INDONESIAN ECONOMY

BALANCE OF PAYMENT AND FOREIGN DIRECT INVESTMENT IN INDONESIA

Nahdy Niza Mustafa (1312000214)

Bachelor Degree of Management

International Class Program

Faculty of Economics, ABFII Perbanas

2015

INTRODUCTION

Indonesia Balance of Payments Statistics (Neraca Pembayaran Indonesia) is one of the important macro-economic statistics for Indonesia among a number of other macro-economic statistics, such as Gross Domestic Product (GDP) and the money supply. These statistics provide information about economic transactions that take place between the Indonesian populations with non-residents in a certain period. Same as most statistical compilation of balance of payments in other countries, the Indonesia balance of payments statistics is made with the following objectives: (1) determine the role of the external sector in the economy; (2) determine the flow of resources to another country; (3) determine the structure of economy and trade; (4) determine the problem of foreign debt; (5) determine changes in foreign exchange reserves and the potential pressures on the exchange rate; (6) as a source of data and information in preparing the budget to foreign exchange; and (7) as a source of data compilation national accounts statistics (national accounts)

Transactions are recorded in the balance of payments showed a change, giving (without compensation), arising out of or abolishment of an economic value. The economic rate movements may occur as a result of transfer of ownership of goods or financial assets, provision of services, labor supply, or the supply of capital. Here are examples of transactions that are recorded in the balance of payments:

(1) The sale and purchase of goods with other countries, such as palm oil exports and imports of raw materials or consumer goods;

(2) Provision / use services to / from other countries, such as the provision of services of a stockbroker by domestic securities firms to foreign investors and the use of foreign ships transporting services by domestic companies;

(3) Income on investments, such as dividends and interest earned by foreigners who invest in Indonesia and Indonesian residents who invest abroad;

(4) financial investments among others in the form of stocks and bonds, such as the purchase of Bank Indonesia Certificates (SBI) by foreign investors and the sale of bonds

US government owned by domestic banks; and

(5) Provision / receipt of money, goods, and services without any direct reward, such as government revenue in the form of grants from foreign countries.

Closely related to the balance of payments statistics that describe the flow (flows) of goods, services, and investment in a particular period, there is one statistic reflects the value of international investments at a certain time (stock), the Indonesia’s International Investment

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Position statistics (Posisi Investasi Internasional Indonesia-PIII). In these statistics there is information on the value of financial liabilities (foreign investment in Indonesia) and financial charges (Indonesian investment abroad) Indonesia country at a late period, for example at the end of the year. If the liability is greater than the bill, means foreign investment in Indonesia is greater than the population of Indonesia investment abroad. Interpretation otherwise apply if liability is less than the bill. PIII changes in a given period can be caused by four things: (1) the addition or subtraction bill transactions and financial liabilities (which are recorded in the balance of payments); (2) changes in exchange rates; (3) changes in the price of financial instruments, and (4) other adjustments, such as debt relief (write off).

CPI data and PIII utilized by various users. At the level of general understanding, the data can be used by students, faculty, or financial economics reporter. A more detailed understanding of the data, among others, are required by economists, academic researchers, investors, international rating agencies, international financial institutions, and compilers of National Accounts.

