & Brothers Tbk, 5. Energi Mega Persada Tbk, 6. Bank Mandiri Tbk, 7. Kawasan Industri Jababeka Tbk, 8. Bank Buana Indonesia Tbk, 9. Bank Rakyat Indonesia Tbk, 10. Hortus Dana vest Tbk.

MOST ACTIVE STOCKS (VALUE)

Ten most active stocks till June 2004 were 1. Telekomunikasi Indonesia Tbk. 2. Bank Mandiri Tbk. 3. Astra Argo Lestari Tbk. 4. Bumi Resources Tbk. 5. Astra International Tbk. 6. Bank Rakyat Indonesia Tbk. 7. Bank Central Asia Tbk. 8. Indosat Tbk. 9. Bank Buana Indonesia Tbk. 10. HM Sampoerna Tbk.

MOST ACTIVE STOCKS (FREQUENCY)

Ten most active stocks till June 2004 were 1. Energi Mega Persada Tbk. 2. Bumi Resources Tbk. 3. Artha Pacific Securities Tbk. 4. Asuransi Harta Aman Pratama Tbk. 5. Telekomunikasi Indonesia Tbk. 6. Hortus Dana vest Tbk. 7. Bank Mandiri Tbk. 8. Bank Central Asia Tbk. 9. Indosat Tbk. 10. Adhi Karya Tbk.

TOP GAINERS

Ten top gainers on the JSX till June 2004 were 1. Energi Mega Persada Tbk. 2. Panasia Filament Inti Tbk. 3. Bank Global Internasional Tbk. 4. Asuransi Jasa Tania Tbk. 5. Indoexchange Tbk. 6. Palm Asia Corpora Tbk. 7. Danasupra Erapacific Tbk. 8. Surya Toto Indonesia Tbk. 9. Panca Wiratama Sakti Tbk. 10. Suba Indah Tbk.

TOP LOSERS

Ten top losers in June 2004 were 1. Cipendawa Agroindustri Tbk.2. Hortus Dana vest Tbk. 3. Asuransi Harta Aman Pratama Tbk. 4. Pelangi Indah Canindo Tbk. 5. Ryane Adibusana Tbk. 6. Indofarma Tbk. 7. Maskapai Reasuransi Indonesia Tbk. 8. JAPFA Comfeed Indonesia Tbk. 9. Wicaksana Overseas Int. Tbk. 10. Sierad Produce Tbk.

MOST ACTIVE BROKERAGE (VALUE)

Ten most active brokerage house in June 2004 were 1. DBS Vickers Securities Indonesia 2. Kim Eng Securities 3. CLSA Indonesia 4. JP Morgan Securities Indonesia 5. Danareksa Sekuritas 6. Artadwipa Persada 7. Semesta Indovest 8. ABN-AMRO Asia Sec. Indonesia 9. Mandiri Sekuritas 10. Merrill Lynch Indonesia.

MOST ACTIVE BROKERAGE (FREQUENCY)

Ten most active brokerage house in June 2004 were 1. Kim Eng Securities 2. Valbury Asia Securities 3. Trimegah Securities 4. DBS Vickers Sec. Indonesia 5. Sarijaya Permana Sekuritas 6. Danarreksa Sekuritas 7. CLSA Indonesia 8. GK Goh Indonesia 9. Ciptadana Sekuritas 10. Dhanawibawa Arta Cemerlang.