Indonesia: From 'glory' to 'gloomy' days

JAKARTA (JP): More than ever before, Indonesia needs to attract foreign investors to invigorate its ailing economy.

Along with the economic crisis and leadership change came political instability, social unrest, unemployment as well as democracy.

In the past, Indonesia was seen as an emerging economy with low labor cost, stable environment and promising market, thus a good place for labor intensive operations.

Unfortunately these attributes no longer exist.

With the huge advancement in the business world, with even less developed countries opening up their markets to facilitate foreign investment, Indonesia's "glory days" seem to be coming to an end.

Countries, which were not noted for their economic strengths in the past like Myanmar, Laos and Cambodia, are becoming major investment destinations for major multinational companies. To add insult to injury, the other economies of Asia like Vietnam, Thailand, Malaysia and the Philippines are offering a variety of incentives to attract foreign investors.

The Indonesia's investment paradigm, which basically relies on cheap and semiskilled workers, seems to have vanished.

The most quoted opinion shared by government officers is that the problem is primarily caused by three factors:

1. More opportunities for Indonesian workers to express their opinion.

2. Social issues that easily trigger blue collar labor movements.

3. Higher cost of labor.

For one thing, the cost of Indonesian labor is still low in U.S. dollar terms.

For instance, a foreign company paying an employee Rp 500,000 a month, spends only Rp 6,000,000 annually (or just US$600) on him.

So is the workers' salaries causing foreign investors to pull out or become reluctant to invest in Indonesia?

If it's not the labor cost, what is it then?

We should not put the blame solely on the workers.

In this regard, we should question other significant parties such as the government.

Is our macro economic policy one of the reasons for declining foreign investment? Or is it because of social instability, political intervention and the absence of fair regulations?

It is indeed these factors that influence foreign companies when making an investment decision.

These factors -- not labor cost -- might be the main cause for the reluctance of foreign investors to put their money in Indonesia.

Ironically, some businessmen insist the root cause of foreign investment flight is higher labor cost due to the enactment of Ministry of Manpower Decree No. 150/2000.

The decree has sparked protests from employers.

However, to accommodate the concerns of employers, the government, through the minister of manpower, enacted Ministry of Manpower Decree no.78/2001 and no.111/2001.

The new decrees has created anxiety and restlessness among the workers and they are presently demanding the reinstatement of ministerial decree no.150/2000.

This debate will never cease unless the root cause is identified and addressed.

The protests over the decrees is actually the symptom, and not the cause of the problem.

If we look back, the real cause of the problem is listed as follows:

1. No legal certainty and law enforcement.

2. Low integrity of government officials.

3. Absence of good corporate governance.

These three critical issues need to be addressed to create a more conducive investment climate.

It will be a long journey, but its worth the effort.

Anung Anindita and Suryantoro Waluyo, Arthur Andersen Business Consulting.