Investment chief cries fault

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.