Foreign investors' concern turns to unrest in Aceh

Foreign investors' concern turns to unrest in Aceh

JAKARTA (JP): Political uncertainty in the troubled province
of Aceh has become a major concern for most foreign investors in
Indonesia, according to a Singapore-based economist.

Mangal Goswami of the Economic Research Group Asia Pacific
said here on Monday the political problem in the oil-rich
province would further reduce foreign investor confidence in the
country's economy.

"They take this threat seriously," Goswami said in reference
to Aceh's mounting calls for a referendum, which could lead to
the separation of the province from Indonesia.

Speaking at the Cash Management and E-Commerce seminar held by
ABN AMRO Bank, Goswami said the key to restoring investor
confidence would depend on President Abdurrahman Wahid's handling
of the Aceh issue.

Foreign investors would like to see the government use
peaceful means in dealing with the Acehnese, Goswami said, adding
that opening up a dialog was crucial for positive developments.

He said foreign investors feared that if the Aceh problem
could not be resolved properly it would spark further social
instability in Indonesia.

Goswami did not specify whether foreign investors expected
Indonesia to disintegrate should Aceh separate from Jakarta,
but added that "economic stability hinges on political and social
stability".

He said that even before the Aceh issue investors had delayed
channeling funds into Indonesia.

Goswami said investor caution was related to a wait-and-see
attitude on the performance of the newly established government.

He said the fundamental soundness of Indonesia's economy was
of even greater importance than the Aceh issue.

He said investors were generally upbeat about Indonesia's
prospects and had expressed their intention of returning to the
country.

Goswami said investor confidence had been boosted by
diminished political risks and the election of a President who
had a grasp of Indonesia's key problems.

"Investors have switched the question from whether they would
invest in Indonesia to when they would invest," he said.

Goswami projected that starting from next year foreign
investments would gradually pick up, but that any improvement was
dependent on resolution of the Aceh issue.

In regard to Indonesia's overall economic outlook, he said
that economic recovery would largely depend on the combination of
foreign direct investment and restructuring of the banking
sector.

He said investors would place their funds in export-oriented
sectors, and cited the textile and shoe industry as lucrative
opportunities.

He said the agriculture sector, which has reaped huge profits
during the economic crisis, did not hold huge appeal for foreign
investors.

Goswami was optimistic that exports would rise sharply, not
only because of foreign investment flows but also due to a
stronger demand for Indonesian products.

In the financial sector, he predicted banking interest rates
to further decline to about 11 percent by early next year, from
the current 13 percent.

"It's normal that interest rates drop sharply after a crisis,"
he said, but added that he expected interest rates to slowly
climb after bottoming out at 11 percent or 12 percent.

He projected that Indonesia's interest rates would then attain
their pre-crisis level.

Separately, ABN AMRO Bank country manager Pieter Van den Akker
said foreign investment was vital in reviving Indonesia's
economy.

Akker declined to confirm talks on ABN AMRO's intention to
acquire several Indonesian banks.

He said Indonesia's banking crisis was unprecedented in
history, describing the cost for restructuring the banking sector
as "phenomenal".

He said bank's loan portfolios had generally been negative but
that he expected the situation to change so that such loans would
start to pay interest again.

ABN AMRO's role in attracting foreign investment would be as a
source of information to investors regarding Indonesia's economy,
he said, adding that ABN AMRO was the oldest foreign bank in
Indonesia.

Akker said that with its global network, the bank would also
provide trade financing to boost Indonesian exports. (03)