IFC increases investment in RI, despite volatile business climate

The International Finance Corporation (IFC) has increased its investment in Indonesia for the 2003 fiscal year ending in June, despite the legal harassment it has suffered here over the past two years.

For the current fiscal year, the investment arm of the World Bank has invested about five times more than the US$21 million allocated during the 2002 fiscal year.

Since 1956, the IFC has invested about $2.3 billion in Indonesia, making the country its sixth largest exposure. The IFC's portfolio in Indonesia covers more than 35 companies.

The Jakarta Post's Rendi A. Witular interviewed German A. Vegarra, IFC country manager for Indonesia, on the group's business interests here and the outlook for the 2004 fiscal year.

The following is an excerpt of the interview:

Question: How has the 2003 fiscal year been for IFC in Indonesia?

Answer: The overall trend in the 2003 fiscal year is slightly positive. In this fiscal year we expect to do $90 million to $100 million in new business. Our concentration has been on banking, agribusiness, oil services and management training.

We invested in Bank Buana, participated in the rights issues of PT Astra International and Bank NISP, and we are currently working in agribusiness and oil service transactions. Those two transactions should close in June, however we cannot currently disclose the names of the companies.

In 2003, we have been very content to see that the macroeconomy in Indonesia has continued to improve, but we continue to be concerned with the poor investment climate, particularly in the legal sector and the lack of clarity of contract.

If Indonesia could do something about this then obviously it would not only mean more IFC investments, but a lot of other investors would come back. There have been some interesting improvements in the legal system, but not to the level where we would say we are satisfied.

Q: What will be IFC's sector of interest during the 2004 fiscal year?

A: It is going to be an election year, so we can expect some volatility in the market. But in general the overall trend is positive. Our emphasis next year will be sort of similar to the 2003 fiscal year, which is agribusiness, the financial business and infrastructure. We hope to do at least $100 million in new business in the 2004 fiscal year.

Q: Why the financial sector and infrastructure?

A: I think this is the spring time for the (Indonesian) banking sector. We are seeing good trends in terms of nonperforming loans and capital adequacy ratio. So banks are now stronger than they were two years ago.

We are obviously always cautious because banks are now starting to lend. As they start to lend there will be two things: pressure on capital in which banks will require stronger capital and also a new mode of lending.

You know we are in the crisis today because of what happened in the past, so as banks start lending again, particularly to the corporate sector, we need to bring into banks new ideas in terms of credit risk systems and governance, so the banks can initiate lending to the corporate sector in a better way.

The financial sector in general is a sector of great attraction for IFC. We want to see a healthy banking sector, so we will continue to pursue not only investment in this area but also improvement on the policy side and environment.

We are also looking at infrastructure development. For the last five years the investment in infrastructure has come down significantly.

We will continue to seek good investment opportunities with private sector operators, I mean with reputable ones, to kick- start infrastructure sector investment in Indonesia, with particular attention to the power sector and seaports as areas of importance.

We are looking at several concept for ports. Indonesia is a country that depends on good logistics to link all the islands. Shipping companies also require good port facilities and competitive facilities.

We are looking at option for Jakarta (Tanjung Priok port) ... which is in the process of improving operations and expanding capacity.

Q: What is your commitment to small and medium enterprises (SMEs)?

A: We invested in Bank NISP and Bank Buana because we do work with SMEs and (these banks) do extremely well working with SMEs. We will continue to support the banks to continue their lending activities to the SMEs.

What sustained Indonesia in the post-crisis really was the SMEs; the real crisis was in the big corporate sector. Bank NISP and Buana did well because they lend to the SME sector. That sector has performed better than the corporate sector, but it still needs lots of support.

My feeling is that good companies, particularly medium-sized ones, have been able to survive the crisis and strengthen their competitiveness. They look better and better.

Q: How is IFC's nonperforming providence in Indonesia?

A: For Indonesia we still have some providence that are nonperforming and we will work on that in particular. Indonesia has similar trends to those of any post-crisis country, but in Indonesia it depends on the particular sector. The banking sector is rapidly recovering but the manufacturing sector is still slow to recover. But I would say Indonesia, in terms of nonperforming providence, is similar to other post-crisis countries.