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TABLE OF CONTENT

CoverIntroductionTable of ContentCHAPTER I : INDONESIA BALANCE OF PAYMENTS CONCEPTUAL FRAMEWORK DEFINITION Definition of the Balance of Payments The purpose of Balance of Payments International Economic trades CONCEPT OF TRANSACTION Recording Transaction Period Dual Entry System Errors and Omissions Transaction valuation Calculation and Conversion Unit CONCEPT OF RESIDENCY / POPULATION CLASSIFICATION STANDARD BALANCE OF PAYMENTS Current Account Capital and FinancialCHAPTER II : INDONESIA’S BALANCE OF PAYMENTS PRESENTATION FORMAT Indonesia's Balance of Payments: SummaryIndonesia’s Balance of Payments: Current AccountIndonesia’s Balance of Payments: Capital and FinancialIndonesia’s Balance of Payments: Government Sector and the Monetary Authority Financial TransactionsIndonesia Balance of Payments: Private Sector Financial TransactionCHAPTER III : DIRECT INVESTMENT CONCEPTS AND DEFINITIONS CLASSIFICATIONIndonesia’s Investment Realization Progress Quarter I 2015Investment Realization in Quarter I 2015: Based on SectorInvestment Realization in Quarter I 2015: Based on LocationInvestment Realization in Quarter I 2015: Based on Country OriginIndonesian Labor Absorption Progress 2010–March 2015: Per QuarterProgress of Investment Realization 2010–March 2015: Per QuarterREFERENCE

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CHAPTER I : INDONESIA BALANCE OF PAYMENTS CONCEPTUAL FRAMEWORK

DEFINITION

• Definition of the Balance of Payments

Indonesia's balance of payments (NPI) is recording economic transactions occurring between resident to non-Indonesian residents in a certain period.

Balance of payments is a summary of statements or statements which basically say all transactions made by a resident of a country with residents of other countries and all of them are recorded in a certain period, usually a calendar year. (Salvatore, 1997: 67)

Balance of payments is a systematic document of all economic transactions between residents of a country with the population of another country within a specified period, usually one year. (Apridar, 2009: 135)

Sukirno (2004: 390), defines the balance of payments as a financial flow records that show the value of trade transactions and the flow was conducted among a country with other countries in a given year.

From the various definitions above, it can be concluded that the balance of payments is a systematic record that includes international transactions of a country with the population of another country in a given period is usually one year.

• The purpose of the Balance of Payments

The main purpose of balance of payments is to provide information to the government about its financial position, particularly with regard to the results of the practice of economic relations with other countries. The balance of payments can also help in decision making in monetary, fiscal, trade and international payments.

Preparation of the balance of payments has several objectives, including the following:

a. As the material information to the government about the international position of the country concerned.

b. As the material for the government to make decisions in the field of trade policies, payments affairs.

c. As the material to assist the government in making decisions in the field of monetary and fiscal policy.

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While the function of the balance of payments is as follows:

a. As an accounting tool and means of payment abroad for the government to take a decision, whether the state can resume the entry of foreign goods and be able to complete the payment on time.

b. As a tool to explain the influence and abroad transaction on national income.

c. As a tool to measure the state of the economy in international relations of a country.

d. As a tool of monetary policy which will be implemented by a country.

• International Economic trades

International economic transactions according Reksoprayitno (1995: 56), is an economic transaction conducted by a resident of a country that has a balance of international payments. Just like the other balance-sheet and in accordance with accounting principles generally, the balance of payments records transactions plus and minus. The plus transaction is called a credit transaction (credit), whereas the minus transaction called debit transactions (debit).

In terms of the balance of payments accounting must always be balanced, in the sense that the number of debit transactions is equal to the total value of credit transactions. Debit transaction occurs when transactions creates or result in increased liability for the residents of the country's balance of payments for reduced rights for the country's balance of payments resident to receive payments from residents of other countries.

In the balance of payments, which contains posts debit transactions are usually marked with a sign (-). While the credit transaction occurs when a transaction creates or lead to increased rights for residents of other countries or result in reduced liability for the residents of the country's balance of payments to hold payments to residents of other countries, this transaction is usually marked with a plus sign (+).

CONCEPT OF TRANSACTION

Economic transactions are recorded in the balance of payments was mainly due to the exchange or transfer of economic value between residents and non-residents of Indonesia. In one exchange, the Indonesian population gain / relinquish ownership of economic value by giving / getting possession of other economic values of non-residents. While for transactions resulting from the transfer, an economic value given or received by the Indonesian population with no reply other economic value.

