Investors huddle with 'powerful partners'
JAKARTA (JP): Investors cling to politically well-connected partners to safeguard against upheaval, despite the fact that political risks are highly unpredictable, an observer says.
Economist Sri Mulyani Indrawati of the University of Indonesia said yesterday at a discussion on investment and political risks that the magnitude of investment was a key factor in why investors attach to powerful partners.
"This is what investors do to reduce political risks," she said at the discussion held by the Center for Information and Development Studies (CIDES), a think tank of the Association of Indonesian Moslem Intellectuals (ICMI).
She cited the planned construction of a 95-kilometer bridge, connecting the Malaysian peninsula and Indonesia, by a private consortium of companies from both countries, as proof of major investors choosing only politically well-connected partners.
The Indonesian consortium, PT Malindo Transmadu, is headed by Siti Hediati Heriyadi Prabowo, President Soeharto's second daughter. Malaysia is represented by Renong Sdn. Bhd.
There has been no information yet as to how much the project will cost.
The other speakers at the discussion were Indria Samego and Didin S. Damanhuri of CIDES. The discussion was held to mark the launching of the third volume of the annual Journal of Indonesian Profiles, which consists of writings on domestic politics and the economy.
Sri said no one could ever exactly calculate political risk, which was highly uncontrollable, unmanageable and unpredictable.
She noted that other than from domestic politics, investment risks could also result from globalization -- meaning that a situation of a particular country could cause a situation in another country.
Sri cited the recent fall of some ASEAN currencies as an example of the interconnectedness of countries when it comes to business and political risk.
Indria and Didin shared Sri's view and agreed that no country was free from another country's influence. Domestic, political and economic matters have been globalized, Didin said.
International exposure -- in the form of research by international institutions, for instance -- would affect the level of investment in a particular country, Didin said.
He cited the Hong Kong-based Political and Economic Risk Consultancy (PERC) survey, disclosed in March, that rated Indonesia as the most corrupt nation in ASEAN.
He noted how monopolies and nepotism were growing to such an extent in Indonesia that they might hamper foreign investment.
However, he expressed optimism that international pressure and mass media control would eventually help usher in political and economic reforms in Indonesia.
Indria pointed out that the market economy was behind the drive for reform in many countries.
In this interdependent world, reform would sooner or later take place in market economy-oriented countries, he said.
"They need to open up in order to take advantage of the world economy," Indria said, citing some Eastern European countries who had to adjust and open up in order to "integrate" with the world market economy.
He also said the only way to achieve political and economic reforms was through democratization.
"Democratization is the word, whether you like it or not, whether you are ready or not, it will come," Indria said. (10)