Investors waiting for legitimate government

Investors waiting for legitimate government

The economic crisis and political upheavals over the past year
and a half have driven investors out of Indonesia. Economist Kwik
Kian Gie questions whether investors will return to the country
after the general election scheduled for June 7.

JAKARTA (JP): Indonesia is expected soon to have a new
government which surely will introduce policy changes. But
whether the changes will lead to the restoration of the economy
or to its deterioration remains unclear.

Whoever governs the country after the upcoming general
election is expected to get more serious than the current
government in its attempts to restore the economy.

The belief in several quarters is that political stability
will encourage an inflow of investment, which will in turn
reinvigorate the country's economic activities. But will the
upcoming general election lead the country to political
stability?

Political stability can be expected if losing political
parties and their constituents accept their defeat and support
the winning parties. This will occur only if the general election
is held freely and fairly, with no money politics, and a new
government is established from a coalition of parties well-known
for their past freedom from corruption, collusion and nepotism. A
free and fair election will not guarantee political stability if
the winning parties reappoint current figures who are widely
known by the public for their alleged corruption.

If political stability is established, will domestic and
foreign investors reinvest in the country?

Many Indonesian investors have sent their money abroad even
though they have not repaid their debts to banks. The banks in
turn are now facing financial difficulties due to the mounting
bad loans and are being forced to generate large amounts of
liquidity by borrowing from the government. Because the
government is now scrutinizing the management of the banks and
confiscating their assets, including those put up by their
borrowers as collateral, Indonesian investors with outstanding
debts will not reinvest their money in the country for fear of
possible investigation.

The government has a number of alternatives to settle the
problems related to corporate debts but it has so far failed to
act. A government established after the next general election
will, therefore, have to deal with these old problems.

Alternatives to settling the problem of corporate debt include
writing off the debts, confiscating the debtors' assets and
investigating the debts to find out whether the debtors are
involved in criminal acts. Borrowers who fail to prove that they
are not involved in criminal acts should be imprisoned and their
assets confiscated.

Any solution to the debt problem will be dilemmatic because
law enforcement will also mean the removal of entrepreneurs. But
as long as the government does not take any action, it is
difficult to expect domestic investors to bring their money back
into the country.

Expecting foreign investors to reinvest in the country is also
difficult, even after political conditions stabilize, because
they are still owed some US$75 billion by domestic companies.
Foreign creditors can be expected to write off part of the bad
loans -- like the writing off of 80 percent of cigarette producer
Bentoel's debts -- or to convert their loans into equity. But
such solutions will take time.

Therefore, companies which make new investments in the country
will not take out loans from banks, and these new investments
will come only when the supply of essential goods or some luxury
products becomes thin and demand increases.

However, companies will make new investments only if there is
political stability and political stability can be established
only if the new government can win the public's trust.

A new government will be able to win the public's trust by
making its policies more transparent and accountable to the
people. It will have to disclose to the people all matters
relating to the debt problem and the economic crisis.

The new government will also have to hold routine
consultations with the House of Representatives on how to settle
the problems of bad debts, the corruption of public funds and
criminal acts.

If the people are well informed about the real problems, they
can be expected to be more content in facing economic
difficulties.