Fixing business environment is what counts<\/p>\n
Todd Callahan and Andri Manuwoto, PT Jasa Cita, Jakarta<\/p>\n
We are over a month into a new year and Indonesia watchers
\nhave generally given President Megawati's administration a B+ for
\nsound macroeconomic management and improved fiscal
\nsustainability.<\/p>\n
The government has made substantive progress in reducing its
\ndependence on foreign loans -- its domestic debt situation is a
\ndifferent story -- and looks set to achieve a balanced budget by
\n2005.<\/p>\n
Inflation, albeit still worrying, is under control and the
\nRupiah-U.S. Dollar exchange rate is trading at a fair level
\nwithout being battered by the high level of volatility that has
\nplagued the currency in the past.<\/p>\n
These and other macroeconomic attainments are positive and
\nshould be applauded.<\/p>\n
Unfortunately, the picture at the micro level is not so
\nencouraging.<\/p>\n
On this score, Jemal-ud-din Kassum, the World Bank's VP for
\nEast Asia and the Pacific, got it right when he made the point at
\nthe CGI forum in Bali that Indonesia's investment climate is the
\nmost significant obstacle to accelerating economic growth and
\nreducing poverty and vulnerability.<\/p>\n
Andrew Steer, the World Bank's country representative, aired
\nsimilar concerns at a recent business luncheon in Jakarta.<\/p>\n
The fact is that the country is seeing declining investment as
\na share of GDP and the World Investment Report 2002 (UNCTAD)
\nrated Indonesia 138 out of 146 countries in terms of investment
\nattractiveness.<\/p>\n
Some in the bureaucracy have suggested Indonesia does not need
\nmuch investment. It will follow its own path. Considering the
\ncountry's five years of economic crisis, this is an indictable
\nstatement.<\/p>\n
In the end, any decline in investment should be distressing
\nbecause business activity is what drives growth. If the country's
\ntop bureaucrats decide they want investment, they have to realize
\nthat attracting investment dollars is akin to competing in a
\nbeauty pageant because companies have options.<\/p>\n
To put it briefly, the leadership must act: they need to role
\nup their sleeves and fix some of the very real problems that are
\nso injurious to the country's image.<\/p>\n
Does this mean the government has to fix everything and fix it
\novernight?<\/p>\n
Of course not.<\/p>\n
Indonesia is not a car that one can take to the garage, have
\nits spark plugs changed and then pick up the next day.<\/p>\n
That said, the administration must do a lot more to at least
\nensure that high profile cases of corporate mistreatment do not
\noccur and make their way into the domestic and foreign media.<\/p>\n
The following two cases, well known to local and foreign
\nbusiness people, are symptomatic of what is broken and what
\nIndonesia's authorities need to remedy.<\/p>\n
Last year's Manulife case made headlines worldwide after the
\nlocal unit of the Canadian insurance giant was declared bankrupt
\nby three Indonesian judges who were widely perceived to be acting
\non behalf of former local shareholders who were disgruntled they
\nno longer controlled a stake in the firm.<\/p>\n
The case even threatened to jeopardize the bilateral
\ngovernment relationship between Jakarta and Ottawa.<\/p>\n
The situation appeared to improve when the Indonesian Supreme
\nCourt overturned the bankruptcy ruling and initiated
\ninvestigations into the decision of the lower court judges.<\/p>\n
Case closed? Nope.<\/p>\n
What is new about this case is that last month the three
\njudges were found innocent by the Supreme Court of all charges
\nagainst them. In short, they got off. What kind of message does
\nthis send to the business community?<\/p>\n
By letting the judges off the hook, it signals the
\ngovernment's inability, or unwillingness as some have suggested,
\nto punish bad behavior.<\/p>\n
It also serves as a reminder to business people that they live
\nwith an increasingly predatory judiciary where judges can turn
\nthe law upside-down and get away with it.<\/p>\n
In another example, the failure of successive Indonesian
\ngovernments to tackle vested interests and sell state-owned Semen
\nGresik to Cemex of Mexico is disappointing.<\/p>\n
Cemex, the world's third largest cement producer, arrived in
\nIndonesia in 1998 at the height of the economic crisis and
\neventually acquired a 25.5 percent interest in Semen Gresik.
\nHowever, due to opposition to the sale from interest groups,
\nprimarily at the Padang, West Sumatra unit, Cemex has been unable
\nto acquire a controlling stake in the firm.<\/p>\n
And yet, the Semen Gresik case is not only disappointing for
\nthat reason. As the majority shareholder in Semen Gresik, the
\ngovernment has been unable to exercise its right to hold an
\nextraordinary shareholder meeting at the unruly Semen Padang
\nunit.<\/p>\n
Until now, the government has been blocked by a local court in
\nPadang from holding the shareholders meeting.<\/p>\n
Like Manulife, the case has become so desperate that the
\ngovernment has had to turn to the Supreme Court to exercise its
\nbasic right to hold a shareholders'meeting.<\/p>\n
One noted lawyer, Todung Mulya Lubis, has characterized this
\ngaming as a tyranny of the courts. If the government has to file
\na case with the country's highest court just to stage a
\nshareholders meeting at one of its own companies, how optimistic
\nshould ordinary business people feel?<\/p>\n
Unfortunately, cases like these, and there are many of them,
\ndo not provide much cause for optimism. As at least part of the
\nsolution, it seems obvious that bad behavior and judicial
\nshenanigans should be punished when they occur.<\/p>\n
When judges abuse the law and declare major multinational
\ninsurance firms bankrupt, they should be sanctioned. If it is
\ndifficult to dismiss them outright, reassign them to an
\nundesirable posting.<\/p>\n
When the directors and commissioners of state-owned firms like
\nSemen Padang misbehave, deal with them swiftly and harshly. If
\nthe authorities are weak in dealing with such groups, it will
\nonly encourage additional challenges that create more problems.<\/p>\n
Surely the growth and economic recovery that investment and a
\ngood business environment produce is worth pursuing.<\/p>\n
It is really the only way for Indonesia to achieve the level
\nof economic growth required to improve the lives and welfare of
\nits people. To do this, the government must focus on making the
\noperating environment more inhabitable for business people.<\/p>\n
Before cases like Manulife and Semen Gresik become national
\nembarrassments, they must be dealt with and resolved.<\/p>\n
If the government can do this, domestic and foreign business
\nactivity will increase and the country will reap the fruits of
\nhigher economic growth.<\/p>\n
Todd Callahan works as a Senior Technical Advisor at PT Jasa
\nCita, a Jakarta-based research consultancy affiliated with
\nCastleAsia. Andri Manuwoto works as a Senior Consultant at the
\nsame firm.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/fixing-business-environment-is-what-counts-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}