Legal certainty very important for further investment, ADB says
Legal certainty very important for further investment, ADB says
Urip Hudiono, The Jakarta Post, Jakarta
Indonesia needs to improve legal certainties if it wants to
invite more investment and drive upward its modest economic
growth, the Asian Development Bank (ADB) said.
In its annual report on the region's economic development, the
ADB projected that Indonesia's economy would grow by only 4.5
percent in 2004 and 2005, lagging behind the region's forecast
average of 6.8 percent.
Although this estimated gross domestic product (GDP) growth
would be better than last year's 4.1 percent, the report said, it
would still not be enough to help reduce the country's
unemployment rate, which currently stood at some 10 percent of
the population.
Moreover, as the ADB also predicted export growth of only 3.5
percent during the next two years, as compared with 7.1 percent
in 2003, Indonesia would therefore need to increase foreign
direct investment (FDI) to boost its economic growth, besides
relying on the current increase in consumption and improving
macroeconomic performance.
"There has, however, been no actual increase in FDI due to
poor governance in ensuring legal certainty in the country," ADB
senior economist Ramesh Subramaniam said on Wednesday, during a
media briefing on the report.
Citing data from the Investment Coordinating Board (BKPM), the
report noted that only 38 percent of the US$13.2 billion of FDI
approved in 2003 was realized. In the first two months of 2004,
FDI approvals fell by 66 percent to $805.4 million, from $2.4
billion in the corresponding period last year.
The report explained that the lack of legal certainty arose
from the current tendency of the government to propose simple
legislation in order to expedite its approval, leaving critical
issues to be addressed by subordinate regulations. These
regulations, however, mostly lacked clarity and predictability in
their implementation.
Apart from a lack of clarity in its law and regulations, the
ADB said that Indonesia also lacked adequate law enforcement,
including that for investment project contracts, which further
worsened the country's investment climate.
"The government should ensure that the contracts are respected
and enforced," Ramesh suggested. "It should also prepare a clear
arbitration scheme should any disputes arise concerning the
contracts."
The report further explained that Indonesia was in much need
of FDI to improve its infrastructure, particularly in the
transportation, energy and telecommunications sectors.
According to data from the National Development Planning Board
(Bappenas) quoted by the report, Indonesia needs some $72 billion
for the next five years to improve its infrastructure and achieve
an average annual economic growth of 6 percent.
While the government is estimated to be able to generate some
$40 billion of the needed funds, there would still be an urgent
need to attract investment for the remaining $30 billion or more.
"An improvement in infrastructure would invite more
investment," Ramesh said. "Infrastructure projects would also
create many jobs and contribute to economic growth."