Manulife case, another blow to foreign investment

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.