Investment chief cries fault

Instead of wooing foreign investors to return to Indonesia, now that the macroeconomic, political and security conditions have become relatively stable, chief of the Investment Coordinating Board (BKPM) Theo F. Toemion is crying fault, thereby validating the foreign businesspeople's threats to pull out of the country amid what they see as an increasingly inimical condition for doing business.

Toemion said after a tour of several provinces last week that many foreign investors had complained about thugs, who made it rather impossible for them to move their goods or products without paying extortion money. He cited a big Malaysian plantation investor in West Sumatra, which had grounded about 100 trucks used to haul oil palm fruit to its refinery, due to the enormous sum of extortion money demanded by thugs.

Local security officials seemed unable to do much to prevent such thuggery. Toemion's senior deputy Johnny Situmorang separately told a seminar in Medan, North Sumatra, that more than 100 foreign companies, 40 percent of which were Japanese, had threatened to leave the country unless the investment climate improved significantly.

The core of their complaints concerns the lack of legal certainty, too rigid labor rulings, excesses of local autonomy -- as reflected in what they call anti-business local regulations -- and confusion in licensing authority.

Certainly, there is nothing new in the issues raised by the investors. The government itself is fully aware that the country is now a pariah among foreign investors.

Just look at the private capital account in the official payments projection balance. The government still expects a net foreign direct capital outflow of more than US$1 billion this year and $3.6 billion next year. Even though the figure also shows an encouraging trend in that more corporate debtors will be able to service or repay their foreign debts, it is nevertheless another strong proof as to how most foreign direct investors still shun Indonesia.

However, the fact that the officials in charge of promoting investment are themselves joining the chorus of the investor complaints, only show how frustrated they are with the acute lack of government leadership to improve the business climate. The frustration of the BKPM is understandable. They are like marketers who cannot do anything about the products they are responsible for selling. The most influential factors for investment operations are completely beyond its control.

Even the authority for investment licensing, which is supposed to belong to the board, has remained spread out among various ministries. The board that was designed in the late 1970s to be a one-stop center for all licenses needed by an investor remains a dream.

The new Investment Law, which was drafted in the early 1990s to replace the 1967 Foreign Investment Law and 1968 Domestic Investment Law, has remained shelved at the House of Representatives. In 2001, the government announced a plan to set up a national export and investment promotion task force, which was to be designed to better coordinate policies in these two sectors, but this has remained on the drawing board.

The increasingly stable political condition, strengthening rupiah, weakening inflationary pressures and declining interest rates are not enough to prompt even Indonesians to repatriate the capital they moved overseas during the peak of the economic and political crisis in 1998, let alone to attract foreign investors.

The legal uncertainty makes investing in Indonesia akin to gambling in a casino, because in a highly complex market economy and an interdependent, contingent world economy, it is the efficacy of legal institutions and laws that serve as risk management tools.

The country's rich natural resources, low labor wage structure and potentially large market -- supposedly the main attractions to investors -- are made virtually meaningless by legal and regulatory uncertainties.

This condition is quite worrisome, as it is taking place at a time when the country, suffering from a steep decline in the rate of domestic savings due to weak economic growth, is desperate for foreign investment to fuel economic recovery. Private capital outlays are badly needed to expand economic capacity, as private consumption -- the main locomotive of growth over the last two years -- has begun to lose steam, and the government, overburdened with huge domestic and foreign debts, is deprived of meaningful investment capacity.

Hopefully, the investment chief's cry would get the Cabinet's attention so that investment promotion measures -- which is to make up the third main component of the new reform agenda blueprint currently being finalized by the government -- will strongly address the investors' complaints.