Focusing on pillars of investment<\/p>\n
By Beni Sindhunata<\/p>\n
JAKARTA (JP): The three pillars of Indonesian investment and
\nits economic scene, which are dissimilar but have the same
\nobjectives, are George Soros, foreign direct investment and aseng
\n-- quasi-foreign businesses of Indonesian-owned investment
\ncompanies usually registered at offshore centers. Therefore, it
\nis difficult to decide which is better and safer for the
\nIndonesian economy.<\/p>\n
Before further analysis a review is needed of the above three
\nsymbols or phenomenon of capitalism. George Soros is a Hungarian-
\nborn Jew, the symbol of the corporate raider and short-term
\ninvestor in the money and capital markets. In the context of the
\nmacroeconomy, Soros' money enters the very flexible, dynamic and
\nsensitive foreign portfolio investment (FPI). Easy come, easy go.
\nSuch moves have even becomes a trendsetter in reversing the
\nglobal money market, which now reaches US$1.2 trillion.<\/p>\n
The second, foreign direct investment (FDI) has a long-term
\nview and physical presence, although there is no guarantee it
\nwill produce environment friendly investment. In general, FDI
\nestablishes a joint venture with majority shares or 100 percent
\nforeign shares. Apart from the objective of absorbing the
\ndomestic market in the real sector, FDI is also made a basis for
\nexports of, by and to the global market.<\/p>\n
In brief, the presence of FDI can be symbolized by
\nmultinational giants of the Fortune 500 category or middle-class
\nenterprises. They bring in funds and set up a factory, export
\ntheir products, absorb the domestic market and most certainly
\ncontrol company management.<\/p>\n
The third phenomenon is what is termed here as aseng -- quasi-
\nforeign companies whose existence can be said to be of the \"now
\nyou see them, now you don't\" type. Such a company is an
\ninvestment business owned by an Indonesian and usually registered
\noverseas in an offshore center, after which it enters the country
\nwearing a foreign coat. Aseng companies are not entirely
\nassociated with firms of nonnative Indonesians as usually
\nsuggested because there are also \"native aseng\" firms.<\/p>\n
The presence of Soros is always sensational and creates
\nspeculation. Experts say where there is Soros there is business
\nchaos. Others say where there is Soros there will be business
\ncertainty, and the business world will compete for his Quantum
\nFund to get something of the investment fund.<\/p>\n
The entry of the Quantum Fund into Indonesia in mid-1998 when
\nthe crisis was at its height was therefore certainly of interest,
\nespecially after this global fund manager joined and acquired a
\nfifth of the shares in Bhakti Investama, a spearhead into
\nIndonesia. Soros has entered and is planning to enter various
\nsectors of banking and telecommunications, the cigarette industry
\nand even the underwear business.<\/p>\n
Long before Soros entered the country, many foreign fund
\nmanagers had invaded the Indonesian capital market and
\nestablished themselves in various sectors. One example is Norbax
\nInc., which invested no less than Rp 4.5 trillion in a dozen
\npublic companies with total assets of more than Rp 55 trillion in
\n1998.<\/p>\n
There was also a lot of investment through banks and financial
\ninstitutions as nominee companies. This type of investor will
\nincrease in number with various scales of investment, especially
\nwhen shares are still relatively cheap while the economy starts
\nshowing improvement.<\/p>\n
Last week Goldman Sachs, through Lotus Asset Management,
\nbought up shares of Multipolar. In 1998, Newbridge Capital
\nacquired PT Astra Microtronic for $90 million and is now
\nnegotiating to buy PT Astra International shares.<\/p>\n
The third type, the aseng, or the quasi-foreign investor firm,
\nlies between the above two types of global investment; they enter
\nas foreign portfolio investment but are actually owned by a
\nbusinessperson in Indonesia who owns a factory and well-running
\ninvestment even before the listing on the stock exchange.
