Govt told to immediately improve investment climate

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.