Focusing on pillars of investment

Focusing on pillars of investment

By Beni Sindhunata

JAKARTA (JP): The three pillars of Indonesian investment and
its economic scene, which are dissimilar but have the same
objectives, are George Soros, foreign direct investment and aseng
-- quasi-foreign businesses of Indonesian-owned investment
companies usually registered at offshore centers. Therefore, it
is difficult to decide which is better and safer for the
Indonesian economy.

Before further analysis a review is needed of the above three
symbols or phenomenon of capitalism. George Soros is a Hungarian-
born Jew, the symbol of the corporate raider and short-term
investor in the money and capital markets. In the context of the
macroeconomy, Soros' money enters the very flexible, dynamic and
sensitive foreign portfolio investment (FPI). Easy come, easy go.
Such moves have even becomes a trendsetter in reversing the
global money market, which now reaches US$1.2 trillion.

The second, foreign direct investment (FDI) has a long-term
view and physical presence, although there is no guarantee it
will produce environment friendly investment. In general, FDI
establishes a joint venture with majority shares or 100 percent
foreign shares. Apart from the objective of absorbing the
domestic market in the real sector, FDI is also made a basis for
exports of, by and to the global market.

In brief, the presence of FDI can be symbolized by
multinational giants of the Fortune 500 category or middle-class
enterprises. They bring in funds and set up a factory, export
their products, absorb the domestic market and most certainly
control company management.

The third phenomenon is what is termed here as aseng -- quasi-
foreign companies whose existence can be said to be of the "now
you see them, now you don't" type. Such a company is an
investment business owned by an Indonesian and usually registered
overseas in an offshore center, after which it enters the country
wearing a foreign coat. Aseng companies are not entirely
associated with firms of nonnative Indonesians as usually
suggested because there are also "native aseng" firms.

The presence of Soros is always sensational and creates
speculation. Experts say where there is Soros there is business
chaos. Others say where there is Soros there will be business
certainty, and the business world will compete for his Quantum
Fund to get something of the investment fund.

The entry of the Quantum Fund into Indonesia in mid-1998 when
the crisis was at its height was therefore certainly of interest,
especially after this global fund manager joined and acquired a
fifth of the shares in Bhakti Investama, a spearhead into
Indonesia. Soros has entered and is planning to enter various
sectors of banking and telecommunications, the cigarette industry
and even the underwear business.

Long before Soros entered the country, many foreign fund
managers had invaded the Indonesian capital market and
established themselves in various sectors. One example is Norbax
Inc., which invested no less than Rp 4.5 trillion in a dozen
public companies with total assets of more than Rp 55 trillion in
1998.

There was also a lot of investment through banks and financial
institutions as nominee companies. This type of investor will
increase in number with various scales of investment, especially
when shares are still relatively cheap while the economy starts
showing improvement.

Last week Goldman Sachs, through Lotus Asset Management,
bought up shares of Multipolar. In 1998, Newbridge Capital
acquired PT Astra Microtronic for $90 million and is now
negotiating to buy PT Astra International shares.

The third type, the aseng, or the quasi-foreign investor firm,
lies between the above two types of global investment; they enter
as foreign portfolio investment but are actually owned by a
businessperson in Indonesia who owns a factory and well-running
investment even before the listing on the stock exchange.
Generally this type of company enters through the acquisition of
a public or nonpublic company which is a member of a business
group. Their existence becomes even more clear because the
foreign firms usually only enter Jakarta to dominate shares of
two or three companies of one group.

So it is not surprising that many public companies give the
impression of being much in demand in the eyes of investors, but
the movement of shares of such firms is not very active and even
seems low in demand. This is because the majority of shares only
move among related parties and do not spread among hundreds or
thousands of dominant investors.

Quasi-foreign companies can also be categorized as foreign
direct investment because some enter by the acquisition of
nonpublic firms. Therefore aseng investment can be recognized as
foreign portfolio investment and also foreign direct investment.

Data collected by the Business Intelligence Report shows that
from 1994 to 1998, the total foreign portfolio investment in
Indonesia reached Rp 20.8 trillion, or about $5.5 billion at that
time. In 1999 this figure is estimated to exceed dozens of
trillion rupiah. This would include funds from quasi-foreign
investors and other "Soros" parties from various banks and global
financial institutions.

Meanwhile, in the same period the flow of foreign direct
investment entering Indonesia reached $16.9 billion, but there
was also investment overseas by Indonesians amounting to $2.1
billion. The net flow of foreign direct investment was therefore
only $14.8 billion.

Of course this figure cannot be placed on par with the flow of
foreign investment registered at the Investment Coordinating
Board, because it only covers planning of both new and extended
projects with different degrees of schedule and scale.
Implementation of plans could be complete, partial or even
canceled. Imagine if all plans for foreign direct investment in
Indonesia from 1994 to 1998, which reached $144 billion, were
realized the impact on the country's economy. But that will
remain speculation because realization of capital entering
Indonesia in that period only attained 11 percent of the plans,
or $16.9 billion.

As an illustration, a tool of foreign direct investment which
could be used for analysis and a benchmark of investment is the
International Finance Corporation. By June 1998 this multilateral
investment institute had invested $534 million in 41 companies.
This was divided into two types -- loans amounting to $393
million for 29 companies and share participation totaling $141
million in 26 companies.

This investment was spread over 11 business sectors with the
largest concentration in textiles, which absorbed $107.9 million
through five companies.

From the comparison of the three pillars of foreign investment
we can make the following conclusions: All three of them are
important for the movement of both direct and indirect
investments through the financial sector. However, in the long
term foreign direct investment is safer compared to foreign
portfolio investment given the latter's "easy come, easy go"
trait.

Indeed we are in greater need of giant multinational corporate
firms flying foreign direct investment flags, but neither can we
see the negative side of the presence of a George Soros or at
least a Warren Buffet. For Jakarta has no lack of such figures
who continue to wage guerrilla warfare in the money market and in
the capital market. They continue to be on the lookout for
interesting and prospective shares. Quasi-foreign company
investors, indeed, have a different vision and will not go far
from the country.

Persistence in seeing the negative side of the entrance of
temporary global investors, or foreign portfolio investment,
would mean we are not ready or willing to enter the era of the
global monetary market, which will certainly take victims in the
third millennium. Views against foreign portfolio investments can
be considered mere public debate, and let each party play from
its own angle and interest.

The writer is the director of the private Business
Intelligence Report in Jakarta.