Investors need more concrete economic reforms<\/p>\n
Lord Powell of Bayswate, London<\/p>\n
My involvement with Indonesia began when I accompanied
\nMargaret Thatcher there on an official visit in 1985 and has been
\ncontinuous since. First from No. 10 Downing Street and later as a
\nbusinessman, I have watched Indonesia evolve from the fragile
\nstability of the 1980s, based on an authoritarian style of
\ngovernment which could not last, because it lacked internal
\nconsent and external acceptability, through the turmoil of the
\ndifficult transition years to the success of last year's fully
\ndemocratic Presidential election.<\/p>\n
Lasting political stability is one of the key elements on
\nwhich foreign investors base their investment decisions. I
\nbelieve that Indonesia has now demonstrated beyond reasonable
\ndoubt that it has achieved the durable stability in its political
\nlife, and established a solid foundation for sustained economic
\ngrowth. That is a great tribute to President Susilo Bambang
\nYudhoyono in particular.<\/p>\n
On the economic front, obviously the recent fluctuations in
\nthe rupiah are a worry. But the decision to raise interest rates
\n-- overdue but very much the right decision -- shows a reassuring
\ndetermination to tackle inflation and support the currency.<\/p>\n
One might ask why Indonesia is not receiving fuller and more
\ngracious international recognition for the tremendous strides
\nwhich it has made in its own governance.<\/p>\n
The heartening international response to the tsunami disaster
\nwas actually a way of acknowledging what has been achieved, and
\nin Britain we do understand the magnitude of the changes which
\nhave taken place.<\/p>\n
But I have no hesitation in saying that Indonesia deserves
\nmore credit, especially from the United States, where selective
\nself-righteousness seems to govern the attitude of some members
\nof the U.S. Congress who are denying Indonesia even modest help
\nwith training for its military officers. That needs to change and
\nchange soon. The gains for all of us from Indonesia's success can
\nbe enormous.<\/p>\n
So my judgment is that the political foundations are in place
\nto sustain an attractive investment climate and for Indonesia to
\nstart realizing its full potential.<\/p>\n
However -- and there are always however in life -- the picture
\nis not yet so positive when it comes to the machinery of
\ngovernment and administration and all the hurdles which foreign
\ninvestors have to cross or find a way round. Here there are still
\nsignificant problems, though Indonesia is not unique in facing
\nthem.<\/p>\n
The first -- and most vital from the point of view of foreign
\ninvestors -- is the erratic performance of Indonesia's courts and
\njustice system. Some recent decisions can serve only to deter
\nforeign investors. Companies and individuals will not invest
\nunless they have the assurance that their rights will be
\nprotected by fair and impartial judges. They also want
\ntransparency in the laws and regulations governing them.<\/p>\n
It's a similar story with taxation. Investors want taxes and
\nduties which are applied fairly and consistently not arbitrarily
\nand penally. When the Tax Court or the Supreme Court reaches a
\ndecision in favor of a taxpayer, it must be promptly and
\neffectively honored.<\/p>\n
Then there are the bureaucratic obstacles, which investors
\nhave to find a way round:<\/p>\n
* Restrictions on foreign access to extractive industries,
\nparticularly oil and gas. There is a desperate need to speed up
\nthe review process for investments in oil and gas, which could
\nboost Indonesia's exports;<\/p>\n
* Foreign investment procedures which are complex, expensive
\nto meet, and incredibly time-consuming. Indonesia should have a
\nRegistration System not an Approval System for investment;<\/p>\n
* Immigration permits which take up to one year to renew. Also
\nit really doesn't make sense to compel expatriates to work as
\ntechnical advisers rather than operating executives. That's old
\nthinking.<\/p>\n
* Differing requirements for foreigners' registration between
\nnational and regional governments need to be sorted out so
\neveryone knows where they stand;<\/p>\n
* Indonesia's labor laws need to be made more flexible if they
\nare to encourage not deter job creation.<\/p>\n
These problems simply have to be tackled. It's fundamentally a
\ncompetition issue. However warm the political welcome for foreign
\ninvestment in Indonesia, investors have many other options and
\nwill ultimately go where their life is made easiest: where they
\nfind the simplest regulations and maximum fairness and where the
\nincentive packages for foreign investors are best.<\/p>\n
Indonesia has to compete in that league. I give the Indonesian
\ngovernment full credit for recognizing what needs to be done. I
\nfound what President Susilo had to say on all these issues, in
\nhis refreshingly frank and open way, enormously encouraging.<\/p>\n
He recognized as never before the contribution which foreign
\ninvestment can make to Indonesia's economy and remarked that
\nbeing pro-business went hand-in-hand with being pro-growth, pro-
\njobs and pro-poor. He promised a new Investment Law, to deal with
\nmany of the current problems which I and others have identified
\nand recognized that the accompanying regulations will be just as
\nimportant as the law itself.<\/p>\n
But good intentions alone won't do the trick. They have to be
\nimplemented. One thing which I learned at Margaret Thatcher's
\nfeet is that half-measures don't work. However difficult and
\nsometimes unpopular it can be to go the whole hog, it's always
\nbetter in the long term to do it. The momentum of regulatory
\nreform has to be kept up.<\/p>\n
So my advice to Indonesia's excellently qualified ministers
\nis: Strike while the iron is hot! The tide is flowing Indonesia's
\nway. There is a will nationally and internationally -- to see you
\nsucceed. Take the tough decisions now and the pay-back will come
\nrapidly, whatever the grumbles of a minority of entrenched
\ninterests and old-fashioned ideologues.<\/p>\n
Lastly a word about our own experience in Jardine Matheson. We
\nare fortunate in being long-established in Asia generally and in
\nIndonesia in particular.<\/p>\n
But we too have choices to make when it comes to new
\ninvestments in the region, whether it be China, Singapore or
\nMalaysia. In fact our largest and currently most successful
\ninvestment in recent years has been in Indonesia, in one of its
\nmajor corporations Astra.<\/p>\n
We have found excellent management, a lively entrepreneurial
\nspirit and a well-run economy to which steady growth is rapidly
\nreturning. We have had our problems, including vexatious law-
\nsuits. But we have steered through them and are confident about
\nthe future of our investments generally, which, as well as Astra,
\nrange from real estate, to retailing to hotels and much else
\nbesides. I hope other companies will follow our example and share
\nour positive experience.<\/p>\n
The years of drift in Indonesia are over and there is a real
\nfeeling of dynamism and of optimism about the future in the air.<\/p>\n
Now is the time for investors to take advantage of that new
\nmood: And for Indonesia's government to respond to the concerns
\nwhich I have outlined by doing what's needed to make Indonesia
\nthe Chelsea, the Arsenal or the Manchester United of investment
\ndestinations in Asia. It can be done. It must be done. Because
\nwhile foreign investors will benefit, Indonesia itself will
\nbenefit most of all.<\/p>\n
Lord Powell of Bayswater was private secretary and advisor on
\nforeign affairs and defense to British Prime Ministers Lady
\nMargaret Thatcher and John Major from 1983 to 1991. He has also
\nserved as a member of the board of Jardine Matheson Holdings,
\nLtd. This article was taken from his presentation at the
\nIndonesian Global Investment Forum held in London last week.<\/p>",
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