Govt to cut graft to attract Japan investment
JAKARTA (JP): An American academic has said that the Indonesian government needs to reduce both corruption and bureaucratic red tape in order to create a "long term investment climate" attractive to Japanese industries seeking to relocate to the region.
"The Indonesian government must cut red tape and corruption ... and continue to liberalize the economy in order to attract the relocation of Japanese firms," Hugh Patrick, an expert on the Japanese economy from Columbia University's business school in New York City, told a seminar at the Jakarta's Center for Strategic and International Studies (CSIS) yesterday.
The seminar, held in honor of the 50th anniversary of Indonesia's independence, was attended by various prominent figures, including U.S. Ambassador Robert L. Barry, Australian Ambassador Allan Taylor, economists Mari Pangestu, Hadi Soesastro and H.S Dillon and a former Indonesian ambassador to Japan, Hasnan Habib.
Patrick's warning on graft and red tape comes close on the heels of a survey which rated Indonesia the third-most-corrupt country in Asia, after China and India. The results of the survey of foreign managers, which was conducted by the Hong Kong-based Political & Economic Risk Consultancy, were quoted recently by the Economist magazine.
In a related development, several local observers have been critical of Indonesia's latest economic deregulation package, announced last month, calling it confusing and contradictory. The sections of the reform package dealing with sectors closed to foreign investment have been singled out for special criticism.
Government figures on foreign investment approvals paint a different picture, however, recording US$15.6 billion in approved foreign investments during the first four months of this year.
Approved foreign investments in 1994 were recorded at $23.7 billion, up from $8.1 billion in 1993. Japanese investment in Indonesia remained the highest last year, reaching $18.6 billion or 20 percent of all foreign investment in the country.
Manufacturing
Patrick said yesterday that the rise of the yen against the U.S. dollar would prompt Japanese firms to relocate their industrial activities to Southeast Asia and China in order to cut costs.
Reports from Tokyo's money market yesterday said that the greenback stood at 84.74-84.77 yen in the late afternoon, as compared with 83.25-83.30 a day earlier.
"The appreciation of the yen will force Japanese industries, especially the labor-intensive manufacturing sectors, to move their production bases to other places offering lower costs," Patrick said.
Patrick said that the labor-intensive manufacturing sectors were chiefly medium-scale suppliers of various components or parts for large manufacturers.
Such suppliers are usually either owned by independent medium- sized firms or are smaller units of the manufacturing conglomerates themselves, he said.
"To save costs, those who are able to move will go to this region...that's why Indonesia must be ready to anticipate this trend," he said.
The trend, Patrick added, would create both employment opportunities and ownership opportunities for Indonesia.
"Ownership opportunities mean that it is now possible for Indonesian firms to take the role formerly played by the suppliers in Japan," he said.
Patrick said that, in order to take advantage of these opportunities, Indonesia had to make significant investments in improving its workforce to meet Japanese industrial standards. (hdj)