Foreign Investment and Development StrategyforIndonesia’s Banking Sector: Between Constitutional Supremacy and Economic Reality

Liberalisation of financial services has benefitted Indonesia'sbanking sector from competitive advantages and economic growth. The ownership of private banking by foreign investors has given positive implications to the Indonesian economy. However, the increase does not augur well with the Indonesian political aspiration. Foreign investors hold almost 50% of the total number of Indonesian national private banks. The domination of foreign investors in Indonesian private banking is not consistent with Article 33 of the 1945 Constitution and Pancasila Economics. The discussion employs a doctrinal perspective. This article analyses and evaluates the relationship between national interests and foreign investment in the banking sector of Indonesia and whether the national development strategy is in line with the aspirations of Article 33 of the 1945 Constitution to increase Indonesia's participation in domestic banking. A historical approach is applied that involves an objective study of past facts, events, and institutions. This article finds that there is a need to boost the competitiveness of local participant through Indonesia's development strategy. Besides, there are already mechanisms in place which allow Indonesia as a host country to increase participation while at the same time committed to the economic liberalisation and free capital flows for investment.