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Economic transactions, even without the exchange or transfer, can still be recorded in the balance of payments. The way of recording this transaction is more commonly known as imputed transaction. An example is the recording of the net earnings (excluding dividends) foreign investment company (PMA) components reinvested profits (reinvested earnings) in the NPI. In general, economic transactions are included in the balance of payments can be divided into two groups:

(1) Goods, services, revenue (income) and current transfer;

(2) Capital / financial

Transactions within the group (1) are part of the current account, while transactions in the group (2) are part of the capital and financial (capital and financial accounts).

Recording Transaction Period

Recording of economic transactions in the balance of payments is basically done in the event of transfer of ownership between residents of Indonesia with non-residents with a value based on the agreement of both parties. This is consistent with the principle of accrual accounting, which requires revenues and expenses are recorded when incurred, not the time of settlement (settled) which may take place some time later.

In the current account, transfer of ownership is considered to occur when the legal ownership of an item changes, when a service has been provided, and when income increases / decreases. As for financial transactions, a change of ownership occurs when the transaction appeared in the books of the transaction, i.e. when the financial asset or liability acquired abroad, released with the agreement, is sold, or repaid. Assets in the form of commitment or pledge are not regarded as an economic transaction, so it will not be recorded in the balance of payments. Thus, the addition of foreign debt will be recorded in the balance of payments in the event of an actual withdrawal; while the payment should be recorded when the debt is due, not when the actual payment.

Practically, recording by accrual is difficult to implement. Often, the data source determines the timing of recording of a transaction in the NPI. For example, exports and imports of goods transactions are recorded in the balance of payments when the goods cross the border of Indonesia, represented by customs documents which constitute the main data source of this transaction. The recording time may vary with time recording exporters / importers in their books, but this practice is considered the best proxy to establish a change of ownership.

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Dual Entry System

Recording transactions in the balance of payments is done double-entry accounting system (double entry). With this system, every economic transaction that was recorded in two different entries with the same value. Recording is done from the standpoint of the Indonesian population. For example, receiving food aid from abroad will be recorded as imports of goods and the receipt of a transfer; oil exports by the government will be recorded as exports of goods and receipts of foreign exchange reserves.

The second entry is recorded as a debit and credit transactions in accordance with generally accepted accounting practices. In the current account, a debit transaction to non-residents spending and credit transaction constitutes acceptance of non-residents. In the capital and financial transactions, debit transactions showed an increase in assets or decrease in liabilities to non-residents, while credit transactions showed a decrease in assets or an increase in liabilities to non-residents. Conventions used in the marking of the transaction debit / credits in the balance of payments are: debit transactions indicated by a dash (-) and credit transactions indicated by the sign (+).

Errors and Omissions

If the principle of double entry is applied to every economic transaction, the total number of entries in the balance of payments will be equal to zero. In practice this will not occur because of differences in data sources used to record two entries (debit and credit sides) of the transactions. Some transactions may not be measured accurately, resulting in the recording errors (errors). Meanwhile, some other transaction may not be recorded at all, which resulted in fewer notes (omissions).

Once the entire entries recorded in accordance with the transaction in the current account and the capital and financial account, the sum of both will produce net debit or net credit. To compensate for the net debit or credit card is used the account balance, the net errors and omissions. In practice it is not easy to determine the source of errors and omissions of this, whether it comes from the current account or capital and financial transactions.

Transaction valuation

International standards require transaction assessed based on its market price market price is defined as "the amount of money paid by a buyer who is willing (willing buyer) to acquire something from a seller who is willing (willing seller); exchanges are made between independent parties on the basis of purely commercial considerations'. In practice, the transaction price is used as a proxy for the market price. The transaction price is the price of a transaction

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that was recorded in the books transactions or in the administrative record that is used as a data source.

