UPDATE 1-Indonesia eases foreign investment rules, opens up pharma industry

Fri May 2, 2014 7:38am EDT

(Adds government comment, industry reaction)

By Randy Fabi

JAKARTA May 2 (Reuters) - Indonesia on Friday eased its foreign investment regulations for several industries, including pharmaceuticals, power plants and advertising, amid signs of weakening investor appetite in Southeast Asia's biggest economy.

Foreign investment growth in the first quarter slowed to its lowest level in nearly five years following a government ban in January on mineral ore exports. The ban raised investor concerns over increasingly nationalistic policies.

But in a reform that should ease some of that concern, the cabinet secretary's office, after months of delays, issued a revised "negative investment list" of sectors in which foreign investors are either barred or restricted.

The list, which has existed for decades, limits foreign involvement in areas deemed sensitive.

"To further enhance the capital investment activity in Indonesia ... it is deemed necessary to change the provision of business sectors closed and business sectors opened for capital investment," President Susilo Bambang Yudhoyono said in a presidential decree.

Indonesia is dependent on foreign investment to fund a current account deficit, which the central bank has estimated at around 2 percent of gross domestic product in the first quarter.

Under the investment policy, the government increased the maximum foreign investment in pharmaceutical companies to 85 percent from 75 percent, and in advertising agencies to 51 percent from 49 percent.

The changes were effective from April 24, the cabinet secretary's office said.

The International Pharmaceutical Manufacturers Group, which represents foreign companies like Pfizer, Sanofi SA , and Novartis, said the revisions would do little to attract further investment as it would still require having an Indonesian partner.

"The main issue is intellectual property," Parulian Simanjuntak, the trade group's executive director, told Reuters. "By having a local shareholder, they have access to confidential information."

Indonesia also allowed foreign investment of up to 100 percent from 95 percent for power plant projects carried out as a public-private partnership. Under the partnership terms, a foreign investor now can own an entire power-plant during a concession period, after which some equity transfers to the government. (Additional reporting by Jakarta bureau; Editing by Robert Biresl)