What Is FDI? Purbaya Yudhi Sadewa's Explanation and Views

Bittime - Foreign Direct Investment (FDI) is frequently mentioned in economic discussions and government policy. Recently, Finance Minister Purbaya Yudhi Sadewa reaffirmed the government's commitment to FDI as a pillar of development financing, including for major projects like the Indonesian Capital City (IKN).

This article will explain what FDI is, from Purbaya's perspective, its types, its benefits, and how government policy utilizes FDI strategically for Indonesia's economic growth.

What is FDI and How Purbaya Responds to It

Definition of FDI (Foreign Direct Investment)

FDI is foreign direct investment, where investors from abroad invest capital in local companies with the aim of gaining profits.lasting interest—namely, owning shares, production facilities, or fixed assets that connect the investor to the management and operations of the company. FDI differs from portfolio investment because FDI involves control and a long-term relationship.

FDI According to Purbaya

While Purbaya hasn't specifically defined FDI in a single definition speech, several of his statements indicate that he views FDI as a crucial element in today's economic development strategy. For example, he mentioned that major projects like the new capital city (IKN) will utilize a mixed scheme involving FDI, along with the state budget and public-private partnerships (KPBU).

Also, in the context of liquidity and fiscal stimulus, economists say that Purbaya's policies could trigger foreign capital flows, including FDI, if the investment climate is deemed conducive. 

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Benefits of FDI for Indonesia

Capital Increase and Development Funding:

FDI brings new capital that helps finance infrastructure, production facilities, and public projects that may be difficult to finance with domestic funds alone.

Technology and Knowledge Transfer:

Foreign investors typically bring more advanced technology, modern management methods, and higher operational standards, which can then be absorbed by local companies and their workforce.

Job Creation

With the establishment of factories, production facilities and foreign projects, new job opportunities will be created, both directly and indirectly.

Increasing Exports and International Trade

FDI-backed companies tend to be more export-competitive, due to access to global networks and better production capabilities.

Strengthening Competitiveness and Economic Stability

Well-managed FDI can contribute to economic stability, strengthen the exchange rate, and attract other foreign investors, whether in stocks, bonds, or direct investment. Purbaya expressed optimism that foreign capital will flow not only into the capital market but also into FDI.

Purbaya's Policy Supporting FDI

Mixed Scheme of APBN, PPP, and FDI for National Projects

One example of a policy Purbaya mentioned is the use of FDI as part of the IKN financing, rather than just relying on the APBN.

Positive Signals through Liquidity and Economic Stimulus

By placing government funds in banks (e.g., Himbara), the government hopes to increase liquidity, lower interest rates, and encourage businesses to borrow more. This could attract foreign investors due to the projected returns and increased efficiency. 

Efforts to Maintain a Transparent Policy and Regulatory Climate

Although many challenges remain (such as fictitious credit risks, inconsistent regulations, and uneven distribution of benefits), Purbaya emphasized the importance of credible policies to ensure foreign investors are confident in the security and long-term potential of their investments.

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Challenges and Important Notes According to Purbaya

Careful Distribution and Utilization of Funds

Even if substantial FDI funds are inflowed, it's crucial that they are channeled into productive and labor-intensive sectors. Otherwise, the impact on unemployment and growth could be less than optimal.

Risk of Foreign Dependence

There is concern that if FDI is too dominant, more control and profits may flow abroad (profit repatriation), while local impacts (community, environment, technology) may be less evenly distributed.

Supporting Infrastructure and Regulations

To attract FDI, the government must ensure adequate infrastructure (transportation, electricity, internet), clear regulations, easy licensing, and guaranteed investment security.

Transparency and Good Governance

The credibility of the government and business actors is important so that foreign investors can trust that their investments will not be affected by corruption, sudden changes in regulations, or detrimental practices.

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Conclusion

What is FDI according to Purbaya? In short, FDI is foreign direct investment that establishes long-term interests in local companies, bringing capital, technology, and export opportunities. Purbaya views FDI as a crucial part of development strategies: from the new capital project to fiscal stimulus and macroeconomic restructuring.

The benefits are clearly significant, but the challenges are also significant. For FDI to have a maximum impact on Indonesia, transparent policies, supportive regulations, inclusive fund management, and a focus on productive and labor-intensive sectors are required.

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FAQ

What is the difference between FDI and portfolio investment?

FDI involves direct ownership and control of assets, not just buying shares for short-term profits.

How does FDI affect the rupiah exchange rate?

Foreign capital inflows can strengthen the rupiah, while capital outflows or uncertainty can weaken it.

Is FDI always profitable?

Not always; it depends on the sector, distribution of benefits, regulations, and how it impacts local businesses and the environment.

How can Indonesia attract more FDI?

By improving regulations, infrastructure, investment security, and providing clear and transparent incentives.

What is the impact of FDI on local MSMEs?

When combined with technology transfer and partnership policies, MSMEs can gain broader market access and increase production capacity.