Legal uncertainty concerns foreign investors: Expert

JAKARTA (JP): Foreign investors are more concerned by legal uncertainty than any other disincentives to investment, an executive said yesterday.

Saiful Haq, tax division head of Prasetio Utomo Consult accountancy and management consulting company, said foreign investors did not see local income tax rates as a great disincentive.

"They are concerned more with legal certainty than the 30 percent income tax rate," Saiful Haq told journalists during a break at Arthur Andersen's Asia Pacific tax and business advisory meeting and seminars here.

Arthur Andersen is an international partner of Prasetio Utomo & Co, which manages Prasetio Utomo Consult.

Further cuts in income tax rates will not attract more foreign investors as many other countries offered even higher tax rates, Saiful said.

Offering privileges to foreign investors may attract foreign capital, but it is meaningless if Indonesia fails to assure foreign investors of legal certainty, he said.

He did not elaborate on the country's legal uncertainty which, he said, was caused by its legal structure and law enforcement.

Another executive at the meeting said it was common knowledge among foreign investors that Indonesia had a bad record in protecting investors.

Rulings were often inconsistent, with one department's rulings often differing from another department's, she said.

Saiful said that despite some legal infrastructure problems, Indonesia remained attractive to foreign investors.

"Many, many foreign investors want to invest here -- I know that -- considering the size of our market, our economic growth and our increasing purchasing power," Saiful said.

He said every week his company helped prepare about five applications for foreign investment projects for companies from Malaysia, Singapore, Hong Kong, Japan and other countries in the region.

"Malaysia's increased investment here is unprecedented, especially in the agro-industry," Saiful said.

Foreign investment commitments have increased dramatically in the last four years, from $8 billion in 1992, to $23.7 billion in 1994 and to $39.9 billion in 1995. The government has targeted it would approve $27 billion worth of foreign investment projects this year.

John A. Prasetio, president of Prasetio Utomo & Co., said Indonesia's economic fundamentals remained sound although there were concerns in some micro-sectors.

He forecast that Indonesia's economic path would not change much despite a projected major reshuffle in the country's political leadership.

"Everybody seems to be concerned about a leadership change that might change the direction of economic development. However, I believe that any change in the leadership will not bring about many changes in economic development," John said. (rid)