Domestic uncertainties to cloud Indonesia Recovery Fund: Expert

The Jakarta Post, Jakarta

The government will face difficulties attracting sufficient foreign funds into the planned Indonesian Recovery Fund due to various domestic uncertainties, according to one economic expert.

Gadjah Mada University (UGM) economist Sri Adiningsih said on Sunday that slow progress in the implementation of the country's key economic reform programs, legal uncertainty and security problems would deter investors from participating in the fund.

"I doubt that the fund can be as successful as the one in Thailand. There's just too many uncertainties here," Sri said.

She pointed out that the government's failure to sell a majority stake in the state-owned cement producer PT Semen Gresik to Mexican giant Cemex SA as scheduled was a major blow to foreign investor confidence in the country.

Minister of Industry and Trade Rini Soewandi announced on Friday that the government would launch an Indonesian Recovery Fund early next year in a bid to attract foreign funds to help revive the country's anemic real sector and create jobs.

Rini said that the fund would be similar to one established in Thailand, which managed to raise around US$1.6 billion in cash from well known institutions such as the Asian Development Bank (ADB), the World Bank's investment arm the International Finance Corporation, and Merryl Lynch.

She said that initial funding levels for the Indonesian Recovery Fund were expected to reach $200 million, with some $10 million to come from the government.

"The government can just go ahead with the plan, but the main issue here is how to resolve the uncertainties created by structural (economic) and security problems," Sri said.

Sri said that the various uncertainties had even triggered a massive capital outflow that, according to a recent report quoting Bank Indonesia senior deputy governor Anwar Nasution, had reached an average of $10 billion per annum since the country plunged into a combination of economic and political crises in 1998.

"If the government could manage to at least reduce the capital outflow, it would already be a significant contribution to the economy," she said.

Separately, a business association executive, who requested anonymity, also doubted the ability of the government to attract foreign financial institutions to invest in the recovery fund given the IFC's bad experience dealing with the local legal system.

"I doubt the IFC will agree to chip in," he said.

The IFC failed to force PT Panca Overseas Finance Indonesia (POFI) into bankruptcy over $13 million in unresolved debts after the commercial court ruled in favor of POFI.

Very few creditors have been able to book victories in bankruptcy cases since the country's new bankruptcy law was enacted in 1998.