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.