Legal uncertainty plays part in FDI decline: Theo

Legal uncertainty plays part in FDI decline: Theo

Dadan Wijaksana, The Jakarta Post, Jakarta

Foreign direct investment (FDI) approvals for the first five
months of the year has fallen by almost 60 percent over the same
period recorded in 2001, failing to keep up with the recent
steady signs of rising investor confidence.

Data from the Investment Coordinating Board (BKPM) showed that
as of May 30, FDI approvals reached US$1.67 billion spread over
402 projects, a far cry compared to the $3.98 billion posted
during the same period last year.

Although BKPM Chairman Theo F. Toemion attributed the sharp
decline to accumulated problems lingering in the country, he also
admitted that legal uncertainty had played a significant part in
diminishing foreign investor confidence.

"Even before the Manulife case erupted, the international
community very interested to see how Indonesia honored legitimate
contracts and how the law was being upheld.

"... So, the efforts to lure FDI will always be hampered if
we're not serious about legal matters," Theo told reporters on
Thursday on the sidelines of a hearing with the House of
Representatives' Commission V on trade and industry.

Theo was referring to the much-debated verdict by the
Commercial Court declaring bankrupt the local unit of Canada's
Manulife Financial Corp., PT Asuransi Jiwa Manulife Indonesia
(AJMI).

Despite the fact that the legal process is still following the
company's appeal to the Supreme Court, the controversial ruling
has aroused controversy, and even suggestions of wholesale reform
in the country's legal system to provide protection to foreign
investors.

Theo deplored the fact that such an incident could occur just
as the country was starting to see signs of improving confidence,
as evident in the significant rise in the rupiah against the U.S.
dollar, and in the capital market.

"... it was hoped that the recent strengthening of the rupiah
and a bullish (stock market) index would generate higher capital
inflows. Now, they're going to wait for positive signals on how
we handle these causes celebres, like Manulife, for example,"
Theo added.

The country's capital and financial markets have been on the
rise since the start of the year, mostly due to the government's
commitment to its economic reform programs, which were believed
to be beginning to entice capital inflows back into the domestic
market.

However, unlike such short-term investments, direct investment
is seen as having a bigger impact on stimulating economic growth.

So far, the attempts to stimulate direct investments, both
domestic and foreign, have been relatively fruitless.

FDI approvals have been declining ever since the country
lurched into the 1997-1998 crisis, in accordance with a loss of
the appetite for investment on the part of foreigners due to
various problems, notably security disturbances, economic and
political instability, and legal uncertainty.

Last year, FDI approvals dropped by 41.5 percent to $9.02
billion compared to the previous year.

As for domestic investment, the data also showed a drop in
approvals during the January to May period from Rp 12.7 trillion
in 2001 to Rp 9.4 trillion this year.

For 2001, domestic investment amounted to Rp 58 trillion while
foreign investment reached $9 billion.

The BKPM data also revealed that the most popular sectors
among foreign investors during the period were trading, with 171
projects, services, with 53 projects, the machine, basic metal
industries and electronics sector with 28 projects,
transportation and telecommunications with 23 projects and the
textile sector with 16 projects.