Indonesia-Singapore Bilateral Investment Guarantee Agreement to Expire

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Singapore_banknotes_-_20120205The bilateral agreement signed by Indonesia and Singapore in 2005 will not be renewed by Indonesia, and is set to expire on June 20, 2016. This bilateral agreement, commonly known as an investment guarantee agreement (IGA), grants protection to Singaporean investors.

Singapore’s Prime Minister Lee Hsien Loong said in an interview with regional journalists that the agreement sets out the legal framework on norms and investor protection; important for investment flows into Indonesia. He said that investors “are looking for reassurance and confidence that the framework will be there, and the better an IGA you have, the easier it will be to persuade investors to come in”.

Singaporean investments made into Indonesia by June 20, 2016, will reportedly remain covered by the agreement until 20 June 20, 2026.

The ASEAN Comprehensive Investment Agreement and other ASEAN agreements will continue to apply to Singaporean investments into the country.

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A similar IGA between Indonesia and Malaysia is set to expire on June 20, 2015.

Jakarta is also reviewing the Batam, Bintan and Karimun (BBK) Free Trade Zone (FTZ), with an eye to return control back to the capital. The islands, situated close to Singapore, have been FTZs since 2007. Businesses in the FTZ have enjoyed customs and tax exemptions. The FTZ, a joint project between Indonesia and Singapore, had reportedly faced bureaucratic problems due to decentralization and been unable to achieve its desired goals.

The first quarter of 2015 saw a quarterly record of 124.6 trillion rupiahs (US$9.7 billion) in investment realization in Indonesia, up 16.9 percent from the last quarter of 2014, as revealed by the Indonesia Investment Coordinating Board (BKPM). Domestic direct investment reached 42.5 trillion rupiahs, up 22.8 percent year-on-year (Y-o-Y), while foreign direct investment (FDI) rose to 82.1 trillion rupiahs, up 14 percent Y-o-Y.

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Indonesia is on its way to reach the target of 519.5 trillion rupiahs (US$ $40 billion) in foreign and domestic investment at the end of the year. The country expects the total investment growth rate of the second quarter of 2015 to remain above 16 percent by luring projects with tax incentives.

Singapore and Japan were the two biggest sources of FDI for Indonesia in the first quarter of 2015, pouring a total of US$1.2 billion in capital each, followed by South Korea, the UK, U.S., Malaysia and the Netherlands. Mining, food and utilities were the most attractive investment industries in the Southeast Asian nation.



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