Mon, 02 Jun 2003

`Korean investors reluctant to enter RI'

Evi Mariani, The Jakarta Post, Jakarta

South Korean investors remain reluctant to commit significant amounts of new money to Indonesia due to lingering problems that make the investment climate here unfavorable, according to an expert.

"I think there won't be any new South Korean investment in Indonesia this year," Lee Seong-Soo, director of the Korea Trade Center (Kotra) at the Embassy of the Republic of Korea in Jakarta, told The Jakarta Post on Thursday on the sidelines of a trade forum.

He said some labor-intensive South Korean companies like textile and garment makers, shoe producers and toy makers were in fact considering relocating their operations here to other countries in the region.

South Korea is the seventh largest foreign investor in Indonesia. Last year, South Korean investment here amounted to US$369.8 million, slightly higher than the $369.6 million in 2001.

The flow of foreign direct investments into Indonesia has been slow over the past several years due to a host of problems, including lack of security, poor implementation of regional autonomy, a labor law that is unfriendly to business and poor infrastructure.

"The investors keep saying to me that the circumstances have gotten worse, as they see labor movements rising," Lee said. "Moreover, they see the new labor law, which requires employers to pay bigger wages, as a big burden."

"They are eying China and Vietnam as new locations," he said, but quickly added that because relocating factories was difficult the South Korean companies would not be leaving Indonesia any time soon.

There are about 230 labor-intensive South Korean companies operating in Indonesia, employing some 500,000 workers, according to the latest data from Kotra.

Separately, University of Indonesia economist Bambang Brodjonegoro said many foreign investors were putting their investment plans on hold until after the results of next year's elections.

"They first want to see what the new government will be like, what the new government's attitude toward foreign investment will be," Bambang said.

He said that aside from political concerns, investors were also discouraged by the limited power supply in the crowded Java- Bali power network.

"Currently, almost every industrial operation has to have back-up generators, which are quite costly. Nowadays, rotating blackouts by PLN (the state electricity company) have made generators even that much more necessary," Bambang said.