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.

Penanaman modal asing langsung (foreign direct investment [FDI]) merupakan salah satu topik yang paling sering dibahas dalam telaah pembangunan ekonomi di Indonesia dalam 50 tahun terakhir. Dalam artikel ini, penulis meninjau dinamika FDI Indonesia dalam perspektif historis. Penulis menunjukkan bahwa desakan saat ini untuk mengontrol aliran FDI masuk serta kebutuhan untuk menambah tabungan domestik serta memfasilitasi transfer teknologi bukanlah hal yang baru di Indonesia. Penulis secara khusus mempelajari perdebatan tentang FDI dalam jurnal ini, Bulletin of Indonesian Economic Studies, dengan perhatian khusus terhadap berbagai kontribusi dari jurnal ini kepada literatur internasional tentang FDI dan dampaknya bagi perekonomian. Tulisan ini menunjukkan bahwa hubungan antara FDI dan pertumbuhan ekonomi di Indonesia tidak sesederhana di negara lain di Asia Tenggara. Meskipun FDI bisa berkembang dalam iklim investasi yang cenderung restriktif, pada situasi tertentu, ia juga bisa gagal bertumbuh, sekalipun dalam rejim yang lebih liberal. Hal ini dapat dikaitkan dengan berlanjutnya peran sumber daya alam dalam menentukan daya tarik Indonesia sebagai negara tuan rumah dari FDI.

Keywords:

• foreign investment
• investment policy
• economic growth

JEL classification:

• E220
• F21
• O160

Notes

1. In Indonesia, for instance, net inflows of FDI corresponded to 1.0% of GDP in 1970 and 1990, rising only to 2.7% by 1996 (OECD 1999, 52).

2. Full bibliographical references to BIES surveys are given only when specific information needs to be linked to individual authors.

3. For example, Charles Himawan's The Foreign Investment Process in Indonesia: The Role of Law in the Economic Development of a Third World Country was reviewed by H. W. Arndt in the July 1981 issue of BIES.

4. Examples include Khong Cho Onn's The Politics of Oil in Indonesia: Foreign Company– Host Government Relations and Hal Hill's Foreign Investment and Industrialization in Indonesia, both reviewed in BIES in 1988, and Robert Dickie and Thomas Layman's Foreign Investment and Government Policy in the Third World: Forging Common Interests in Indonesia and Beyond, reviewed in 1990.

5. Compare with ‘Emerging Asia's Sombre Era’ (Economist, 24 Aug. 1996).

6. Data on post-2000 GDP growth are drawn from the websites of the Asian Development Bank (http://www.adb.org) and Badan Pusat Statistik, Indonesia's central statistics agency (http://www.bps.go.id).