Calculation and Conversion Unit

NPI statistics compiled in the currency of US dollars. Transactions denominated in rupiah or foreign currency converted to US dollars using the exchange rate (the midpoint between the buying and selling rates) prevailing at the time of the transaction. If the information is not available then use the average middle rates during the period of the transaction.

CONCEPT OF RESIDENCY / POPULATION

Judging from the culprit, economic transactions carried out by institutional units that can be a person, legal entity, or other entity. Recording the transaction in the balance of payments made throughout the transaction is conducted between the Indonesian population with non-residents.

Indonesia's population was defined as institutional units which have a center of economic interest (center of economic interest) in Indonesia. An institutional unit is said to have a center of economic interests in Indonesia when it has or plans to engage in economic activities and transactions (live, produce, consume, invest, and / or earn) in Indonesia for one year or more.

In the balance of payments statistics, the population of Indonesia is composed of:

(1) Government agencies consists of the central government, local government and non-departmental government agencies. Indonesian embassies and consulates abroad is Indonesian territory that fall within the definition of the Indonesian population; otherwise a foreign country Embassy in Indonesia is not a resident of Indonesia;

(2) The financial institution and the company that is not a financial institution which includes all companies involved in the production of commercial goods and services in the territory of Indonesia. The company can take the form of incorporation or not incorporation; owned / controlled by the government (BUMN) / private (BUMS); or owned / controlled by domestic / foreign. A branch of foreign companies in Indonesia is a resident of Indonesia, while Indonesian company branches abroad are not included residents of Indonesia;

(3) Non-profit organizations, the institutions that produce goods and services in the territory of Indonesia is not for the purpose of obtaining financial income. Examples are religious institutions and social institutions.

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(4) Households and individuals, that all the people living in the territory of Indonesia for one year or more and the center of economic interests in Indonesia. In this sense, including the Indonesian people who travel abroad for the purpose of tourism, study or medical treatment; diplomatic staff and their families at the Indonesian embassy or consulate abroad; as well as the staff of international organizations (which is not the status of diplomats) who served in Indonesia.

There are some special cases in the determination of the resistance status of an institutional unit:

(1) Mobile equipment (such as ships, aircraft, satellites, and oil and gas drilling rigs) can be used to provide services in the territory of several countries or in international waters. The mobile equipment residency status is not determined by the location of its existence but by residency companies that operate them. When the equipment is operating in the territorial waters or international air then the residency follows the company operator.

(2) In the case of an agent, all transactions carried out on behalf of its parent agency in another country is a transaction parent state, not a state agency. However, all services provided by the agent to the parent state residency is considered as a transaction agent. For example, ticket sales transactions by foreign aviation agency offices in Indonesia to the population are considered as a foreign airline ticket purchases by residents. Meanwhile, remuneration (fee) obtained from the agency ticket sales transaction is recorded as an acceptance of services by the population.

CLASSIFICATION STANDARD BALANCE OF PAYMENTS

Structure and classification of standard components of the balance of payments is set in the BPM5. The standards composed by considering the views of an expert balance of payments of various countries and the need to harmonize the concepts and definitions used with the standards and other international statistical classification.

Classification standard balance of payments consists of two main groups of the balance sheet: current account and capital and financial accounts. Transactions are classified into current account consists of goods and services , revenue (income) and current transfers. Transactions are classified into capital account consists of capital transfer transactions (capital transfers) and net acquisition or disposal of non-renewable non-financial assets (acquisition or disposal of non-produced, non-financial assets).

Meanwhile, the financial transactions includes direct investment, portfolio investment, other investment, and foreign exchange reserves (reserve assets). The current account is generally presented as gross debits and credits, while the capital and financial transactions are

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presented net debit or credit. Inflows (inflows) of real resources, an increase in financial assets and liabilities are recorded in the reduction of the discharge; otherwise outflows (outflows) of real resources, reduction of financial assets, and an increase in liabilities are recorded in the credit side.

