Investor confidence to soar on successful presidential election
Investor confidence to soar on successful presidential election
Hanys Salmi
Kuala Lumpur
Assuming that Indonesia's presidential election proceeds
peacefully up to the conclusion of the second round in September,
by any logical calculation, the domestic investment climate will
improve on a sudden rise in investor confidence. Foreign and
Indonesian CEOs now awaiting the final outcome of the election
may then lean back in their chairs with a greater degree of
confidence about redesigning their investment strategies to
respond to the signals that the presidential candidates have sent
out.
Except for capital goods-intensive industries which are
feeling the brunt of exchange and interest rate volatility, and a
few quota-reliant sectors such as textile and garment industries
-- which are threatened with bankruptcy next year --
macroeconomic indicators are mainly encouraging up to this month.
This suggests that on the whole, the convalescence of
Indonesia's investment climate may soon reach a full-recovery
stage as of next January when the country's new Cabinet is well
in place with presumably a bulk of private sector stimulus thrown
in. Between now and then the new government may be preoccupied
with budget recovery efforts to refill the state treasury.
Preliminary indications promising improved investment climate
recovery have, in fact, been looking more and more accurate as
suggested by a recent Danareksa Research Institute (DRI) survey
which polled 700 CEOs and concluded that the business sentiment
index had increased 0.7 percent to 113.4 points on improved
performance of the expectation index, which stood at 119.8 points
or up by 1.2 points from its position before April.
The DRI survey revealed one very interesting point, which may
well come as negation to the prevailing public assumptions that
investors would relocate their companies elsewhere for reasons of
security and lack of legal certainty. The fact is that the index
of business confidence on government credibility strengthened to
88.9 points, up from 88.6 points recorded prior to April 5
legislative elections. The index measured the government's
credibility as against its capability in maintaining national
stability, upholding law and policy certainty.
Between now and September -- if the current election tally
fails to produce a majority winner -- there is bound to be slight
variations in the indices, which would represent investors'
attitude toward political jolts across the country. But, unless
there is chaos and anarchy -- the probability of which may be
remote in this compromise democracy -- investors' medium and
long-term strategic plans are not going to be bogged down,
analysts say.
In the event this first round of presidential election fails
to produce an absolute winner, two potential contenders will
contest the second round. The worst possibility would be that
supporters of the contending camps would clash on the streets and
security forces would be deployed to restore order.
Given the fact that political parties had channeled their
aspirations through the five candidates that contested the first
round, the parties would not have solid grounds to abandon the
principle of objective fairness. This being the case, what the
parties would most likely do, is strive for Cabinet
representation and other types of political pie-sharing rewards.
Against this logic, it is safe to assume that foreign and
Indonesian CEOs have just three of months of relative
uncertainty, but beyond that, whoever is elected president, the
country will return to normal. The September-December 2004 period
is likely to become a period of contemplation for the real sector
businesspeople, though portfolio investments should experience a
psychological boost as is normally the case when businesses
respond to the appointment of a new Cabinet.
Business should thrive from the day the next Cabinet is sworn
in. Political wrangling and all the noise therein is bound to die
down and the new government will devote most of its attention to
completing three major agenda items -- strengthening national
stability and legal supremacy, reinvigorating the business
sector, including the streamlining of trade and investment
regulations, and completing the regional autonomy agenda.
Fresh investment opportunities may arise in the public sector
when the new government strives to absorb the labor force with
short and medium-term projects. This is where the business actors
need to come in swiftly given that the messages that were
hammered home by the presidential candidates centered around one
dominant area: Improvement of the economy through the empowerment
of corporations and people's purchasing ability.
This would entail expansion of investment sectors to include
more business opportunities in the agriculture, maritime,
forestry, natural resource, tourism and public utility sectors --
which constituted part of the presidential candidates' campaign
agendas -- introduction of new incentives for big corporations
and SMEs, and the expansion of the role of the private sector in
the many regencies across the archipelago.
Apart from that, toward the turn of the year, the business
sector would have a clearer picture of investment opportunities
when the Indonesian Chamber of Commerce and Industry (Kadin)
publishes a thorough investment guide as a road map awaiting a
government policy boost.
Against the backdrop of all these developments, there are
ample reasons to assume that Indonesia will remain an attractive
investment destination over the next five years, especially if
regulations for investing in the many regions are encouraging to
foreign and local actors.
The issue of land clearance, provision of industrial
utilities, local government permits and labor policies may still
need to be straightened out to better facilitate investors
wishing to operate in the regencies. This being the case, the
economic team of the next Cabinet will need to work extra hard to
synchronize policies with the regencies, especially those that
deal with the revenue-sharing formulae.
To business actors, however, the government should still have
the ability to fulfill the minimum requirements -- improved
national stability, policy clarity, transparency and certainty,
and better respect for law. A major hurdle that may remain,
however, is the web of illegal fees that may continue to encroach
upon corporations' drive to promote competitiveness in domestic
and export markets. But investors may have to live with it and
redefine operational strategies given that this is the hardest
nut to crack.
The writer is a researcher on Indonesian issues at a Kuala
Lumpur-based company. He can be reached at
hanyssalmi@malaysia.com