'Indonesia still attractive, but has many problems'

'Indonesia still attractive, but has many problems'

Johannes Simbolon, The Jakarta Post, Sydney

Despite the numerous problems now confronting the country,
Indonesia remains attractive to many foreign investors. But,
Indonesia has to work hard to revive investors' confidence before
they are willing to return to the country with the same amount of
enthusiasm they demonstrated for several decades prior to the
economic crisis, Australian economists and investors say.

HSBC Bank Australia Limited chief economist John Edwards said
here on Monday that honoring contracts with foreign investors was
key to the Indonesian government reviving investor confidence.

"In order to restore Indonesia's status in the global economy,
it needs to convince the world that contracts are enforceable and
the government is acting in a way to welcome investors," Edwards
said here at a workshop with Indonesian journalists.

Edwards did not specify the contracts in question, but many
investors, particularly in the energy, power and mining sectors,
have often criticized the Indonesian government for failing to
honor their contracts.

In the wake of the 1997 financial crisis, the Indonesian
government suspended most of the 27 contracts between independent
power producers (IPP) and state electricity company PT PLN as
part of the retrenchment measure to deal with the economic
crisis. Some of the IPPs took the case to international
arbitrators who later ordered the Indonesian government to pay
compensation to the investors.

Last year, the government revived all the contracts to avoid
more arbitration proceedings and to ensure power supplies in the
future.

In the mining sector, dozens of foreign investors have been
complaining for years over the Forestry Law of 1999, which bans
them from developing open-cast mines in protected forests, and
the Ministry of Forestry's decision to designate the contract
areas as protected forests. The investors regret the fact that
the policy came years after they had conducted exploration. They
accuse the government of failing to respect their contracts.

Edwards said that due to Indonesia's failure to enforce the
contracts investors still preferred to avoid Indonesia. This was
despite the government's recent achievements in stabilizing the
rupiah and restructuring the financial sector.

"Indonesia has been punished by investors the same way they
rewarded it with a superior economic growth for 20 years prior to
the economic crisis," Edward, the former principal economic
advisor to former Australian prime minister Paul Keating, said.

Also speaking in the same forum, Bruce Munro, the president of
PT Thiess Contractors Indonesia, the subsidiary of Australian
construction giant Thiess Pty Ltd., said the Indonesian
government's unwillingness or inability to maintain law and order
as well as rampant corruption were among the main negative
factors for investors.

"We believe corruption will still exist in Indonesia in 2010,"
Munro said.

The increasingly active labor unions had also added to the
troubles, while existing labor laws failed to address labor
unions' demands and the government was unwilling to take action
against unlawful union actions, he said.

"In fact, Minister of Manpower and Transmigration (Jacob Nuwa
Wea) supports unions," Munro said.

The implementation of regional autonomy, which investors
believe would create a better investment climate in Indonesia in
the long term, still caused headaches for investors as regional
governments abuse it to enrich themselves, Munro said.

The fear of terrorism threats and the nightmarish memory of
the Bali attacks continued to haunt investors in Indonesia,
making them feel insecure.

Thiess is one of the largest construction firms now operating
in Indonesia's mining, energy and telecommunications sector with
the existing contract value totaling US$2.7 billion.

Both Edwards and Munro however maintained that despite all the
problems, investors believe that Indonesia still has a lot of
advantages to lure back international investors, compared to many
developing countries.

"It (Indonesia) is not like, for example, Nigeria, which also
has natural resources but nothing else. No agriculture, no
manufacturing, no disciplined workers, no education," Edwards
said.

Edwards said investors appreciated the fact that Indonesians
considered education highly. Investors also found it attractive
that Indonesia had a diverse industrial base, had managed to
carry out a transition from agriculture to industry and had
recorded 20 years of superior economic growth until the 1997
economic crisis, Edwards said.