Frightened foreigners halt Indonesian investments
Frightened foreigners halt Indonesian investments
MELBOURNE (Reuters): Foreign direct investment in Indonesia's shattered economy has dried up and will not flow again until long-term political stability returns, investment experts said on Monday.
Indonesia's economic collapse and recent civil unrest have burned such a hole in foreign investors' pockets that many have withdrawn key staff and some have quit the country for good, experts in Indonesia and Australia said.
Most foreign firms retain a long-term commitment to Indonesia but they have frozen billions of dollars worth of new investment plans until political stability returns, they added.
"I think it's largely come to a standstill," said Peter Knox, a managing partner of accounting giant Ernst and Young.
"The totally new investor who regarded Indonesia as strategically important has largely disappeared from the marketplace," he said from his office in Jakarta.
Investors are unlikely to loosen the purse strings until political reform and stability take hold in Indonesia, where fears of further unrest linger despite President Soeharto's resignation last week after 32 years at the helm, the sources said.
"I think it (foreign capital) is waiting for six months to see whether this political scene is going to become stable," Knox said.
"I don't think anyone is going to commit large lumps of money to any project until they get that assurance."
Australian investors, among the largest direct investors in Indonesia with an estimated A$4 billion (US$2.5 billion) worth of official new projects in the pipeline, have been shaken by recent violence on the streets of the capital.
"It's wait and see," said Rob Hogarth, Melbourne-based president of the Australia-Indonesia Business Council, who was caught up in the anti-Soeharto rioting in Jakarta this month.
He said he was concerned Australian companies would "walk away" from Indonesia. "I have no evidence of it yet," he added.
Australian firms are not alone in their reluctance. The biggest foreign direct investors in Japan, Taiwan, Singapore, the United States and Europe are also nervous, the sources said.
Unlike offshore fund managers, who can move capital around the world with relative ease, many foreign direct investors have put their money in fixed assets that are now close to worthless.
They will be wary of wasting any more of their shareholders' funds, said Nick Graham, a Jakarta-based international partner of accountancy firm Grant Thornton.
"The portfolio investment will come in more quickly and the direct investment will take a much longer period of time," Graham said.
"It will probably be three to six months before we see some real portfolio investment, so it's probably at least six months before we see a real pick-up in direct investment."
The retail, property and construction sectors have suffered the most damage because of their exposure to the wrecked domestic economy and to urban unrest, the Jakarta sources said.
The mining and oil sectors have suffered much less due to their remote locations and export orientation, they said. But all are waiting for Jakarta to lead the way towards finding long-term political stability, including an election timetable, to give them the confidence to resume spending, they added.
"I don't think we are going to see anyone establish in this country with an export business just yet because of the stability issue," Grant Thornton's Graham said.
Economist David Ray, an Indonesia specialist at Australia's Victoria University, said a rebound in foreign direct investment would be crucial for Indonesia's recovery, outweighing a US$41.2 billion rescue package led by the International Monetary Fund.
"I think the IMF package is now redundant. What the country needs to get back on the rails is a comprehensive direct- investment program to help the real economy," he said.