Foreign investment reform has become an urgent priority as Indonesia faces mounting pressure to remain competitive in Southeast Asia. During the 2025 Business Economics Conference (BEC) held at Prasetiya Mulya University, the Center for Market Education (CME) launched a new policy brief recommending the government adopt a more open and inclusive strategy to attract foreign direct investment (FDI).
The policy brief, written by Alfian Banjaransari, Alvin Desfiandi, Carmelo Ferlito, Yohanes Kadarusman, and Rama Poerba, highlights the importance of improving the country’s investment climate. The authors argue that Indonesia must move quickly to capture international investor interest amid global economic uncertainty.
Experts Highlight Need for Foreign Investment Reform
Alvin Desfiandi, CME Chief Economist, emphasized the need for immediate policy improvements. “Neighboring countries have already taken the initiative; Indonesia must not fall behind. The government needs to take concrete steps to encourage foreign investment inflows. It should not only focus on long-term goals but also short-term achievements that can be reached through targeted deregulation,” he said as reported by metrotvnews.com.
Desfiandi pointed out that despite global challenges, including trade wars and geopolitical instability, Indonesia can no longer afford to wait. Foreign investment reform must address not only regulatory efficiency but also foster inclusive and productive capital flows.
Southeast Asia’s Investment Growth Raises Pressure
Southeast Asia has emerged as the world’s top FDI destination following the COVID-19 pandemic. From 2015 to 2023, global investment flows fell from USD 2 trillion to USD 1.3 trillion. However, during the same period, Southeast Asia saw FDI rise from USD 120 billion to USD 230 billion—a 92% increase.
This stark contrast shows how Indonesia’s neighbors are proactively attracting investment. Desfiandi urged Indonesian policymakers to learn from the region’s success stories and act swiftly to maintain relevance in the global economy.
Read More: Indonesia’s Investment Competitiveness Rivals Vietnam
Proactive Approach Needed in Investment Policy Reform
A proactive approach in investment policy reform requires more than just easing restrictions. The CME policy brief recommends reviewing minimum capital requirements to allow greater participation from global SMEs, which are often more agile and adaptable than multinational corporations.
Indonesia must also shift its focus from market-seeking to efficiency-seeking investment. The current FDI profile is still largely driven by Indonesia’s massive domestic market. While this attracts capital, it often results in low productivity and stagnant wage growth.
Regulatory Reform and the Role of Innovation
Legal and regulatory updates are essential in supporting foreign investment reform. Safita Narthfilda from TRILEXICA at Law called for breakthrough initiatives like an innovation-friendly regulatory sandbox. “This initiative is important so that Indonesia can compete with other countries in the tight race to attract global investment, especially amid geopolitical tensions,” she stated.
By speeding up and updating the licensing process, a regulatory sandbox could enable faster business establishment and encourage innovation, particularly in fintech and other emerging sectors.
Positive Trends in 2024 Investment Realization
Indonesia has made strides in attracting investment. In 2024, the country recorded Rp1,714.2 trillion in realized investment, exceeding its target by reaching 103.9% of the Rp1,650 trillion goal. Foreign direct investment accounted for Rp900.2 trillion, or 52.5% of the total, marking a 21% year-on-year increase.
Domestic investment contributed Rp814 trillion, growing 22.5% from the previous year. Strategic government decisions, such as the nickel ore export ban since 2020, have driven capital into downstream industries like mineral processing and metal manufacturing. These sectors have also helped absorb approximately 2.4 million workers in 2024 alone.
Bridging the Gap Through Foreign Investment Reform
Singapore, China, and Hong Kong led the list of top FDI contributors, focusing heavily on mining and metal processing. While these numbers are promising, the policy brief warns that sustaining momentum requires more targeted reforms.
Indonesia’s current FDI-to-GDP ratio remains below 2%, compared to Vietnam’s 4-5%. To close this gap, Indonesia must modernize its approach. Reforming foreign investment policy is no longer optional, it is essential for long-term competitiveness and economic growth.
Source: jpnn.com, suara.com, metrotvnews.com
Image: Gumpanat/Getty Images
