IFC investment in RI still suspended
Berni K. Moestafa, The Jakarta Post, Jakarta
The International Finance Cooperation (IFC), a commercial arm of the World Bank, said on Friday it would maintain its investment suspension on Indonesia, until it saw concrete improvements in the country's legal environment.
The IFC regional representative for Indonesia, Amitava Banerjee said a number of incidents involving legal cases had prompted it to suspend investment programs since last March.
"At the moment our program is under review, meaning we are not doing any investment," he told reporters after a meeting between businessmen and the government.
According to him, the institution has an investment exposure of some US$720 million in Indonesia.
The suspension in March came just a month after an IFC executive said he was confident that the IFC would continue investing here albeit under a poor legal environment.
The IFC itself has been embroiled in legal disputes involving two companies it had invested in.
Of the two cases, the one concerning PT Panca Overseas Finance Indonesia (POFI) has dealt the most serious blow to IFC.
An appeal to bring POFI to bankruptcy was rejected by the commercial court last January, due to what the IFC suspects were fictitious creditors voting in favor of POFI.
The IFC filed a bankruptcy petition against POFI last year for unresolved debts amounting to $13 million.
IFC suspected POFI fabricated 14 of its 31 creditors, allotting them Rp 1.6 trillion (about $152 million) of its $230 million in total outstanding debts.
It said the move enabled POFI to win the creditors' vote for accepting its debt restructuring proposal.
Other creditors share similar experiences, notably, the Indonesian Bank Restructuring Agency (IBRA).
Only a few creditors have been able to book victory in bankruptcy cases since a new bankruptcy law was enacted in 1998.
This situation has increasingly worried investors in need of a credible commercial court to ensure the safety of their funds.
Banerjee rejected the notion that the POFI case had been the basis of its decision to suspend investment.
"There are some incidents were you can point and say that the legal environment needs to be fixed," he argued.
Indonesia is IFC's seventh largest country portfolio.
Given that its task is to promote investment in developing countries, a suspension on Indonesia may deter pure commercial foreign investors from entering the country.
But Banerjee added that some improvements had been visible in recent court decisions.
"There are some good cases that have come out when the court has made sensible decisions," he said.
He acknowledged that reforming the legal system could take years, yet the IFC needed only the first concrete signal of progress.
"It could take 10 to 20 years, but you can start a long journey by going in the right direction with one step -- we await that one step," he said without elaborating.