Current Account

The current account measures the revenue and expenditure Indonesia arising from transactions of goods and services, income and current transfers to non-residents. Transactions in the current transaction is final, in the sense of the transaction were not associated with previous transactions or future, as the general financial transactions, for example financial settlement of the bill or the incidence of investment income.

The current account is divided into four categories:

a) Trade in goods which include export and import of goods and services exports of goods and services are treated as credit imports of goods and services are treated again as a debit

b) Services, including payments and receipts for services - legal services, consulting, and engineering; royalty to patents and intellectual property, insurance premiums, shipping fees, and tourist spending.

c) Net investment income contains most of the payment and receipt of interest, dividends, and other income from overseas investment made previously.

d) Net transfer (unilateral transfers) includes payment of "unrequited", such as foreign aid, reparations, official and private grants, and gifts

The current account includes foreign aid, gifts and other payments between governments and between private parties. A net transfer is not a trade in goods and services. Or in other words transaction running summarizes the flow of funds between one particular country with all other countries as a result of the purchase of goods or services, commission income on financial assets, or a unilateral transfers (e.g. aid assistance between the intergovernmental and the private sector). The current account is a measure of broad international trading position. The current account deficit describes the flow of funds out of a country larger than the funds it receives.

Components of the current account include trade balance and the balance of goods and service transaction running commonly used to assess the balance of trade. Trade Balance is simply the difference / difference between exports and imports. If imports are higher than exports, then there is a trade deficit.

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Conversely, if the exports are higher than imports, what happens is a surplus. While the balance of services is the trade balance plus the amount of interest payments to foreign investors and dividends received from investments abroad, as well as revenues and expenses associated with tourism and other economic transactions.

Table 2.1 shows the standard components of the current account.

Credit Debit

Goods and services Goods

General merchandiseGoods for processingGoods are repairedGoods acquired at port by means of conveyanceNon-monetary gold

ServiceTransportationTravelOtherCommunication servicesConstruction serviceInsurance servicesFinancial servicesComputer and information servicesRoyalties and license remunerationOther business servicesPersonal services, cultural, and recreationGovernment services

Income Labor compensation Investment income

Direct investmentInvestment portfolioOther investment

Current transfers Government Other sectors

Remittance laborOther transfer

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Capital and Financial

Capital account includes capital transfers and transactions related non-financial assets are not renewable (non-produced, non-financial assets). Contains capital transfers ownership transfer of fixed assets without compensation directly, or transfer of funds related to fixed assets, or cancellation of financial claims by mutual agreement between the creditor and the debtor (debt forgiveness). Acquisitions / disposals of non-financial assets do not include transactions related renewable intangible assets such as copyrights, patents or trademarks, and transaction / purchase of land by embassies and institutions other extra-territorial. The transaction is not recorded in the balance of payments.

Acquisitions / disposals of non-financial assets are not renewable creating rights which can then be used to generate money or other assets. Meanwhile, differ from these transactions, financial transactions giving the right to receive or obligation to provide cash or other financial instrument. Financial transactions consist of a transaction relating to the change in ownership of financial assets and liabilities abroad.

The capital account is used to measure the difference between the sales of assets to a foreign country with the purchase of the assets abroad. Sales (purchases) of assets are recorded as a credit (debit) and generate capital inflows (or capital outflows).

The capital account is divided into three categories:

1. Direct Investment which occurs when investors gain some control over the outside national business.

2. Portfolio investment showed sales and purchases of foreign financial assets such as stocks, bonds, which do not involve the transfer of control. International portfolio investments made in equity securities and debt securities.

3. Other investments which include transactions in currency, bank deposits, trade credits, etc. Investment is very sensitive to changes in relative interest rates between countries and changes in anticipation of the exchange rate, so that the changes happen will affect the outside transactions.

Table 2.2 shows the standard components of the capital and financial transactions.

