Capital shifting may not profit

JAKARTA (JP): Shifting corporate assets overseas causes more harm than good to the country's economy, an economist said.

Faisal Basri, an economist at the University of Indonesia, said here yesterday that Indonesian companies which have so far operated overseas, had not yet brought much capital inflows to the country.

"The activities of Indonesian companies which operate abroad or shift their assets to a foreign subsidiary, does not usually result in significant capital inflows," he said at a seminar on assets shifting.

He said the current trend of shifting assets of some Indonesian companies overseas was unique because it was against the practices of other countries.

Capital outflows such as shifting operations overseas, he said, usually occurred when a country's current account was surplus. Capital inflow, on the other hand, occurs when the current account is in deficit.

"But in Indonesia capital outflow occurs when our current account is still deficit," he said.

This highlighted inadequate economic fundamentals in the country where the inflow of foreign capital was still needed to stimulate the economy.

"It is as if the economic motor does not run because it does not have the oil and fuel it needs," he said.

Earlier this year, the country's major food producer PT Indofood of the Salim Group sparked controversy when it announced its plan to inject its assets into a small Singapore listed company, QAF Ltd.

The move was criticized by some people as not being nationalistic, as the company, owned by noted tycoon Sudono Salim, had been a recipient of many government favors. Many people labeled the move capital flight.

Indofood defended the move, saying it would keep its operation in Indonesia and that the acquisition would in turn deliver capital inflows to the country.

Indofood is not the first company to transfer its ownership or assets overseas. Several groups have operated several businesses in Singapore, Hong Kong and China.

Faisal said the effect of Indofood's move would depend on how Salim used the money.

"Whether it will raise the company's output and exports or decrease the current account deficit, we will find out in two or three years after the acquisition," he said.

Faisal said assets shifting is also encouraged by the fear of political uncertainties. Many business owners wondered what would happen to them under the country's future leader, he said.

Shipping company PT Samudra Indonesia announced earlier it would float its shares on the Singapore stock exchange. Engineering and design company PT Bukaka Teknik Utama, which is listed on the Jakarta Stock Exchange, said it would follow suit.

Faisal attributed the recent trend of local companies to list on the Singapore Stock Exchange to new regulations issued by Singapore's stock exchange authority.

The new regulation allowed any foreign company to float their shares on the Singapore Stock Exchange, as long as the company owned at least 30 percent stocks in a local Singaporean company and operated in infrastructure, with a minimal concession period of 10 to 15 years, he said. (das)