prospective investors. The List underwent significant changes in 2010, imposing more restrictions on foreign investment into the telecommunications sector, for example. On the other hand, several sectors, such as hospital services, underwent greater liberalization at this time.

Cross-country comparisons suggest that restrictiveness towards FDI in services is relatively high in Indonesia. The OECD compiles an FDI Regulatory Restrictiveness Index measuring the openness of 55 economies to FDI. It has been conducted intermittently since 2003, backdated to 1997, and on an annual basis since 2010. It includes four primary components: restrictions on foreign key personnel, equity restrictions, screening and approval requirements, and other operational restrictions (e.g.: land use restrictions).<sup>6</sup> As foreign equity limits are understood to be the most onerous – although certainly not the only – restrictions on FDI, the index is strongly weighted according to these limits. According to the 2012 iteration of the index, Indonesia is the third most restrictive FDI regime of those surveyed, ranking behind only China and Saudi Arabia.

While the Index measures a country’s policy stance on FDI, and therefore the focus is placed firmly on discriminatory measures toward foreign investors, the index may also register the impact of non-discriminatory measures that are burdensome to investment regardless of its origin.<sup>7</sup> In this sense, the index may be viewed to a certain extent as a proxy measure for a broad range of policy variables.

In the aftermath of the East Asian crisis, for instance, there was an economic imperative and political support for reforms in Indonesia. One notable example are the 1999 reforms of the Indonesian Telecommunications sector. Such ‘big bang’ reform processes are not atypical when looking at the international experience; reforms in the Indian service sectors in the 1990s are another example of such ‘packaging’.<sup>8</sup> This suggests that the evolution of the indicator may well be indicative of more wide-ranging reforms, of which a changed FDI policy stance is an important part.

The evolution of Indonesia’s service sector ratings in the OECD index since 1997 reflects broad based liberalization in the aftermath of the East Asian crisis, as evidenced by the fall in Indonesia’s score across all service sectors between the 1997 and 2003 iterations of the Index. There was little real change from 2003 to 2006 (Figure 5).

Between 2007 and 2010 – taking into account the impact of the 2007 Investment Law and the creation of, and amendments to, the Negative Investment List – there was moderate liberalization across most service sectors, significant liberalization in the hotel & restaurant sector, and a significant increase in restrictiveness in the communications sector. No changes in Indonesia’s service sector index rating have been registered since 2010.

> 6 For a detailed description of the index see Kalinova et al, 2010.

> 7 See OECD Reviews of Regulatory Reform, paragraph 70.

> 8 The Indian telecommunications sector offers an example. Arnold et al (2011) report that the National Telecom Policy, announced in 1994 improved the environment for private investment in general. Subsequently, the government opened the long distance sector of the telecom industry to private competition, largely eliminated restrictions on the number of service providers, and relaxed foreign ownership limitations.

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