The year of investing dangerously<\/p>\n
Reiner S., The Jakarta Post, Jakarta<\/p>\n
Various domestic obstacles have continued to scare foreign money
\naway as reflected in the 51 percent drop in foreign direct
\ninvestment (FDI) approval in the first 10 months of this year to
\nUS$6.47 billion from $13.14 billion in the same period last year.<\/p>\n
Experts said that without a considerable amount in FDI, the
\ncountry's economic recovery process would not be sustainable, and
\nwould risk keeping the 40 million unemployed people here jobless
\nfor an even longer time.<\/p>\n
But despite this alarming set of problems and the likelihood
\nthat the flow of investment may continue to dry up next year --
\nand the following years -- amid the global economic downturn, and
\nthe growing attraction of countries like China, India, Thailand
\nand Vietnam, the government seems to be powerless and have no
\ncredible plan to amend the situation.<\/p>\n
Indonesia has fallen off many investors' radar screens due to
\na veritable plethora of negative factors including security
\nproblems, a legal system that is woefully lacking in justice,
\nvarious labor protests, poor implementation of the Regional
\nAutonomy Law and slow progress in the implementation of key
\neconomic reform programs.<\/p>\n
The latest blow to foreign investor confidence in the country
\nis the protracted dispute in the government's effort to sell a
\ncontrolling 51 percent stake in the state-owned cement maker PT
\nSemen Gresik to Mexican giant Cemex SA de CV.<\/p>\n
The plan was again delayed due to massive protests from
\ncertain politicians and other vested-interest groups who do not
\nwant to see Cemex gaining control in the cement company because
\nthey would be losing their cash-cow.<\/p>\n
Analysts said that the delay will only further strengthen the
\nperception that investing in Indonesia or acquiring local assets
\nis very difficult and risky.<\/p>\n
Another prime example of the damaging political interference
\nin asset sales occurred earlier this year when Malaysia's
\nKumpulan Guthrie Bhd. nearly backed out of a high profile deal
\nwith the Indonesian Bank Restructuring Agency (IBRA), a unit
\nunder the finance ministry at the time, to purchase 25 oil
\nplantations covering about 260,000 hectares in several provinces
\ndue to massive opposition from politicians, local businessmen and
\nnon-governmental organizations.<\/p>\n
Other occurrences this year that have created jitters to
\nforeign investment companies include land or asset looting by
\nlocal people, violent labor strikes, unilateral actions by newly-
\nempowered regional administrations that move against existing
\nbusiness contracts and of course, the anti-U.S.\/Westerner
\nprotests, launched by certain reactionary Muslim groups here
\nfollowing the Sept. 11 terrorist attacks by Muslim suicide
\nhijackers in the U.S., which included threats to expel, from
\nIndonesia, any and all \"bule\" (Anyone of European descent),
\nparticularly American and British citizens.<\/p>\n
The World Bank has recently criticized the improper handling
\nof various disputes in the corporate sector involving foreign
\ninvestors.<\/p>\n
\"...There is a clear perception that actions by the
\nauthorities reflect a systematic bias against foreign investors
\nand an unequal application of the law in favor of domestic
\ndebtors,\" the World Bank said in a recent report.<\/p>\n
One example of this is the failure of the Bank's investment
\narm, International Finance Corporation (IFC), to file a
\nbankruptcy petition against local debtor PT Panca Overseas
\nFinance Indonesia (POFI) due to suspected fictitious creditors
\nvoting in favor of POFI.<\/p>\n
This has prompted the IFC to temporarily suspend its
\ninvestment program in Indonesia since March. The financial
\ninstitution has an investment exposure of around $720 million in
\nIndonesia, its seventh largest country portfolio.<\/p>\n
FDI is very important to the country, not only because it
\nhelps create new jobs, but also because it provides financing for
\nthe development of Indonesia's poor infrastructure system
\nparticularly electricity and telecommunications which are crucial
\nto ensure a sustainable economic recovery process. FDI will also
