More investors flee<\/p>\n
How ignorant has the Indonesian government been about the
\nrapidly worsening investment climate in the country?<\/p>\n
The fact that it took newspaper headline stories, disclosing
\nSony Corp.'s plan to close down its audio-equipment plant in
\nBekasi, West Java, to jolt the government with a rude awakening
\nof the inimical business environment, is simply illustrative of
\nits inertia.<\/p>\n
Foreign and domestic investors, and foreign chambers of
\ncommerce have since 2000 often expressed their utter frustration
\nabout the adverse business condition, threatening to move their
\nproduction units elsewhere unless major obstacles to investment
\noperations are removed.<\/p>\n
The World Investment Report 2002 of the Geneva-based United
\nNations Conference on Trade and Development released in September
\nshows a steady capital flight out of Indonesia since 1998, while
\nall other Asian countries posted positive investment flows.<\/p>\n
Yet the government has done virtually nothing to address the
\nhorrendous problems. Cabinet ministers instead tend to blame each
\nother for the problem.<\/p>\n
It would be understandable if Indonesia had become a pariah
\namong foreign investors immediately after its 1997 economic
\ndebacle, which set off the political crisis in 1998. The country
\nthen plunged into all kinds of uncertainties as it grappled with
\nthe complications of its transition from an authoritarian,
\ncentralized government into a democratic, decentralized
\nadministration.<\/p>\n
However, the investment climate should not have been so bad as
\nto force direct foreign investors to close down their production
\nfacilities and move to other countries. The overall condition has
\nnow become more stable compared to that between 1997 and October
\n1999, when the first democratically-elected government came to
\npower.<\/p>\n
Even though Sony's drastic move is said to be a part of its
\neffort to realign its global production networks, it is
\nespecially shocking because more than 1,000 workers will lose
\ntheir jobs as a result, and hundreds of other employees may be
\nlaid off as many local suppliers to Sony will suffer the impacts
\nof the closure.<\/p>\n
Yet, even more damaging is the impact this closure would have
\non the image of the country as a place for investment. The
\nconditions must have been so poor as to force industrial
\ncompanies already operating in the country, such as Sony, to move
\nits operations just a month or so before the commencement of the
\nASEAN Free Trade Area (AFTA) in January 2003.<\/p>\n
The AFTA is supposed to make Indonesia a better place for
\nindustrial companies because of the potential of its large market
\nof about 210 million people, and because investors can use the
\ncountry as a base or beachhead to export to other ASEAN countries
\nunder arrangements of the preferential import tariff.<\/p>\n
Still more hurtful is the fact that Sony is not the first
\nmajor company to flee the country because of the hostile business
\nclimate; at least six industrial companies have quit or have been
\ndriven into bankruptcy since last year due to the adverse
\nbusiness conditions.<\/p>\n
The problems that forced Sony to quit are the same business
\nhurdles that investors have been complaining about: Incompetent
\nand corrupt customs and tax services and judicial system, radical
\ntrade unions, corrupt regulatory environment, and inappropriate
\napplication of luxury taxes.<\/p>\n
A corrupt customs service badly hurts domestic producers, as
\nthey have to compete with smuggled goods or under-invoiced
\nimports that pay duties and taxes far below the official rates.<\/p>\n
A corrupt and inefficient customs service also erodes the
\ncompetitiveness of local companies, as the cumbersome customs
\nclearance of imported inputs, parts or components increases
\nproduction costs.<\/p>\n
This obstacle is especially damaging in view of the
\nincreasingly globalized production system, whereby industrial
\nfirms import most of their inputs, then assemble them in the host
\ncountry and later export the semi-finished or finished goods.<\/p>\n
An incompetent and corrupt tax service horrifies businesses
\nbecause, in spite of the tax self-assessment system, tax auditors
\ncan still exercise discretionary power to unilaterally assess tax
\nliabilities. Worse still, corporate taxpayers who, according to
\nauditors, have overpaid on their taxes, always face red tape in
\ngetting tax refunds.<\/p>\n
Labor rulings that are seen to be too much in favor of
\nworkers, despite the huge pool of an unemployed and under-
\nemployed workforce, cause uncertainties, because new trade unions
\nthat mushroomed in the democratic era tend to over-emphasize
\ntheir rights at the expense of sensible labor negotiations with
\nmanagement.<\/p>\n
Investors fully realize that most of the problems cannot be
\nsolved overnight. But what makes the condition seem so hopelessly
\nbad is that they have not seen any resolve nor any well-
\ncoordinated efforts on the part of the government. What they see
\ninstead is a mounting sentiment of xenophobia among politicians.<\/p>\n
Minister of Industry and Trade Rini M.S. Soewandi's recent
\ninitiative to set up a crisis center to resolve business problems
\nexpediently ended in tatters due to inter-ministerial bickering
\nand complete ignorance on the part of chief economics minister
\nDorodjatun Kuntjorojakti, who is supposed to coordinate all
\neconomics ministers and lead policy coherence.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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