INDONESIA- State Involvement in a Free Market Economy

INDONESIA State Involvement in a Free Market Economy Harish Chandola IN Indonesia foreign investors have for long enjoyed tax holidays and import duty exemption for capital goods, right to remit current profits and depreciation of capital assets, and other substantial incentives. Between 1967 and mid- 1974, they invested $ 1.8 billion on 434 projects in the non-oil manufacturing sector, Japan's share (35 per cent) has been the largest, with the USA and Hong Kong following. There has been some resentment, presently subdued, against foreign investment, and in 1974 government decided in principle that all fresh investment should have majority pribumi (ie, indigenous Indonesian) equity, and laid down a time-table for indigenisation of majority equity in existing ventures. Its aim was the conversion of 31 per cent of all joint ventures to domestic equity. But despite this, the prevailing free market conditions, absence of price control and any real attempt to protect domestic industry continued to attract considerable foreign investment into Indonesia. In fact, in 1974, fresh approvals (non-oil but including non- manufacturing sectors) totalled $ 1.05 billion.