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Neighbor has different strategy

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  • #16
    Quite a few sectors where government involvement isn't working out that well.

    Transport. Government has a monopoly on rail transport, and for sea transport has introduced local ownership, insurance and payment requirements which add costs to Indonesian citizens for goods from overseas.
    Water Resources. Government cant make laws which allow private investors to sell clean water, but at the same time they can't meet the populations needs even in dense, wealthy urban areas.
    Food imports. Big cartels here make mega bucks while the government keeps rice farmers in poverty with price ceilings. Indonesians end up paying big for limits on food imports because the cartels are taking the profit in spply shortage when the government bans or limits whatever food it wants to that week.
    Aviation. Government has not managed to get US accreditation yet. The department head left the country when the US auditors came for the last review.
    Power. PLN is a mess. Anyone wanting to invest on power has to sell the power to PLN.
    Copyright law.... when there is no law and enforcement of copyright there is no creative industry. Anyway no way to invest money in creative industry because of restricted list. So no blockbuster movies made with Indonesian sets and staff.
    Pharmas. Local ownership requirements make the big pharmas nervous. Two deaths this year due to incorrect labeling on injected drugs are the sort of thing that can happen if the owners don't know how to make good quality control.

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    • #17
      Well, you touched on a lot of valid points, though I am not sure all of them would benefit from more FDI. Take aviation for example, the industry has ballooned over the last 15 years. Even without US or EU accreditation there seem to be heaps of money invested in aviation.

      As for the water resources, this is not necessarily an FDI issue, more of a generally bad governance issue. Many countries that have taken the route of privatizing water supply and handing over the control to foreign companies have experienced great rise in the cost of drinking water.

      - exploration has declined to a point where the reserves have been depleted but new fields are not opening at the same rate
      - most exploration is in deep offshore basis where only foreign companies have the skills and investment capacity to work the fields. Only a few are interested in dealing under the current PSCs.
      Well, oil is a finite resource. You have a point when you state that more FDI is needed for hard-to-get offshore deposits. But don't forget that there is still plenty of deposits in Riau and Kalimantan. The problem with deposits in Riau is not that they are hard to get, but that you have a lot of smaller deposits spaced out over a large area. Multinationals will not invest in that stuff because they might incur a loss and they will definitely not make a lot of profit even if they make a modest one. In other words, it's not worth their time. However, it might be worth Indonesia's time.

      This is not a matter of technical know-how. Deposits in Riau are generally shallow and easy to get to. The reason why Indonesian government needed foreign companies in the first place is simply because they didn't trust Pertamina to handle it, too much money would have been lost due to corruption an ineptitude.
      Which brings me to Puspa's point:
      I'm sure there are a few things that are positive or least moving in the right direction (though I'd be willing to bet that implementation has often been erratic even where the policies are good on paper - just speculation on my part but that's always how it seems to be here).
      If the government cannot trust it's own agencies to do technically simple jobs, than the basic development problem is human resources, not FDI. Which is the point that I would agree with, any talk of policy breaks down if there are not enough people to implement it properly.

      Now the government is transitioning some smaller blocks to Pertamina as an experiment to see if they can handle it, before contracts with foreign companies for the big blocks come to term. That cautionary approach actually makes sense.
      Last edited by Niko Z.; 28-02-15, 13:52.
      Take my advice, I don't need it.

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      • #18
        [COLOR=#f0ffff]asdfsadfjwaek[/COLOR]
        Last edited by Puspawarna; 28-02-15, 19:33. Reason: messed up due to some bugs or slow internet - never mind

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        • #19
          We had crossed lines. I am not specifically for FDI even though the government actively courts it. The risks for FDI are very high because of government intransigence. Most FDI could probably be directed at the consumer market with lower risk and good returns but this is largely closed by cartels. My point is that the government is unreasonable and is a drag on development of the economy. This affects locals more than foreigners, who can always go somewhere else.

          Earlier you say that changes to the PSCs are good because they will give the government a bigger share- then you correctly point out that the government can't manage their own contracts. So the government is by action telling investors what it wants- it wants to extract maximum value for itself and doesn't care about the needs of investors. But it is not willing invest the income it receives in its own investments so they end up with Pertamina not having functional refineries for example. This is not a rational policy.

          Forget about FDI for a minute- how do government policies help small business people start up, who are the drivers of the economy and the biggest employers in most economies. They don't. look at the situation for Bajaj drivers who must upgrade by regulation. But the government has established a cartel to import the vehicles and they have to pay too much in kickbacks to corrupt licence officers or wait forever for the licence.

          So government policy all over is pretty much a disaster, leaving the government dependent on FDI to drive the economy. Recent economic growth has been on the back of commodity prices and the country needs severe structural reform or it will go backwards.

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