\nhelp stabilize the ailing rupiah.<\/p>\n
\"Indonesia desperately needs to seek foreign investment to
\nrehabilitate and expand the country's decrepit infrastructure,\"
\nsaid James Castle, chairman of the American Chamber of Commerce
\nin Jakarta.<\/p>\n
The value of inward investment has been on the decline for the
\npast four years. In 1997, FDI approval was recorded at $33
\nbillion and included 790 projects. It then dropped to $13
\nbillion with 1,035 projects in 1998 and fell further to $10.9
\nbillion with 1,164 projects in 1999. Last year, however, due in
\npart to then-president Wahid's commitment to rule of law and
\nanticorruption, it increased to $15.4 billion with 1,508
\nprojects, although it was still less than half the amount
\nrecorded in 1997. The increase in the 2000 FDI was mainly
\ncontributed by merger and acquisition activities.<\/p>\n
Centre for Strategic and International Studies (CSIS)
\neconomist Djisman Simanjuntak said that to be able to escape the
\ncurrent economic crisis, Indonesia must at least garner around
\n$20 billion in FDI per year, half the figure enjoyed by China. He
\nsaid that from 1998 to 2000, average inward investment in
\nIndonesia stood at only $7 billion per year.<\/p>\n
The government has taken measures to attract more FDI,
\nalthough credible actions have yet to be implemented to overcome
\nthe main obstacles such as security and legal uncertainty as well
\nas to restore confidence.<\/p>\n
President Megawati Soekarnoputri, whose accession to power
\nlate in July this year helped create a relatively stable
\npolitical condition at home, has been making overseas trips
\nincluding to the U.S., Japan and China to try to woo investors.<\/p>\n
A new investment bill is being prepared and would soon be
\nsubmitted to the House of Representatives for approval.<\/p>\n
Chief of the Investment Coordinating Board (BKPM) Theo Toemion
\nsaid that the bill would ensure equal treatment between local and
\nforeign investors.<\/p>\n
He also said that the new bill promised certain \"sweeteners\"
\nto lure foreign investments.<\/p>\n
Theo said that one such sweetener included the removal of
\nexisting regulations requiring foreign investment companies to
\ndivest part of their shares to local investors after certain
\nyears of operation.<\/p>\n
\"Without incentives, investors will be reluctant to enter
\nIndonesia, while on the other hand we desperately need the
\nforeign investment to ensure economic growth,\" said the former
\nlegislator.<\/p>\n
\"We are also facing tough competition from other countries in
\nattracting investment,\" he added.<\/p>\n
Analysts, however, criticized Theo's plan to centralize
\ninvestment licensing, saying such a move is a waste of time as it
\nwould face strong resistance from various ministries and local
\ngovernments.<\/p>\n
They said that instead of trying to restore BKPM's role as a
\none-stop clearing house for investment, Theo should instead focus
\non promoting Indonesia abroad and assist local governments or law
\nmakers on the importance of foreign investment.<\/p>\n
BKPM must work fast amid growing difficulties in obtaining
\nFDI. According to a report by United Nations Conference on Trade
\nand Development (UNCTAD), worldwide FDI flows this year is
\nestimated to drop by 40 percent due to the global economic
\ndownturn.<\/p>\n
The Asian Development Bank said in a recent report that the
\nevents of Sept. 11, which deepened the global economic slump,
\nwill cause FDI flow into Asia to continue to decline next year.<\/p>\n
Competition from other countries, offering a better investment
\nclimate and cheap skilled labor, will force Indonesia to work
\nharder to attract foreign money.<\/p>\n
China is set to receive at least $40 billion in FDI in 2002,
\ncompared to around $43 billion estimated for 2001, after entering
\nthe World Trade Organization, Southeast Asia's biggest lender DBS
\nBank stated in a recent report.<\/p>\n
China has already removed several restrictions and approval
\nprocedures across key industries such as infrastructure and real
\nestate development.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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