Credit DebitCapital transactions Capital transfers Acquisitions / disposals of non-financial assets are not renewableFinancial transactions Direct investment

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Abroad Capital stock Earnings reinvested Other capital In Indonesia Capital stock Earnings reinvested Other capital Investment portfolio Asset Stock Debt securities Obligation Stock Debt securities Derivative financial Asset Obligation Other investment Asset Account receivable Loan Currency and deposits Other assets Obligation Payables Loan Currency and deposits Other liabilitiesForeign exchange reserves Monetary gold Special drawing rights Reserves at the IMF Reserves in foreign currency Other bills

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CHAPTER II : INDONESIA’S BALANCE OF PAYMENTS PRESENTATION FORMAT

NPI format has changed several times. This manual will focus explanation for NPI format that refers to the BPM5 and began publication in 2004 until today

Table 2.3 Indonesia's Balance of Payments: Summary

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Table 2.3 summarizes Indonesia's balance of payments is presented analytically. Presentation analytically separate transactions to transactions above the line (autonomous transactions) and transactions below the line (financing transactions), and aims to show the difference between the transaction of foreign exchange reserves and other components that are closely related to other transactions. Foreign exchange reserves and other related components excluded from financial transactions and shown as a separate component (below the line) used by monetary authorities to finance other transactions (above the line).

Table 2.4 Indonesia’s Balance of Payments: Current Account

Goods

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Services

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Income(Primary)

Income (Secondary)

Table 2.4 displays the current transaction in more detail. For analytical purposes, exports and imports of goods are separated between oil and non-oil exports and imports, as well as interest payments on government debt information and BI shown separately. The two components of services (transportation and travel) is shown separately

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Table 2.5 Indonesia’s Balance of Payments: Capital and Financial

Direct Investment

Portfolio Investment

Other Investment

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Table 2.5 provides more detail about the capital and financial transactions, excluding foreign exchange reserves and other related components. Financial transaction in Table 2.5 is further broken down by institutional sector in Table 2.6 (the financial transactions of the government and monetary authorities) and Table 2.7 (private sector financial transactions).

Table 2.6 Indonesia’s Balance of Payments: Government Sector and the Monetary Authority Financial Transactions

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Table 2.7 Indonesia’s Balance of Payments: Private Sector Financial Transaction

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CHAPTER III : DIRECT INVESTMENT

CONCEPTS AND DEFINITIONS

International/Foreign direct investment is an investment made by a resident of a country (shareholders / direct investor) in an investment company directly (direct investment enterprise) in other countries for the long term. Shareholders can be individuals, public or private company, a group of people or companies, government, or other organizations that have 10% or more shares of an investment company directly. Direct Investment Company is a company incorporation (incorporated) or non-incorporation (unincorporated) which is 10% or more of its shares (or equivalent for non-incorporation) is owned by foreign shareholders. The company consists of: subsidiary (subsidiary, shareholders owning more than 50% of shares), associations (associate, shareholders have between 10% to 50% of the shares), and branch (branch, the company non-incorporation).

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Foreign Direct Investment (FDI) is an investing activity to do business in the territory of the Republic of Indonesia, made by a foreign investor, either by foreign capital and joint venture with foreign investors.

In Law No. 1 of 1967 affirmed that the definition of foreign investment in Act 1 of 1967 only includes foreign direct investment conducted by or under the provisions of Act 1 of 1967 and used to run companies in Indonesia , in the sense that the owners of capital are directly bear the risk of such investments.

Definition of foreign capital in Act 1 1967 under section 2 is:

a. foreign payment instruments that are not part of the foreign exchange resources of Indonesia, with the approval of the Government which are used for financing companies in Indonesia.

b. tools for companies, including new discoveries are owned by foreigners and materials, which is inserted from the outside into the territory of Indonesia, during these tools are not financed from the wealth of Indonesia's foreign exchange.

c. That part of the company based on this Act permitted to be transferred, but used to finance company in Indonesia.