\nGenerally this type of company enters through the acquisition of
\na public or nonpublic company which is a member of a business
\ngroup. Their existence becomes even more clear because the
\nforeign firms usually only enter Jakarta to dominate shares of
\ntwo or three companies of one group.<\/p>\n
So it is not surprising that many public companies give the
\nimpression of being much in demand in the eyes of investors, but
\nthe movement of shares of such firms is not very active and even
\nseems low in demand. This is because the majority of shares only
\nmove among related parties and do not spread among hundreds or
\nthousands of dominant investors.<\/p>\n
Quasi-foreign companies can also be categorized as foreign
\ndirect investment because some enter by the acquisition of
\nnonpublic firms. Therefore aseng investment can be recognized as
\nforeign portfolio investment and also foreign direct investment.<\/p>\n
Data collected by the Business Intelligence Report shows that
\nfrom 1994 to 1998, the total foreign portfolio investment in
\nIndonesia reached Rp 20.8 trillion, or about $5.5 billion at that
\ntime. In 1999 this figure is estimated to exceed dozens of
\ntrillion rupiah. This would include funds from quasi-foreign
\ninvestors and other \"Soros\" parties from various banks and global
\nfinancial institutions.<\/p>\n
Meanwhile, in the same period the flow of foreign direct
\ninvestment entering Indonesia reached $16.9 billion, but there
\nwas also investment overseas by Indonesians amounting to $2.1
\nbillion. The net flow of foreign direct investment was therefore
\nonly $14.8 billion.<\/p>\n
Of course this figure cannot be placed on par with the flow of
\nforeign investment registered at the Investment Coordinating
\nBoard, because it only covers planning of both new and extended
\nprojects with different degrees of schedule and scale.
\nImplementation of plans could be complete, partial or even
\ncanceled. Imagine if all plans for foreign direct investment in
\nIndonesia from 1994 to 1998, which reached $144 billion, were
\nrealized the impact on the country's economy. But that will
\nremain speculation because realization of capital entering
\nIndonesia in that period only attained 11 percent of the plans,
\nor $16.9 billion.<\/p>\n
As an illustration, a tool of foreign direct investment which
\ncould be used for analysis and a benchmark of investment is the
\nInternational Finance Corporation. By June 1998 this multilateral
\ninvestment institute had invested $534 million in 41 companies.
\nThis was divided into two types -- loans amounting to $393
\nmillion for 29 companies and share participation totaling $141
\nmillion in 26 companies.<\/p>\n
This investment was spread over 11 business sectors with the
\nlargest concentration in textiles, which absorbed $107.9 million
\nthrough five companies.<\/p>\n
From the comparison of the three pillars of foreign investment
\nwe can make the following conclusions: All three of them are
\nimportant for the movement of both direct and indirect
\ninvestments through the financial sector. However, in the long
\nterm foreign direct investment is safer compared to foreign
\nportfolio investment given the latter's \"easy come, easy go\"
\ntrait.<\/p>\n
Indeed we are in greater need of giant multinational corporate
\nfirms flying foreign direct investment flags, but neither can we
\nsee the negative side of the presence of a George Soros or at
\nleast a Warren Buffet. For Jakarta has no lack of such figures
\nwho continue to wage guerrilla warfare in the money market and in
\nthe capital market. They continue to be on the lookout for
\ninteresting and prospective shares. Quasi-foreign company
\ninvestors, indeed, have a different vision and will not go far
\nfrom the country.<\/p>\n
Persistence in seeing the negative side of the entrance of
\ntemporary global investors, or foreign portfolio investment,
\nwould mean we are not ready or willing to enter the era of the
\nglobal monetary market, which will certainly take victims in the
\nthird millennium. Views against foreign portfolio investments can
\nbe considered mere public debate, and let each party play from
\nits own angle and interest.<\/p>\n
The writer is the director of the private Business
\nIntelligence Report in Jakarta.<\/p>",
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