Perplexity of asset sales<\/p>\n
The protests by farmers in Riau province and politicians in
\nJakarta against the sale in November of around 260,000 hectares
\nof oil palm plantations, through a competitive bid, to Malaysia's
\nKumpulan Guthrie Berhad is the latest in a series of perplexities
\nhitting major asset acquisition by foreign investors in
\nIndonesia.<\/p>\n
Canadian Manulife Financial Corp. is still embroiled in a
\nlegal entanglement after legally buying the shares of bankrupt
\nDharmala Sakti Sejahtera in PT Asuransi Jiwa Manulife at US$18
\nmillion through a government-authorized auction in October.
\nEarlier in 1999, British Standard Chartered Bank's bid to acquire
\n20 percent of Bank Bali failed amid local-employee protest.<\/p>\n
Even Mexican Cemex's acquisition of 25 percent of state-owned
\nSemen Gresik in 1998 is still facing opposition from local
\npoliticians in the areas where the company owns cement mills.
\nThey claimed the foreign investor's equity participation was
\nuseless to the company's future growth. The government eventually
\nbowed to their demand and is now completing the legal process of
\nseparating the Padang cement unit from the company. Now Semen
\nGresik is facing a similar demand from local politicians in South
\nSulawesi for spinning off the Tonasa mill from the company.<\/p>\n
This imbroglio obviously is adversely affecting the asset
\nrecovery by the Indonesian Bank Restructuring Agency (IBRA) and
\nprivatization of state companies, which together are responsible
\nfor raising almost 13 percent of budget revenues for the current
\nfiscal year, and adds to the major obstacles to new investment in
\nthe country.<\/p>\n
The 1997 economic crisis has seemed to fuel anti-foreigner
\nsentiment among an increasing number of politicians who welcomed
\nand highly praised foreign investors during the period of robust
\neconomic growth until 1996. They now accuse foreigners of trying
\nto buy up Indonesian assets at virtually throw-away prices, and
\nblaming them for the myriad of economic woes the nation is now
\nencountering.<\/p>\n
They seem unaware that the country, though richly-endowed with
\nhuge natural resources and already owning a broad base of
\nproduction assets, is now like a highly-leveraged company
\nsuffering a severe liquidity crisis, deprived of working capital
\nto put the assets into productive operations.<\/p>\n
The bailout of the crippled banking industry has now made the
\ngovernment the owner of an additional $60 billion in production
\nassets but at the same time one of the largest sovereign debtors
\nin the world.<\/p>\n
Many politicians may not realize that speedy, efficient
\ndisposal of the assets, notably the estimated $30 billion worth
\nof ongoing concerns currently managed by IBRA, is crucial not
\nonly to help prevent the fiscal deficit from exploding to a
\ndevastatingly unmanageable level. Yet more importantly, the
\nproduction assets need to be put to optimum operation under good
\nmanagement. And governments, anywhere in the world, are usually
\nnot good at operating commercial entities. The longer the assets
\nare under the government, and in this case, IBRA, the quicker
\nwill their quality deteriorate.<\/p>\n
Ideally, the assets should be sold as much as possible back to
\nnational private investors but the problem though is that all
\nmajor business groups are now almost buried in debts.<\/p>\n
The national investment capacity will remain crippled until
\nthe economy achieves a sustainable recovery and regains growth
\nhigh enough to rebuild a large pool of savings. But until this
\ncondition is attained, the economy urgently needs a kind of
\nbridging finance which now can only be supplied by foreign
\ninvestors.<\/p>\n
It should be realized that it is extremely difficult to
\nconvince foreign businesspeople to invest in the country now in
\nview of the political uncertainty, security problems in many
\nareas and the complex problems associated with the devolving of
\npolitical and fiscal power to local administrations. Even many
\nnational businesspeople remain hesitant to make new investments,
\npreferring to keep their financial assets overseas. The few
\nforeign investors like Cemex, Manulife, Kumpulan Guthrie who made
\nthe plunge are surely not profiteers intending to make a fast
\nbuck in a short time. They are instead bona fide investors who
\nhave bought into the future of the country.<\/p>\n
Needless to say that the government should stand firm in
\nprotecting the investors who have bought its assets. Strongly
\nsafeguarding foreign investors' acquisitions is by no means an
\nindication of a lack of nationalist sentiment. The issue here has
\nnothing to do with nationalism but concerns a credible legal
\nsystem, an effective law-enforcement system, without which no
\nvalue can be attached to the country's natural wealth.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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