As for foreign capital in this Act not only in the form of foreign exchange, but also includes the tools fixtures needed to run the company in Indonesia, inventions belong to the person / foreign body that is used in the company in Indonesia and the advantages that may be transferred to abroad but used again in Indonesia.

Direct investment transactions consist of the initial capital investment transactions that gave rise to the relationship between the direct investor with the company (direct investment as relationship) and a series of subsequent transactions that occur between them or with other affiliated companies. In addition, since the relationship of direct investment is established, then the entire equity and other investments that were previously classified as an investment portfolio or other investments (linked to the direct investor and its affiliates) was transferred into a direct investment in the international investment position, by moving the value of equity and other investments such the components of other changes (other adjustments).

In the case of a direct investment relationship occurs between banks and other financial intermediaries, transactions that occur between those recorded as direct investment transactions are limited to equity and permanent debt transactions; other transactions are classified according to type as portfolio investment, financial derivatives or other investments.

Direct investment relationships can occur directly between direct investors to subsidiaries or associates, and extends indirectly to the subsidiary of a subsidiary, associate of the subsidiary,

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and the subsidiary of the association. Direct investment relationships can be seen in the diagram below:

Figure 9.1 Examples of Direct Investment Relationships

The Company consists of the direct investment enterprise branch, subsidiary, associate, subsidiary of a subsidiary, associate of the subsidiary, and the subsidiary of the association.

N is an individual, corporation, or other entity that has an ownership interest of at least 10% of capital (having a direct investment relationship) with company A, B, C, D, E, F, K and L (in bold).

A company is a subsidiary of N;

Company B is a subsidiary of A and therefore is a subsidiary of N;

Company C is an associate of B and therefore an associate of N through its subsidiaries B;

Company D is the association of N;

Company E is a subsidiary of D and therefore an associate of N;

Company F is an association of N;

Company K is a subsidiary of N;

Company L is a subsidiary of K and is therefore a branch of N;

Company H, J, and G does not have a direct investment relationship with N, because: H is not a subsidiary or associate of N, thus creating a direct investment relationship; J is a subsidiary of H but not subsidiaries or associates N because H does not have a direct

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investment relationship with N; G is an association of F but not with N because F is only an association N.

CLASSIFICATION

The main classification of direct investment is based on the direction of investment. Direct investment made Indonesian people abroad called direct investment abroad (direct investment abroad or outward direct investment) and investments made by direct investors abroad on companies in Indonesia called direct investment in Indonesia (direct investment in Indonesia [or commonly known as the Foreign Direct investment - FDI] or inward direct investment).

Criteria for FDI Company, Referring to the provisions contained in the Investment Law No. 25 In 2007, then known as the "Foreign Investment", must meet several of the following elements (Art. 1 (3)):

a. An investing activity

b. To conduct business in the territory of the Republic of Indonesia

c. Carried out by a foreign investor,

d. Use of foreign capital and joint venture with a domestic investor.

The form of capital investment can be done in several ways, including (Ps. 5 (3)):

Taking shares when the establishment of Limited Liability Company;

b. Buy stocks; and

c. Perform other means in accordance with the statutory provisions

Based on this understanding, we can conclude that any company in which there is foreign capital, regardless of the limits on the amount of capital that can be categorized as FDI.

Sectors that can not be entered by FDI, Business sectors closed to foreign investment in full control are areas that are important for the state and serving the public, according to Article 6 “UPMA” is as follows:

a. ports

b. production, transmission and distribution of electricity to the public

c. telecommunication

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d. cruise

e. flight

f. water provider

g. public rail

h. atomic power plant

i. mass media.

