Govt told to immediately improve investment climate

Dadan Wijaksana, The Jakarta Post, Jakarta

The latest data showing a precipitous drop in foreign direct investment (FDI) should serve as a wake-up call for the government to quickly take action to improve the country's investment climate, analysts said.

Analysts said the government had so far failed to learn the lessons from the past and seemed wholly unable to realize how serious the impact of the FDI drop was on the country's economy.

"The (FDI) data should serve as a wake-up call for the government to realize how serious the problems are. Because, aside from exports, investment could accelerate our economic growth, as we cannot keep relying forever on strong consumption," University of Gadjah Mada economist Sri Adiningsih told The Jakarta Post on Friday.

Sri warned the government that without sufficient economic growth, the huge number of unemployed -- current figures put the number at over 40 million -- caused by the 1998 economic crisis could not be absorbed, which in turn would trigger a serious social backlash.

"That's why we need to have our exports and investments growing by at least 10 percent per year if we are to have at least 5 percent economic growth, the minimum level of growth needed to absorb new job seekers," she added.

She also urged the government to stop wasting time by engaging in a public war of words blaming each other for the country's various problems, as this would push investment away even further.

She was referring to, among other things, the recent controversy within the government whether to continue to accept International Monetary Fund (IMF) loans to assist and improve the country's economic reform programs.

The Investment Coordinating Board (BKPM) announced Thursday that FDI approval during the first five months of the year fell by 59 percent to US$1.67 billion, compared to $3.98 billion in the same period last year, due mostly to the unfavorable business climate.

All this comes at a time when the country's macroeconomic picture seems to be improving, particularly with a declining interest rate, stronger exchange rate of the rupiah and a declining trend in inflation.

FDI approvals, however, have been steadily declining since the country was badly hit by the financial crisis in the late 1990s, because of various problems that have turned investors away from the country including security disturbances, economic and political instability, corrupt court system, labor disputes and confusion over regional autonomy.

The government's failure to address these problems has only turned things from bad to worse, prompting not only the reluctance on the part of foreigners to invest but also creating jitters among domestic investors.

Chairman of the National Economic Recovery Committee (KPEN) Sofjan Wanandi claimed the current administration's impotence and inability to find any solutions would only make the problems worse until a new team of economists could be named after the next election in 2004.

"In the next two years, with the absence of strong leadership, real investments will not be coming in," Sofjan.

Investors who were already doing business here have gradually left the country, he added, and no new ones were coming.

Anton Supit, chairman of the Indonesian Footwear Association (Aprisindo), also said the level of investor confidence was so low that several foreign shoe manufacturers had been shutting down their operations here and were moving to neighboring countries, leaving tens of thousands of local workers in the lurch.

"Several shoe makers have closed their companies one by one. With one factory managing to absorb an average of 6,000 workers, this only creates more bad news," he said.

Economist Pande Radja Silalahi agreed that failing to address this situation immediately would make the problems accumulate, making them even harder to fix.

"....This is serious. This could cause huge unemployment, which is a big problem for all of us. The government has no choice but to improve the business environment quickly," Pande said.

Among other things that needed to be addressed, he added, were major reforms in the legal system, less labor disputes and clearer regulations surrounding the regional autonomy, all those should be the government's priorities.