By Dr. Gerhard Fulda

By Dr. Gerhard Fulda Ambassador of The Federal Republic of Germany

Indonesian history of the past six years is notable for the huge overall turbulence and change. Only a few countries have faced so many diverse and complex problems at once: the economic crisis of the late 1990s, the big political changes after the end of Soeharto's 32-year-long rule, separatist conflicts. But taking a look at Indonesia means, most importantly, to dare glance at the future and see what there might be in prospects for political and economic developments. It is impossible to give an exact forecast when the changes from an authoritarian to a democratic government will be completely finished, but there is one most important trend which I can point out as the driving force behind all future processes: The political will to use power respecting fundamental democratic rules. The first step in this direction has been done by reshaping the distribution of political power and the reforms of the Constitution. The result is a much better balanced system. The omnipotent People's Consultative Assembly (MPR) now has restricted powers, installing the Council of Regional Representatives (DPD) as a second chamber gives way to further decentralization and building up a constitutional court gives law a better juridical basis. Furthermore, the public has now gained a voice again by reintroducing the democratic fundamental rights of freedom of the press and freedom of expression. People's needs and hopes can be articulated openly and so further democratic developments can be fostered. Another positive sign has been the peaceful change of government: the turbulence of 1998/99 in mind, this comparably harmonic change can become a good example for future elections. As a particularly important trend, I see the ongoing reduction of the role of the centralized state. More and more companies are privatized and continuing decentralization is noticeable at the political level. This clearly has a positive impact on the political, cultural and development cooperation. The global confidence in Indonesia that was undermined in the last years of the Soeharto era can be rebuilt by this positive democratic progress. In the longer run this might be true for bilateral economic relations as well, even if we experience an overall instability right now: If you compare the trade numbers in the period January - July 2001 and January - July 2002, imports from Germany to Indonesia fell 27 percent and exports to Germany lost 11 percent. Even so, Germany changed went from eighth to seventh among Indonesia's trade partners, which is a clear sign that reduced import-export numbers are only a cause of global recession and not a demonstration of mistrust by German investors. They are here to stay. Only a few German firms left the country during or after the Asian crisis. German investments are focused on chemicals/pharmaceuticals, automotive, logistics, manufacturing, financial services (banking and insurance) and telecommunications, with new investments in the past three years mainly in the areas of cement industry, automotives (lubricants and car manufacturing), IT, manufacturing, machinery/maintenance, as well chemicals/pharmaceuticals. German companies follow long-term strategies, and it is not their business philosophy to pursue the "quick buck". Their approach vis-`-vis Indonesia has naturally been more cautious over the past years, in a way reflecting the overall "wait and see" position of many foreign investors. However, they are still willing to take up the challenge to invest in Indonesia, appreciating the growing political stability and the economic potential of the country. It is quite simple to define framework conditions for German investors and, of course, investors from different countries which lead to an attractive investment climate: good governance, a sound legal system, transparent and efficient administrative procedures, a strong private sector, available and affordable financial services. The government of Indonesia has achieved a lot during the past and we appreciate the efforts at the macroeconomic level, such as fiscal consolidation, the stable rupiah, control of inflation, withdrawal of subsidies reform and restructuring of the financial, public and corporate sectors, as well as microeconomic areas, including the labor law, strengthening of small and medium sized companies in the private sector. However, in the abovementioned areas, there remains room for improvement and it would also help to avoid bad publicity which has raised many eyebrows in western business circles, such as Semen Gresik, Manulife and trademark disputes (Reemtsma Davidoff), to name a few. I think that prospects for future German investors in Indonesia are good. Still, it is very important to acknowledge the special circumstances this country has to deliver. The conditions for investments are different from European surroundings and those differences have to be taken into account. Prospects as well depend on which area the investments are intended, so profound analysis of market and production conditions are necessary. Sources of information are plentiful, including the German Embassy, Indonesian-German Chamber of Commerce and Industry (EKONID), delegation or individual visits, and the German Foreign Trade and Investment Information Agency. In the end, it comes down to entrepreneurial skills and the willingness to take on challenges. Once a company has decided to come to Indonesia, it will know what there has to be done to bring down the risks to an acceptable level. Uncertainties will always remain but that is what doing business is about. The German Embassy encourages German companies to make the assessment themselves. We have good examples of German companies who have not regretted taking that step to Indonesia since the onset of the 1997 Asian crisis. Indonesia is better than its image and does offer good business opportunities. And who says there is an emerging market where it is only easy going? I am optimistic about the prospects for Indonesia in the next three years to five years. The democratically elected government will be in "full swing" and will get ready to prepare the next elections. It is essential that foreign investors are given a better legal and juridical basis for doing business in Indonesia. Finally, the regions will enjoy more political weight due to a successfully implemented decentralization. The result should be a more harmonious and stable relationship between the central power and regions under the unitarian Indonesian state. The will for changes exists, now it is only for the will to materialize.

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