French envoy discusses investor staying power

Berni K. Moestafa The Jakarta Post Jakarta

According to French Ambassador to Indonesia Herve Ladsous, French companies are here to stay. Neither the 1997 economic crisis nor the subsequent political turmoil that ended a three- decade authoritarian regime could scare them away.

Most companies, Ladsous said, decided to stay. "Some developed their businesses very substantially during the crisis."

Indonesia's economy may be recovering painstakingly slow, but French success stories abound.

"I open my eyes when I travel to Jakarta; I see more and more French cars," Ladsous said, referring to the shiny new Peugeots and Renaults jostling for space on Jakarta's crowded streets.

Then he related how French consumer goods company Danone bought Indonesian-owned, bottled water producer Aqua in 1998. That move overnight made Danone the world's largest bottled water producer.

He added that Carrefour had, on average, been opening at least two new hypermarkets in Jakarta per year. "This year they plan to open outside Jakarta," he said. However, some critics say the French retailer is a bit too successful, biting deep into local retailers' market share.

Outside the consumer sector, Ladsous pointed to the world's fifth-largest oil company, Totalfina. Its gas operation in East Kalimantan is now a major contributor to the country's liquefied natural gas (LNG) exports.

On the bilateral level, he said last year's trade figures had returned to their precrisis level. Indonesia booked 1.2 million euros in exports to France, a surplus of some 450 million euros.

Like other countries, French success here is largely being driven by the purchasing power of the world's fourth-largest population.

Their success stories, however, emerge as the country still reels from the economic crisis that struck the Southeast Asian region in 1997.

Indonesia's banking sector nearly collapsed under a wave of insolvent companies as the rupiah nose-dived against the U.S. dollar. None has fully recovered since.

The economic crisis escalated into a political one, which led to the downfall of president Soeharto's regime in 1998.

Efforts to bring the economy back to its feet have risen and fallen along with turbulent political developments. Economic recovery has since been slippery, and slow at best.

But, as Ladsous said, French companies survived. Some are even performing better than they were before the crisis.

"It's important to note that French investors always maintained a positive view on Indonesia. Even at the height of the crisis, most did not chose to shut up shop in Indonesia. That, of course, was a display of confidence in the future of Indonesia," Ladsous explained.

Investors have also been heartened by the political situation, which finally regained some level of stability under President Megawati Soekarnoputri.

This has made the investment environment more predictable than in the years under presidents B.J. Habibie and Abdurrahman Wahid.

Analysts, though, have warned of precarious stability as a result of slowing political reforms, in particular within the military.

Ladsous did not seem to mind. "I think, in my years, I have seen a lot of progress made in terms of consolidation within the political situation," he said.

He witnessed the amendment of the 1945 Constitution last year, and a year earlier saw how the country implemented a bold decentralization program under regional autonomy laws.

However, as power becomes more evenly spread, so does company interaction with authorities. New rules need to be learned, and for many it has been a difficult experience.

Ladsous said that French-based tap water company PT Lyonnaise Jaya ran into a wall in calling for higher water tariffs from the Jakarta's city council. The company was not making any profit, he said.

Nonetheless, his conclusion was, "people are doing quite well."

So when he was asked how the French would do over the next five years, his answer, naturally, was they would do even better.

"You can look at more being done in the field of retail businesses and manufacturing, including the automotive sector. There are also a lot of medium-sized enterprises. And we also have furniture, handicrafts and jewelry," he said.

French businesses here apparently do not worry him so much.

He is more concerned about Indonesia, worried this country is not doing enough to help itself. "I am saying the progress is real, but not sufficient."

He wants to see the country's unemployment rates falling, its debts declining and its economy growing faster, yet in a way that is sustainable. The French envoy was particularly concerned about Indonesia's poorly managed maritime and forest resources.

The inaction is reflected in the lack of growth in the economy to cut unemployment rates and lift millions of Indonesians out of poverty.

Ladsous said that only a 7 percent economic growth rate would do the job. Indonesia's economy has been growing by just 3 percent to 4 percent per year.

The missing 4 percent in growth should have largely been met by greater investment spending. But government resources are tied to servicing the country's massive debts. A shaky banking sector and the large number of companies still indebted five years after the crisis have rendered many local investors impotent.

Ladsous urged Indonesia to work hard to woo foreign investors.

"You need to be attractive; not only attractive per se but more attractive than your competitors," he said.

Investors, he added, look for two things: profit and security.

"Profit, I think, is not an issue here, because many businesses are profitable," he said.

Security or the lack thereof posed a more underlying threat to investors, Ladsous said. By that he did not mean the threat of terrorism, although it did have an adverse impact on investment.

The lack of legal certainty was a matter to which he drew attention.

"Corruption remains a big, big problem within this country. When you try to get foreign investors to come, that is obviously one question that immediately springs to their minds."

Asked if that was holding back French investors, Ladsous replied, "maybe not so much holding back, but, as I said, the legal framework needs to be consolidated."

"The more solid the legal framework, the greater investor confidence will be," he said.