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withdrawn key staff and some have quit the country for good,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.