Political tension seen as no problem

JAKARTA (JP): The warming political situation ahead of the general election will not have a big impact on foreign businesses in Indonesia, observers have said.

The director of the Indonesian Netherlands Association, Chris Smith, said Tuesday most Dutch businesses in Indonesia felt the current political situation had little effect on their decision- making.

He said a survey the association conducted last August showed that only 10 percent of Dutch business leaders were reluctant to expand their investments after last year's July 27 riots in Jakarta.

"In other words, 90 percent did not regard the political position as having any significance for decision-making. It shows that at that time Dutch businessmen were still very confident about the business climate here," Smith said on the sidelines of an association business luncheon.

He said he was confident the situation would continue as Indonesia's rapidly growing economy became less dependent on political developments.

Smith disregarded critics who said government inconsistencies were a hurdle to investment flow.

"Inconsistencies are part of a developing society and I think the government is also aware of that ... I think the government is trying hard to adjust to all the needs in the country," he said.

Smith said it was understandable if business slowed over the next two months during the election period.

"That's normal and happens everywhere. So, there is still absolute confidence in the economy," he said.

The chairman of Lippo Group, Mochtar Riady, said recent riots would not cause panic among large national corporations.

Political violence shook parts of the Central Java towns of Pekalongan, Rembang and Temanggung last week. Nine people were reportedly killed in the riots.

The riots involved supporters of the Moslem-oriented United Development Party and the dominant Golkar -- two of the three parties contesting next month's elections.

Mochtar said he was convinced the situation would not cause much capital flight.

"I don't think there is any feeling of panic and it is unlikely that capital flight will occur," he was quoted by the Bisnis Indonesia daily as saying.

He said the general election would not affect foreign investment flows to Indonesia.

"Judging from the flow of foreign investment which has continued at a high rate, I think this indicates that investors are very certain of Indonesia's economic fundamentals," he said.

Analysts have said the riots indicated growing political, social and economic dissatisfaction.

The chairman of the Confederation of Netherlands Industry and Employers, JC Blankert, who spoke at Tuesday's business luncheon, said unrest could be also incited by employers' inability to meet workers wages as happened in every country.

"I think certain rises in wages are always a problem for any employer, all over the world ... If you don't expect the rise you don't calculate it in the prices of your products," he said.

He said that in the Netherlands collective labor agreements were fixed for one to two years, during which no wage rises were possible.

"We look to inflation and productivity and never pay workers above those figures because then you get in trouble," he said.

Earlier this month many American businesspeople said Indonesia's political situation was not only the main factor that could affect foreign businesses.

They said corruption and policy inconsistencies were also possible hurdles.

American businesspeople said Indonesia could become one of the world's biggest economies and a developed country more quickly if corruption was eliminated.

Last month, the Hong Kong-based Political and Economic Risk Consultancy Ltd rated Indonesia as Asia's most corrupt country. (pwn)