'Lawless' Indonesia discouraging for investors

'Lawless' Indonesia discouraging for investors

Slobodan Lekic, Associated Press, Pelabuhan Ratu,Indonesia

For nearly two years Ronald De Cost has been laying the
foundations of a seaside resort in this poor fishing village
south of Jakarta. But every time the Canadian businessman pours
concrete, thugs rip it up.

It's not that villagers oppose development or fear an invasion
of tourists. Rather, district political bosses are making a
fortune selling the tungsten-rich black sand they dig up every
night from De Cost's beach, and oppose anything that threatens
their lucrative business.

Last year, 20 toughs attacked De Cost and almost killed him.
Police said they were powerless to protect his property.

"I don't care. I'm determined to build this resort even if it
costs me my life," said De Cost, 54.

But most foreign investors aren't as stubborn. Six months
after President Megawati Soekarnoputri's new administration
pledged to improve the investment climate, capital is continuing
to flee from this increasingly lawless country. Investors,
meanwhile, are few and generally limited to the highly regulated
energy sector.

"It's horror stories like this that are driving investors
away," said Ken Conboy, an analyst with Control Risks Group, a
London-based security consultancy.

Assurances by the government that things are improving ring
hollow. Massive loans by the United States and other donor
nations, designed to bolster confidence in the economy of a
moderate Muslim nation, have not helped attract private capital.

In fact, about 40 percent of the US$3.1 billion pledged to
Indonesia will likely be pocketed by corrupt officials, predicted
an analyst with a major international financial organization, who
spoke on condition of anonymity.

The economy has never recovered from its nose dive during the
Asian financial crisis of 1997-98. The administrations of B.J.
Habibie and Abdurrahman Wahid, which followed the 32-year
dictatorship of president Soeharto, struggled to implement
limited reforms.

Critics say that even those have stalled since Megawati
assumed office in July.

This has caused a vicious cycle, dissipating investor interest
and setting the economic recovery program even further back.

Faced with opposition from entrenched business interests, the
sale of companies the government took over during its $60 billion
bailout of the banking sector in 1998 has virtually ceased,
although Indonesia desperately needs the cash it would generate.

The bailout cost has pushed the country into a huge budget
deficit, estimated at 3.7 percent of gross domestic product,
forcing the government to rely heavily on foreign loans to fill
the gap.

Meanwhile, economic growth continues to slow - from 5 percent
in 2000 to 3.2 percent last year, most of it in the first six
months, analysts say.

Now, influential businessmen and political bosses are lobbying
Megawati's economic ministers to bar foreigners from buying
public companies, hoping to snare them for themselves at a
fraction of their true value.

"The guys at the provincial and district level are trying to
get their slice of a shrinking pie," Conboy said. "Things are so
unstable that everybody is trying to build up their nest egg fast
at the expense of national interests."

The $520 million sale of PT Semen Gresik, the country's
largest cement-producer, to Mexican giant Cemex S.A., was
supposed to be a bellwether of Indonesia's privatization program,
but was blocked by community leaders in West Sumatra. They
opposed the sale of their local cement factory, one of three
Gresik plants, to foreigners.

The government quickly caved in and announced that that unit
would be split off and allowed to operate under local management.

Other asset auctions have faced similar hurdles. Attempts to
privatize the Bank of Central Asia, Indonesia's largest publicly
owned company, has been stalled for months.

In Pelabuhan Ratu, De Cost has given up trying to get the
authorities to protect his land. On the advice of a sympathetic
law enforcement official, he has hired a rival gang to defend his
$4 million investment.

"Anybody who comes to this country to invest must be out of
his mind," he said.