'Govt must quickly resolve Manulife fiasco'

'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.