Manulife case, another blow to foreign investment

Novan Iman Santosa and Yogita Tahilramani, The Jakarta Post, Jakarta

Foreign investors are saying that the controversial Manulife ruling is further proof of how weak the country's legal system is and is yet another blow to the investment climate here.

"It happened not only to Manulife but also to local companies as well," Tsutomu Nakagawa, chairman of the Jakarta Japan Club Foundation, said, "But Manulife happens to be a huge foreign investment company."

Elly Hutabarat, chairwoman of the Indonesia-Australia Business Council, said the Manulife case was a test case for the Indonesian government.

If the government could eliminate such irregularities, it could attract more investors, she said, adding that countries like Malaysia, Thailand and Vietnam not only offered investment facilities but also legal certainty.

"We will be left behind by those countries if we fail to do something," she said.

However, both agreed that the Manulife case would deter new investors but would not cause foreign investors to flee the country. They have urged the government to improve the legal system.

The Commercial Court declared PT Asuransi Jiwa Manulife Indonesia bankrupt on June 13 in a controversial decision that has strained relations between Canada and Indonesia.

Observers say they believe the case has further damaged investor confidence in the country due to legal uncertainty.

The Ministry of Justice and Human Rights has launched an investigation into the possibility of bribery playing a part in the Manulife bankruptcy ruling. The finance minister has acknowledged that the company is solvent.

According to Elly, Australian businesses already established here would not leave but existing investors would think twice about expanding their investments here.

"They will be very careful in expanding their operations here without legal certainty. The Manulife ruling really discourages new investment," she said.

Nakagawa said the government had to solve this issue because foreign investors were "losing their appetite" to come here.

"The Investment Coordinating Board (BKPM) is working hard to attract investors, but with legal uncertainty at home there are a lot of things to be worked on," Elly said.

Earlier on Thursday, BKPM chairman Theo F. Toemion revealed that foreign direct investment (FDI) approvals for the first five months of this year had fallen by 59 percent over the same period in 2001.

As for the Japanese, Nakagawa said that Indonesia still played an important role in Japan's economy and had a special status in its investment realm.

However, Indonesia should improve its services if it wanted more investment to flow in, he said.

Nakagawa said he was sure gross domestic product in Indonesia could grow 5 percent or 6 percent if services were improved otherwise it would stay at the current rate of about 4 percent.

"The difference may seem to be small, only 2 percent, but it means a lot as it could create millions of jobs," he said.

Some 40 million people are unemployed in Indonesia.

Nakagawa warned Indonesian authorities to improve the country's ability to compete with other countries, especially China.

"Foreign investors need a smooth clearing system at the customs and excise office. China has implemented a 24-hour system ensuring fast and reliable customs clearance," he said, "While here, you hardly can see the customs officers."

Quoting a yearly poll, Nakagawa said that 30 percent of Japanese investors preferred Indonesia five years ago compared to last year's figure of only 14 percent.

"Now 82 percent of new Japanese investors prefer to go to China," he said.

Indonesia had had a better recovery than Malaysia, Singapore and Thailand after the currency crash, he said, but it was left behind after some three or four years, especially when the IT sector recovered.

"The gap is getting wider now with Indonesia recovering slowly," he said.