Indonesia in search of foreign investor confidence<\/p>\n
HONG KONG (Dow Jones): The Indonesian government officials who
\nset out on a pilgrimage to New York to meet investors earlier
\nthis month probably had few illusions about the effectiveness of
\ntheir mission.<\/p>\n
As Asian economies recover, foreign investors are slowly
\nstarting to come back to the region, but are staying clear of
\nIndonesia, which still has a long way to go to regain their
\nconfidence.<\/p>\n
Given its continued political and social strife, Indonesia
\nhasn't been able to benefit from recent investor bullishness on
\nAsia.<\/p>\n
Indonesia is \"the only (Asian country) where we are genuinely
\nconcerned that the situation could get worse,\" says Roger Davis,
\nBarclays Capital's Asia-Pacific chairman and chief executive.<\/p>\n
Kevin Colglazier, head of fixed-income investment at CMG First
\nState, agrees. \"Indonesia is the country with the largest number
\nof questions marks on its future,\" he says.<\/p>\n
Indonesia has fallen off most investors' radar screens and it
\nwill take a lot of improvement to lure investors back.<\/p>\n
Few funds are willingly putting their money in an economy with
\na central bank governor in jail and with sporadic gang warfare
\nand social unrest.<\/p>\n
The governor of the Bank of Indonesia, Sjahril Sabirin, is
\nbeing detained for questioning. Prosecutors say Sabirin was
\ninvolved in the illegal transfer of US$80 million from Bank Bali,
\na scandal that shook Jakarta's financial markets. Sabirin has
\ndenied the charges.<\/p>\n
The government has been struggling to quell violence in the
\nMaluku islands and other parts of the sprawling Southeast Asian
\nnation.<\/p>\n
\"Political instability will create obstacles to economic
\nreform,\" says Shamus Mok, chief economist at the Bank of East
\nAsia.<\/p>\n
The Indonesian government \"will have to prove that it wants to
\nbring solutions to creditors,\" such as reforming its bankruptcy
\nlaw and giving guarantees to creditors, said a Paris-based
\nemerging markets fund manager for French insurer Axa.<\/p>\n
Before the financial crisis, Asia accounted for 50 percent of
\nAxa's emerging markets fund, of which between 10 percent and 15
\npercent were in Indonesian bonds. Its Asian exposure has since
\nshrunk to 20 percent.<\/p>\n
According to the Axa fund manager, \"there are (Indonesian)
\ncompanies which make money and still have the right to chose not
\nto pay their debt.\"<\/p>\n
Even though the current situation in Indonesia is better than
\nbefore last year's elections, there is a danger that it could
\ndeteriorate if President Abdurrahman Wahid fails to gain enough
\nmilitary support to restore order, says Barclays Capital's Davis.<\/p>\n
Wahid \"is on the right track\" but still has a very long way to
\ngo, says Matt Lindsey, director of emerging market funds at
\nBarings Asset Management in London.<\/p>\n
And it will take strong political will on Wahid's part to
\nclean up Indonesia's image, ensure stability and root out
\ncorruption in order to regain confidence.<\/p>\n
Although most observers agree that Wahid is on the right
\ntrack, \"he seems to be embroiled in sideshows (and) can't get
\nalong with the main agenda,\" says Dilip Shahani, senior fixed-
\nincome analyst at HSBC in Hong Kong.<\/p>\n
At a time when Thailand's credit rating has been upgraded, and
\nMalaysia is next in line, Indonesia is still wearing its
\n\"Selective Default\" label. Even if Indonesia's credit rating is
\nupgraded, largely due to the recent rescheduling of its debt by
\nthe Paris and London Clubs of creditors, it's still far behind
\nits neighbors.<\/p>\n
To many fund managers who sit in London, Paris or New York,
\nIndonesia just isn't worth the risk. Indonesia's benchmark 2006
\nbond currently trades around 640 basis points above U.S.
\nTreasurys, but the paper is so illiquid that the spread is
\nartificial, investors say. It should be closer to 900 basis
\npoints.<\/p>\n
The Indonesian rupiah is weakening close to Rp 9,000 to the
\ndollar, a 15-month low against the U.S. currency. Monday's denial
\nfrom Wahid of an imminent cabinet reshuffle failed to ease
\ninvestors' concerns over the country's uncertain political
\nclimate.<\/p>\n
The next test for Wahid is the Parliament's confidence vote in
\nAugust. But even if he wins the vote, he will still be far from
\npassing the confidence on to investors.<\/p>",
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"sponsor": "Okusi Associates",
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