In each direction of investment, direct investment data can be differentiated according to the assets and liabilities are presented net though. For direct investment abroad, the data obligations to affiliated companies abroad (liabilities to affiliated enterprises) shows the inverse investment (reverse investment) conducted overseas affiliated company in its direct investor company in Indonesia. As for direct investment in Indonesia, claims data (assets) to direct investors abroad (claims on direct investors) investment reflects the reversal of the company direct investment in Indonesia to its direct investor abroad. Reversals of these investments are rare in the form of equity investments, but very common in other forms of capital investment. For example, frequent direct investment company in Indonesia to provide accounts receivable to the company its direct investor abroad. On the other hand, the number of foreign loans received by the company direct investor in Indonesia from overseas affiliated companies led to a data net direct investment position abroad Indonesia tend to be negative (net liabilities), but usually is positive (net assets).

Direct investment data obtained from internal and external Bank Indonesia, namely:

(1) Internal Data Bank Indonesia include: (a) Report of Foreign Exchange for Direct Investment Abroad transaction data; (b) Commercial Bank Monthly Report for data transactions and equity capital direct investment position in Indonesia's banking sector; (c) Report Information System External Debt (whistle) to the data of foreign debt between affiliated companies; and (d) the results of the survey direct investment in equity capital position data;

(2) BP Migas, to the data of direct investment in the oil and gas sector;

(3) Ministry of State Enterprises, for data privatization;

(4) Asset Management Company (PPA), for data privatization or other state assets, and

(5) The National Committee for the Acceleration of Infrastructure Provision (KKPPI), the data related to the investment in the infrastructure sector.

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Investment Realization Progress Quarter I 2015

The value of investment in Quarter I 2015 is direct investment realization which is done during three months period of report (January-March2015) which is based on investment realization report by the DDI and FDI companies.

Oil and Gas, Banking, Non-Bank Financial Institution, Insurance, Leasing and SMEs are excluded

The investment value is in Rp Trillion (T) and for Quarter I 2014 the exchange rate of US$1=Rp10,500,-based on State Budget 2014, for Quarter IV 2014 the exchange rate of US$1=Rp11,600,-based on Revised StateBudget2014and for Quarter I 2015 the exchange rate of US$1=Rp12,500,-based on Revised State Budget 2015

Investment Realization in Quarter I 2015 : Rp124.6T, an increase around 16.9% from Quarter I of 2014 (Rp106.6T) and increase about 3.5% from Quarter IV 2014 (Rp120.4T)

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Investment Realization in Quarter I 2015 Compared to The Same Periodin2014: DDI and FDI; Java and Outside Java

Economic Corridor

Based on Economic Corridor in Quarter I 2015 period, the highest realization of DDI and FDI is located in Java Corridor. The further highest realization of DDI is in Sumatera, Kalimantan, Bali and Nusa Tenggara ,Sulawesi, also Maluku and Papua Corridor. While the further highest realization of FDI is Kalimantan, Sumatera ,Sulawesi ,Maluku and Papua, also Bali and Nusa Tenggara Corridor.

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Investment Realization in Quarter I 2015: Based on Sector

Quarter I 2015 Realization : Based on Sector

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Investment Realization in Quarter I 2015: Based on LocationT

Investment Realization in Quarter I 2015: Based on Location

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Investment Realization in Quarter I 2015: Based on Country of Origin

Investment Realization in Quarter I 2015: Based on Country of Origin

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Indonesian Labor Absorption Progress 2010–March 2015: Per Quarter

Progress of Investment Realization 2010–March 2015: Per Quarter

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OECD, 2015, OECD Economic Surveys: Indonesia 2015 Bank Indonesia,2015, Laporan Neraca Pembayaran Indonesia – Realisasi

Triwulan II-2015 Bank Indonesia,2015, Laporan Posisi Investasi Internasional Indonesia –

Realisasi Triwulan II-2015 BKPM,2015, Domestic and Foreign Direct Investment Realization In Quarter I

(January –March) 2015 Bank Indonesia -- Investor Relations Unit, 2015, Recent Economic Development-

February 2015 KMPG, 2015, Investing in Indonesia The World Bank, 2015, Indonesia Economy Quarterly – High Expectation March

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