Investors await improvement of business climate

Investors await improvement of business climate

Rikza Abdullah
Contributor
Jakarta

The Investment Coordinating Board (BKPM) has reported mixed
indications on approval of commitments for direct investments but
skepticism remains on the real flow of capital into the country
in the near future.

The board, in its latest report, published on its website
www.bkpm.go.id, says that foreign investment commitments approved
during the first quarter of this year (for projects in business
sectors other than the financial, oil and gas industries) surged
by 90.7 percent to US$2.49 billion from only $1.3 billion in the
same period last year, while commitments for domestic investment
declined by 35.35 percent to Rp 2.26 trillion (about $250
million) from Rp 3.49 trillion.

The most attractive sector to foreign investors, according to
the report, was trading and repair (with 96 projects approved),
followed by the metal, machinery and electronics industries (25
projects), and the hotel and restaurant business (14 projects).
Meanwhile, among the committed domestic investors, five planned
to establish projects in the metal, machinery or electronic
industry, five in the chemical or pharmaceutical industry, four
in the food processing industry and another four in the textile
industry.

The report seems to indicate that foreign investors are more
enthusiastic than domestic ones in making new businesses in the
country.

But senior economist Pande Radja Silalahi of the Center for
Strategic and International Studies (CSIS) has expressed
skepticism that more investment will really come to Indonesia
this year.

"This year's trend is that the amount of investment flying out
of the country will remain higher than that coming in," he told
The Jakarta Post in a recent interview.

"This trend has actually lasted for a long time, long before
the U.S. invasion of Iraq and the spread of the Severe Acute
Respiratory Syndrome (SARS) disease in various countries," he
said.

Pande said that investors' reluctance of doing business in
Indonesia was caused by conditions and incidents that
significantly reduced its competitiveness since the start of the
economic crisis a few years ago, while at the same time other
countries were improving their competitiveness.

According to BKPM, approvals on foreign investment steadily
declined from US$33.81 billion in 1997 to $13.58 billion in 1998
and to $10.89 billion in 1999 before increasing back to $15.42
billion in 2000. But they declined again to $15.05 billion in
2001 and to $9.74 billion in 2002. Approvals on domestic
investment fell from their peak of Rp 119.87 trillion in 1997 to
Rp 57.93 trillion in 1998 and to Rp 53.12 trillion in 1999. They
increased to Rp 92.41 trillion in 2000 but fell back to Rp 58.81
trillion in 2001 and to Rp 25.26 trillion in 2002.

Pande said that apart from the security problems, the
government's inconsistency in the enforcement of laws,
particularly those related to businesses, and its unwillingness
to base its policies on principles of economics -- like its
recent policy on the supply of sugar -- had caused business
uncertainty.

The Asian Development Bank's country director for Indonesia,
David Jay Green, also warned the government in an inter-agency
meeting in Jakarta earlier this year that there were many factors
that undermined investor sentiment.