Australian firms urged to invest in Indonesia

Australian firms urged to invest in Indonesia

CANBERRA (Dow Jones): Indonesian Special Trade Envoy James Riady on Monday urged Australian companies to invest in Indonesia for the medium- and longer-term to gain a "foothold" in the market ahead of its economic recovery.

James, on a week-long visit to Australia to promote investment in Indonesia through meetings with local business and political leaders, said the Indonesian economy has a bright future beyond two to three years.

The Indonesian envoy hopes his visit will spark greater co- operation between the two countries, and that Australia can assist Indonesia in its areas of expertise.

"Australia is very strong in agriculture, Indonesia needs help in agriculture, Australia has had great success in privatization and how to make the make the government more efficient and effective, Indonesia needs that," the Australian-educated James told reporters here.

"Australia could provide assistance in educational areas...and how to restructure Indonesian foreign sector debt, and the banking reformation and recapitalization, Australian banks can also play a part."

James, who is one of Indonesian President B.J. Habibie's seven special business envoys, said Indonesia is a relatively low-cost location for investment, and has the necessary infrastructure in place.

"The rupiah has devalued by the highest percentage amount of Asian countries, Indonesia is resource rich, it's a large market, Indonesian labor costs, even accounting for expected increases in wages, will still be about the most competitive in Asia, and the labor quality is also quite good," he said.

"After the economic crisis, Indonesia is a substantial market that nobody can afford to ignore."

On Monday, the rupiah is at ,800 to the U.S. dollar, compared with around 2,500 more than a year ago.

Investment

An Indonesian official at the news conference noted Australian applications for investment in Indonesia between January and August of this year totaled just US$63 million of total investment applications of US$11.78 billion.

"Australia needs to spend more," said the official. However, James conceded the Indonesian economy will struggle for the next two to three years.

Inflation will be around 80 percent this year, gross domestic product will contract about 15 percent, the total number of people unemployed will rise to 20 million, and there will be around 50 million people without income, he said.

Monthly inflation for September dropped to 3.75 percent from more than 6 percent in August.

In all, the economy contracted 13.6 percent in the first nine months of 1998, compared with a year earlier, the Indonesian central statistics bureau said.

James said the key factor in addressing these problems is resolving the large foreign private sector debt.

Private sector debt is around US$85 billion, of which around 50 percent is attributable to foreign companies based in Indonesia, he said.

"How soon we can sort out private sector debt...will determine how long the recession is going to be in Indonesia. We're confident the creditors and the debtors are working through the various programs," James said.

When asked what message he will convey to Australia's Prime Minister John Howard at a meeting scheduled for later this week, James said he will thank Australian people for their support since the start of the economic crisis.

The envoy noted the Australian government's role in negotiations with the International Monetary Fund over its financial rescue package for Indonesia, to which Australia has pledged up to US$1 billion.