THE POLICY OF FOREIGN PORTOFOLIO INVESTMENT LIBERALIZATION AND ITS IMPLICATIONS TOWARD THE NATIONAL BANKING POLICY ON GIVING THE CREDIT TO THE SMALL AND MEDIUM ENTERPRISES

Abstract

Foreign Portofolio Investment is one of the parts of foreign investment policy,
its existence has the important role to the economic development of a country,
especially to the developing countries to prevent the deficit of a country.
Indonesia is one of developing countries that has implemented the policy
rapidly by liberating foreign portofolio investment. This makes the foreign
fund flood Indonesia without any control. Its legally caused legislation
product regulating the kinds of this investment subtancially do not regulate
legal precision between two countries. Therefore, it gives overborrowing
impacts that have to be guaranted by a country in a certain time. Its different
from other developing countries determined foreign portofolio investment with
the strong control and given tax disincentive to the investors, such as China,
Corea, Thailand and others.
The behavior of this policy, is appereant and it cannot be separate from
foreign influence that suggested by International Monetary Fund (IMF) and
World Bank (WB) as a financial international institution with the basic
financial globalization. Financial globalization, directly and indirectly has
supported the government policy that is very kind to the foreign intervention.
Its evidenced by the dominated legalize by the ownership of foreign stock in
foreign right corporation or financial institution (banking) that has implicitly
through laws. Therefore, foreign portofolio investment has caused the
magnetic strength, especially banking institution to get the traget of big gain
by buying and selling it to foreigner than distributing of credit to the small
and medium enterprises.
This phenomenon, implicates to the change to the policy in the banking sector,
banking experienced shifting of vital function that as to be able to allocate the
fund source to the society efficienly and effectivetely. The shifting of vital
banking function, from traditional activity to the non-traditional activity is
caused by the complicated problems like institution, regulation, and
globalization, especially financial globalization. Therefore, the strength of the
state about political economy is the main solution to solve these problems.
This research, will be analyzed comprehensively about the Policy of Foreign
Portofolio Investment Liberalization and its Implications toward the National
Banking Policy on Giving the Credit to the Small and Medium Enterprises.
Beside, this research will also be explained the relevant policy to solve the
vital functions of banking as intermediation institution to the small and
medium enterprises, its influence can be hoped to the financial stability and
economic development sustainability.

Key words: liberalization, foreign portofolio investment, financial globalization, political
economy, national banking