'Govt must quickly resolve Manulife fiasco'

Rendi A. Witular and A'an Suryana, The Jakarta Post, Jakarta

Experts warned the government not to ignore nor underestimate the effect the Manulife fiasco would have on legal uncertainty in the country, and predicted that the impact on the ailing economy would be severe.

Chairman of the National Economic Recovery Committee (KPEN) Sofyan Wanandi said on Tuesday that if the government did not immediately take action to resolve the problem, badly needed foreign investment, crucial to helping push economic growth, would not materialize.

He added that the Manulife case was not the first as investors had often complained about the country's weak legal system and raised doubts about the security of foreign investments here.

"Such cases have often occurred in the country and the government is frequently late in handling the fallout. If cases like this continue to occur, no foreign investor will invest his money in this country" Sofyan told The Jakarta Post.

The Commercial Court on June 13 ruled PT Asuransi Jiwa Manulife Indonesia (AJMI) bankrupt in a controversial ruling that has strained relations between the Indonesian and Canadian governments. AJMI is the local unit of giant Canadian insurer Manulife Financial Corp.

The Manulife bankruptcy ruling has added to the list of foreign investors badly burnt by the lack of legal certainty in this country.

One prominent example is the situation facing East Kalimantan coal mining giant PT Kaltim Prima Coal (KPC), which is equally owned by Anglo-Australian mining company Rio Tinto and British- American oil and gas company BP.

The South Jakarta District Court in March issued a ruling sequestering the assets of KPC following a US$776 million lawsuit filed by the East Kalimantan provincial administration. Through the lawsuit, the provincial administration sought to pressure KPC to sell 51 percent of its shares to the province.

Under its contract of work, KPC is obliged to sell a 51 percent stake to either the Indonesian government, state-owned companies or Indonesian-controlled private firms this year. There is no clause in the contract stipulating that the stake must be sold to the province.

International lenders like the World Bank, International Monetary Fund, Consultative Group on Indonesia (CGI), and even the Paris Club of creditor nations have long asked the government to heed the complaints of investors in the country, particularly with regard to the lack of legal certainty and security concerns.

But Sofyan said the government seemed to have learned nothing from past experience.

"The government is not doing its homework. This is a sign that the government is underestimating these cases," said Sofyan heatedly.

Sofyan also criticized senior government officials who showed no concern for the investment climate by making counterproductive comments over the Manulife case.

Economist Pande Radja Silalahi of the Centre for Strategic and International Studies (CSIS) shared Sofyan's views, saying that the Manulife case was yet another public relations disaster for the country, which had been struggling to attract foreign investors since the 1997 financial crisis.

"There's always a risk involved in investment. But as long as the risks can be predicted, this will not pose a problem for foreign investors.

But, the lack of legal certainty is a different case as it is unpredictable," he said, adding that investors highly prized legal certainty.

Amitava Banerjee from the International Finance Corporation concurred, saying that continuing capital flight and the drop in private investment here reflected the lack of confidence in the country's business environment.

From an inflow of US$11.5 billion in 1996, private capital has been flowing out of Indonesia at about US$10 billion a year over the last four years, Banerjee said.

"An important element in a market friendly environment is a court system that can protect property rights and enforce contracts," he said.

Learning from the facts, it was a high time for the parties concerned in Indonesia to restore the confidence of foreign investors.

The bankruptcy ruling against AJMI was made after the receiver of the now defunct PT Dharmala Sakti Sejahtera (DSS), the one- time partner of Manulife in AJMI, filed a lawsuit over a 1999 unpaid dividend. Manulife, which has filed an appeal with the Supreme Court, said that the shareholders did not authorize the payment of a dividend for the period in question.

According to the finance ministry, AJMI is actually a healthy and solvent company.

The verdict has prompted concern among legal observers, who say that it is perverse and unjustifiable.

"This is the most absurd decision that I've ever heard of from the Commercial Court," noted lawyer Amir Syamsuddin has said.