Investor confidence to soar on successful election<\/p>\n
Hanys Salmi, Kuala Lumpur<\/p>\n
Assuming that Indonesia's presidential election proceeds
\npeacefully up to the conclusion of the second round in September,
\nby any logical calculation, the domestic investment climate will
\nimprove on a sudden rise in investor confidence.<\/p>\n
Foreign and Indonesian CEOs now awaiting the final outcome of
\nthe election may then lean back in their chairs with a greater
\ndegree of confidence about redesigning their investment strategies
\nto respond to the signals that the presidential candidates have sent
\nout.<\/p>\n
Except for capital goods-intensive industries which are
\nfeeling the brunt of exchange and interest rate volatility, and a
\nfew quota-reliant sectors such as textile and garment industries
\n-- which are threatened with bankruptcy next year --
\nmacroeconomic indicators are mainly encouraging up to this month.<\/p>\n
This suggests that on the whole, the convalescence of
\nIndonesia's investment climate may soon reach a full-recovery
\nstage as of next January when the country's new Cabinet is well
\nin place with presumably a bulk of private sector stimulus thrown
\nin. Between now and then the new government may be preoccupied
\nwith budget recovery efforts to refill the state treasury.<\/p>\n
Preliminary indications promising improved investment climate
\nrecovery have, in fact, been looking more and more accurate as
\nsuggested by a recent Danareksa Research Institute (DRI) survey
\nwhich polled 700 CEOs and concluded that the business sentiment
\nindex had increased 0.7 percent to 113.4 points on improved
\nperformance of the expectation index, which stood at 119.8 points
\nor up by 1.2 points from its position before April.<\/p>\n
The DRI survey revealed one very interesting point, which may
\nwell come as negation to the prevailing public assumptions that
\ninvestors would relocate their companies elsewhere for reasons of
\nsecurity and lack of legal certainty. The fact is that the index
\nof business confidence on government credibility strengthened to
\n88.9 points, up from 88.6 points recorded prior to April 5
\nlegislative elections. The index measured the government's
\ncredibility as against its capability in maintaining national
\nstability, upholding law and policy certainty.<\/p>\n
Between now and September -- if the current election tally
\nfails to produce a majority winner -- there is bound to be slight
\nvariations in the indices, which would represent investors'
\nattitude toward political jolts across the country. But, unless
\nthere is chaos and anarchy -- the probability of which may be
\nremote in this compromise democracy -- investors' medium and
\nlong-term strategic plans are not going to be bogged down,
\nanalysts say.<\/p>\n
In the event this first round of presidential election fails
\nto produce an absolute winner, two potential contenders will
\ncontest the second round. The worst possibility would be that
\nsupporters of the contending camps would clash on the streets and
\nsecurity forces would be deployed to restore order.<\/p>\n
Given the fact that political parties had channeled their
\naspirations through the five candidates that contested the first
\nround, the parties would not have solid grounds to abandon the
\nprinciple of objective fairness. This being the case, what the
\nparties would most likely do, is strive for Cabinet
\nrepresentation and other types of political pie-sharing rewards.<\/p>\n
Against this logic, it is safe to assume that foreign and
\nIndonesian CEOs have just three of months of relative
\nuncertainty, but beyond that, whoever is elected president, the
\ncountry will return to normal. The September-December 2004 period
\nis likely to become a period of contemplation for the real sector
\nbusinesspeople, though portfolio investments should experience a
\npsychological boost as is normally the case when businesses
\nrespond to the appointment of a new Cabinet.<\/p>\n
Business should thrive from the day the next Cabinet is sworn
\nin. Political wrangling and all the noise therein is bound to die
\ndown and the new government will devote most of its attention to
\ncompleting three major agenda items -- strengthening national
\nstability and legal supremacy, reinvigorating the business
\nsector, including the streamlining of trade and investment
\nregulations, and completing the regional autonomy agenda.<\/p>\n
Fresh investment opportunities may arise in the public sector
\nwhen the new government strives to absorb the labor force with
\nshort and medium-term projects. This is where the business actors
\nneed to come in swiftly given that the messages that were
\nhammered home by the presidential candidates centered around one
\ndominant area: Improvement of the economy through the empowerment
\nof corporations and people's purchasing ability.<\/p>\n
This would entail expansion of investment sectors to include
\nmore business opportunities in the agriculture, maritime,
\nforestry, natural resource, tourism and public utility sectors --
\nwhich constituted part of the presidential candidates' campaign
\nagendas -- introduction of new incentives for big corporations
\nand SMEs, and the expansion of the role of the private sector in
\nthe many regencies across the archipelago.<\/p>\n
Apart from that, toward the turn of the year, the business
\nsector would have a clearer picture of investment opportunities
\nwhen the Indonesian Chamber of Commerce and Industry (Kadin)
\npublishes a thorough investment guide as a road map awaiting a
\ngovernment policy boost.<\/p>\n
Against the backdrop of all these developments, there are
\nample reasons to assume that Indonesia will remain an attractive
\ninvestment destination over the next five years, especially if
\nregulations for investing in the many regions are encouraging to
\nforeign and local actors.<\/p>\n
The issue of land clearance, provision of industrial
\nutilities, local government permits and labor policies may still
\nneed to be straightened out to better facilitate investors
\nwishing to operate in the regencies. This being the case, the
\neconomic team of the next Cabinet will need to work extra hard to
\nsynchronize policies with the regencies, especially those that
\ndeal with the revenue-sharing formulae.<\/p>\n
To business actors, however, the government should still have
\nthe ability to fulfill the minimum requirements -- improved
\nnational stability, policy clarity, transparency and certainty,
\nand better respect for law. A major hurdle that may remain,
\nhowever, is the web of illegal fees that may continue to encroach
\nupon corporations' drive to promote competitiveness in domestic
\nand export markets. But investors may have to live with it and
\nredefine operational strategies given that this is the hardest
\nnut to crack.<\/p>\n
The writer is a researcher on Indonesian issues at a Kuala
\nLumpur-based company. He can be reached at
\nhanyssalmi@malaysia.com<\/p>",
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