Background: An inquiry from a member currently in Indonesia exploring a joint venture revealed that the effective minimum capital requirements have recently jumped from $100,000 to $1 million (10 billion rupiah).

The Investment Coordinating Board (BKPM) is now interpreting the 2008 Law on SME’s (micro, small and medium enterprises) to classify any foreign investment as “large scale” and is applying a minimum of $1 million (US dollars) for initial capital. This is apparently occurring somewhat at the request of the SME Ministry. According to my sources, BKPM is unlikely to make public reference to this new minimum as its own Investment Law of 2007 makes no mention of investment minimums and gives “national treatment” status to a joint venture company (PMA), putting it on par with local companies (PMDN). It has begun to communicate the new minimum in private.

AICC has confirmed this directly with the current Chairman of BKPM, Gita Wirjawan (concurrently Minister of Trade), who said he lobbied for a lower cap when the law was proposed.

AICC considers this an unfortunate development. In these difficult economic times some of the best emerging opportunities for US-Indonesia business collaborations are likely to start as small joint venture businesses.

For more details on this this issue as well as read a brief report on AICC’s December 18-23 Congressional Staff Visit to Indonesia click here.

Moody’s Upgrades Indonesia to Investment Grade

Moody’s Investors Service has today (January 18, 2012) upgraded Republic of Indonesia’s foreign and local-currency bond ratings to Baa3 with stable outlook. In the press release today, Moody’s stated the key factors supporting this action were (1) Moody’s anticipation that government financial metrics will remain in line with Baa peers (2) The demonstrated resilience of Indonesia’s economic growth to large external shocks (3) The presence of policy buffers and tools that address financial vulnerabilities and (4) A healthier banking system capable of withstanding stress.

According to Christian de Gusman, Moody’s Lead Analyst for Indonesia mentioned in the press release rationale for the upgrade is Indonesia’s cyclical resilience to large external shocks points to sustainably high trend growth over the medium term. Robust growth has been accompanied by the continued health of its external payments position, supported by increasingly large flows of foreign direct investment, while inflationary expectations are becoming better anchored at a more stable and historically lower level.

“Having the Investment Grade from two Major Rating Agencies (Fitch and Moody’s) shows that Indonesia is gaining stronger acknowledgment due to its strong economic performance, amidst highly uncertain condition in the global economy. I believe, Indonesia could achieve a better performance in 2012”, says Darmin Nasution, Bank Indonesia Governor.