IFC increases investment in RI, despite volatile business climate

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.