Investors await for positive signs from new govt

Zakki P. Hakim, The Jakarta Post/Jakarta

The upcoming new government of Susilo Bambang Yudhoyono, who looks set to win the election runoff in a landslide, must immediately show that it is determined to move quickly to resolve the country's economic ills to win the hearts of crucial foreign investors, said experts at the launch of the 2004 World Investment Report here.

Centre of Strategic and International Studies (CSIS) economist Pande Radja Silalahi said on Wednesday that investors were expecting Susilo to form a business-friendly cabinet team, and come up with a reliable strategy and realistic action plan to address immediate problems, including weak law enforcement, security problems and labor issues that make the cost of doing business here high.

"Upon seeing positive signals, foreigners would surely commit to investing in the country," Pande said.

He added that, although it would take around 18 months for investment commitments to be realized, the commitment alone would significantly boost the country's economy.

The country has lacked investment, particularly foreign director investment (FDI), since the late 1997 economic crisis. Investment is crucial to accelerate the growth of Southeast Asia's largest economy, which for the past few years has been growing at a meager rate of around 4 percent, mainly driven by domestic consumption amid weak investment and export performance.

Deputy chairman of the Indonesian Chamber of Commerce and Industry (Kadin) John A. Prasetio said that, according to a survey carried out by the Japan External Trade Organization (Jetro), Indonesia was listed as among the most nonconducive countries for investment, with 72 percent of survey respondents complaining about taxation regulations.

The survey showed that 40 percent of foreign businesspeople here had a negative perception of the current labor regulations, compared to 7 percent in Malaysia, he said.

He added that, according to the survey, 91 percent of respondents reported negative experiences related to law enforcement in the country.

John said that, despite the problems, Indonesia had huge potential to lure more investment.

"We may not be as promising as China, India or Thailand but we are more promising than Malaysia, Taiwan and the Philippines," he said.

According to the 2004 World Investment Report, Indonesia ranked 82nd in the inward foreign direct investment (FDI) potential index in 2000-2002, a drastic drop from its ranking of 42nd in the 1994-1996 period

The report, published by the UN Conference on Trade and Development (UNCTAD), highlighted that the global structure of foreign direct investment had shifted toward services.

In the early 1970s, the sector accounted for only one quarter of the world's FDI stock, in 1990 this share was less than a half, and by 2002, it had risen to about 60 percent or an estimated US$4 trillion.

Over the same period, the share of the primary sector in world FDI stock declined, from 9 percent to 6 percent, and that of manufacturing fell even further, from 42 percent to 34 percent.

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UNCTAD FDI Potential Index, 1994-1996, 2000-2002

Economy 1994-1996 2000-2002

United States 1 1 Norway 3 2 United Kingdom 6 3 Singapore 4 4 Hong Kong China 13 12 Malaysia 34 32 Thailand 45 54 Philippines 57 57 Indonesia 42 82

*Ranked by the index for 2000-2002 Note: The inward FDI Potential Index is based on 12 economic and policy variables Source: UNCTAD, World Investment Report 2004