Messy politics may 'delay investor return to Indonesia'

Messy politics may 'delay investor return to Indonesia'

SINGAPORE (Agencies): Hopes for a rush of foreign capital into Indonesia following the June 7 elections are dwindling as it becomes clear the result may begin a long period of political deal making.

Recent opinion polls from Jakarta have shown that none of the major parties contesting the election have anywhere near a commanding enough lead to form a government on their own.

"Any seasoned observer knows this, there will not be a decisive vote for one party or the other. It will begin a period of coalition building and deal making," said Lim Say Boon, director of Crosby Corporate Advisory Pte Ltd in Singapore.

A poll for the June vote published by Tempo weekly on Monday showed the Indonesian Democratic Party of Struggle (PDI-P), headed by Megawati Soekarnoputri, the daughter of Indonesia's founding president -- in front with almost 25 percent.

While Amien Rais's National Mandate Party (PAN) was second in popularity with almost 20 percent, and the ruling Golkar Party, whose presidential candidate is the incumbent B.J. Habibie, had just over 10 percent support.

PDI-P and PAN are two of the three major opposition parties which last week signed an agreement for an alliance to defeat Golkar, for years a political vehicle for former President Soeharto. The third major opposition party is the National Awakening Party (PKB) founded by Muslim leader Abdurrahman Wahid.

Tempo said that its poll was based on 931 replies from 19 provinces. Other opinion polls suggest the three main opposition parties could get more than 40 percent of the vote between them, compared with around 13 percent for the ruling Golkar party.

Under Indonesia's current political system the June vote will elect 462 members of the Indonesian lower house of parliament, known as the DPR. A further 38 members of that house are appointed from the military.

These 500 parliamentarians then sit with a further 200 others to form the MPR, which is the body that will formally elect the president in November.

The extra 200 MPR members comprise 135 representatives from the provincial parliaments and 65 members from groups representing welfare, religious, intellectual, civil service and youth bodies.

From these 700 members a coalition behind a single presidential candidate will have to emerge, and it's clear that if each major party wins up to a third of the elected seats, courting the appointed members will become critical.

"The next few months after the election, when the parties jostle to get their candidate up (for president), is not going to be particularly stable," Lim said.

Initially many analysts had expected that a peaceful election campaign would serve to reassure foreign investors.

"If for instance the next two weeks (to election day) go quite smoothly, whoever comes into power, and the transition is fairly smooth, then I think we'll see the market over there take off very, very strongly," said Song Seng Wun, regional economist at G.K. Goh in Singapore.

But Lim said: "If a candidate from a minority party such as Golkar emerges through coalition building and buying off the votes from the other minority parties, to have their candidate as the head of state that will be a very unsatisfactory approach.

"If they work past this and get a candidate that is acceptable to the three big opposition parties, then you will see funds start returning again," he added.

However analysts believe any return of capital after the election is likely to be very selective.

The vast amounts of money linked to the Indonesian Chinese community will only return if it appears the opposition has the upper hand, Lim said. "They (Chinese investors) see Megawati as not being anti-Chinese."

For stock market investors though, analysts expect local investors to return if there is a peaceful passing of the election but international funds are likely to wait longer.

As far as debt financing goes the view is that this could be even further away and will likely depend less on the political outcome than the successful completion of the on-going debt restructuring process.

IMF optimistic

In a related development, a senior economist of the International Monetary Fund said in Singapore on Tuesday that Indonesian elections in June should have little impact on the country's economic reform program.

"I perceive no great doubts in Indonesia about the course they are pursuing, about the justification for economic reforms that have been put in place," Flemming Larsen, IMF deputy director of research, said at a briefing in Singapore.

A domestic recovery is beginning and "hopefully will be confirmed when more data becomes available," he said.

"One must hope, of course, that the new parliament...will continue to make these reforms possible," Larsen said. "If they're implemented, I think Indonesia stands a good chance of joining the rest of the region in the recovery that we are expecting over the next couple of years."

In its World Economic Outlook released last month, the IMF forecast a 4.0 percent economic contraction in Indonesia for 1999, following a 14 percent contraction in 1998, and a 2.5 percent growth in 2000.