Ministers say investment climate improving

Riyadi Suparno, The Jakarta Post, Tanjung Benoa, Bali

Indonesian economic ministers have assured Indonesian and Australian businesspeople that the improving relations between the two countries will serve as a "window of opportunity" for them to start or even increase their business activities in Indonesia, but many of them are still deterred by the high cost of doing business here.

Coordinating Minister for the Economy Aburizal Bakrie and Minister of Trade Mari E. Pangestu told the businesspeople gathered here for the two-day Australia-Indonesia Business Conference that they must utilize the momentum provided by the improving relations to further broaden relations, or else others would get in first.

Both ministers painted rosy pictures of doing business in Indonesia, saying that the investment environment was improving quickly, and that the government was working hard to lower investment and transaction costs.

Gross domestic product, for example, had surpassed the pre- crisis level, and the government was aiming at 5.4 percent growth this year and an average of 6.6 percent growth over the next five years.

"As purchasing power has been restored to the pre-crisis level, this means plenty of opportunities," Mari told the assembled businesspeople.

With increasing purchasing power, the retail sector should prove more attractive to Australian businesses, which had thus far concentrated on the mining and energy sectors. This sector would also continue to be attractive, especially given rising commodity prices.

Other areas that would be of interest would be the service sectors, such as health, education and banking.

Another sector that merited special attention was infrastructure, which Australian firms rarely considered, Aburizal said.

He noted that the government was offering a total of 91 infrastructure projects, with many of them being put out to tender, including toll road and water projects. These projects would need a total investment of over US$100 billion.

"Our plan is that more than 60 percent of this funding will come from foreign investors like you," Aburizal said.

Aburizal explained that the government planned to offer further infrastructure projects worth more than $50 billion in November.

The businesspeople, however, gave a guarded welcome to the offers. Many of them complained about the continuing high cost of doing business in Indonesia, mostly caused by illegal charges, extortion and simple corruption.

Bill Sullivan, a director of PT CB Indonesia, for example, asked ministers about the progress made in reducing the high cost of customs clearance. He also asked whether the government would entertain the idea of contracting a private firm to take over customs clearance duties, like Soeharto did from the second half of the 1980s until the mid-1990s.

Similarly, D. Setiaji Hadiprayitno, a manager at Petrosea, asked about how the government would deal with high costs at the country's ports and corruption in general.

J. Scott Younger, a commissioner of Glendale Partners, raised the issue of legal certainty, especially in the infrastructure sector. The government has promised to expedite the issuance of 11 regulations on infrastructure. And yet, only a few have been delivered so far, including those on electricity, toll roads and water.

He also noted that nationalistic verdicts by the Constitutional Court, especially on the Electricity Law, did not bode well for the government's efforts to attract foreign investors to the infrastructure field.

"The Constitutional Court can screw things up ... My investor friends in power are saying, 'Forget the power sector in 2005. Let the government sort it out, and we will comeback afterwards.' So, they are waiting. But this is a crucial issue for Java, where there is no spare capacity at all," he said.

And now, the Constitutional Court was hearing a challenge against the constitutionality of the Water Law. And if the court annulled that law, it would spook investors even more.

Responding to the questions, and also complaints, both ministers gave assurances that the government was aware of the problems and had taken various measures to address them.

The government had, for example, established a joint team to seek ways to reduce costs at Jakarta port, through which most of the country's imports and exports passed through.

"We will wait for the findings later this month, and then we will take action based on them," Aburizal said.

On the promised infrastructure regulations, Mari explained that the government was now finalizing a draft regulation on land acquisition for infrastructure development, and revising two presidential decrees on public-private partnerships in the infrastructure field.

In addition, the government was currently holding discussions on new regulations governing airports, air transportation, sea transportation, public safety and security, and railway infrastructure. Mari also explained that the new investment bill was now ready and would be sent to the House of Representatives for debate in May.

The bill will be support foreign investment by putting foreign and domestic investors on a par, getting rid of the divestment requirement and establishing a disputes settlement mechanism.

"So, we in the government are aware of the problems and people's needs, and we are moving to address them. But this will take time. We are determined to address them and will eventually prove to the public that we are making progress," she said.