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Delayed Quote. Delayed  - 02/11 04:02:14 pm
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Indonesia Opens More Big Businesses to Foreign Investment -- 2nd Update

02/11/2016 | 09:38am US/Eastern
By Ben Otto and Anita Rachman

JAKARTA, Indonesia--Indonesia opened dozens of businesses to full and partial foreign ownership Thursday, advancing President Joko Widodo's efforts to liberalize and draw more investment to Southeast Asia's largest economy.

Officials announced they would open up 35 businesses to 100% foreign ownership, including film production and distribution, toll roads, and tourism-related ventures such as restaurants, and nontoxic waste management, while dozens of others in sectors such as health care and telecommunications will see an increase in allowable foreign stakes. Ventures in online-marketplaces--a budding business in the nation of 250 million people--will be fully opened to investments of more than 100 billion rupiah ($7.43 million).

Darmin Nasution, coordinating minister for the economy, said the changes were meant to drive more investment, while Cabinet Secretary Pramono Anung said they would "encourage national companies to compete" and modernize in a global market.

Investors and analysts welcomed the news, but some said the measures didn't go as far they'd hoped after months of government discussions and Mr. Widodo's calls for more competition in the fast-growing nation. Indonesia draws more than $30 billion in foreign direct investment each year, but foreigners have long complained about increasing restrictions on their operations in the $800 billion economy. In recent years, Indonesia has restricted foreign investment in sectors like oil and gas services, rolled out non-tariff barriers to trade and forced foreign miners to divest to minority stakes in their companies.

Many investors have anticipated changes as a sign of Mr. Widodo's seriousness in turning a page on rising protectionism and preparing the country to join neighboring countries like Vietnam in liberalizing trade and investment policy. Officials said the moves were timed to coincide with Mr. Widodo's trip to the U.S. next week, where he'll attend a summit with Southeast Asian leaders and President Barack Obama, and later deliver a keynote address at a conference about his region's nascent economic bloc.

The changes aren't dramatic, said Juniman, an economist with Maybank Indonesia, "but still it's an improvement that will attract FDI, especially in the businesses that are now open to 100%" ownership stakes.

Sheila Timothy, president of the Association of Indonesian Film Producers, which has been pushing for the government to lift a ban on foreign investment in film production, distribution and cinemas, called the change Thursday "a milestone for the Indonesian film industry."

"Most Indonesian film production companies are small and medium enterprises," often lacking the financial means to fund film creation and reap better profits in a capital-intensive industry. "The opening of the market will break a vicious cycle," Ms. Timothy said.

Officials have said they want to build thousands of theater screens across the country to serve the world's fourth largest population, 250 million people. Indonesia has just over 1,100 screens, more than a third of them in the capital, Jakarta.

Others businesses said the moves didn't go as far as they wished.

Pharmaceutical makers had been hoping Indonesia would open up to fully-owned foreign ventures in medicine production--currently capped at 85%--but officials instead fully opened only raw materials production. Foreign companies across sectors say partial stakes are a hurdle to investment, in part because of intellectual property risks and because local partners are often reluctant or unable to inject funds.

"It's not up to our expectations," said Parulian Simanjuntak, executive director of International Pharmaceutical Manufacturers Group, a grouping of foreign pharmaceutical companies in Indonesia.

Jakarta also closed off 19 businesses to investments of less than 10 billion rupiah ($742,000), including construction-consultation services. Cabinet officials described the measure as protecting local small and medium enterprises.

"In terms of the sectors that the government would like to liberalize, it is clear that this is very much done on Indonesia's terms," said Anton Alifandi, analyst with information and analytics provider IHS. Full foreign participation in toll road construction reflects Mr. Widodo's paramount goal of starting an infrastructure boom, while full ownership in cold storage facilities "is consistent with President [Widodo's] emphasis on the need to improve the business supply chain," he said.

The moves come at an important juncture in Indonesia, with economists saying the commodities-reliant economy has hit bottom after slowing in 2015 to its slowest expansion rate--4.8%--in six years, and as Mr. Widodo's plans to nurture an infrastructure building boom begin to show signs of life. Mr. Widodo has rolled out a series of deregulations in recent months that are meant to make doing business easier.

Still, the recovery is fragile, and the slowdown has taken its toll on foreign investors and local businesses alike. The rupiah is slowly recovering from its weakest level since the Asian financial crisis of 1997, but domestic consumption, long the main driver of the Indonesian economy, remains tepid. In the past month, both Ford Motor Co. and a local distributor for Harley-Davidson Inc. have closed shop, citing a mix of a weak economics and harmful regulations. Toshiba Corp. and Panasonic Corp. recently closed factories, while Chevron Corp. and others have offered staff voluntary early retirements.

Mr. Widodo has said he's intent following through on a longer-term plan to shake up Indonesian regulations and forge new trade deals and eventually join the U.S.-led Trans-Pacific Partnership trade and investment pact. "This is the beginning of the end of protectionism in Indonesia," Trade Minister Tom Lembong said in a recent interview.

Officials didn't immediately release a list of the investment changes Thursday.

"We think this is heading in the right direction," said Lin Neumann, managing director of the American Chamber of Commerce in Indonesia. "Now we wait to see the details and how this is all going to be implemented."

I Made Sentana contributed to this article

Write to Ben Otto at ben.otto@wsj.com and Anita Rachman at anita.rachman@wsj.com.

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