RI attractive, but has many problems: Australian experts
RI attractive, but has many problems: Australian experts
Johannes Simbolon The Jakarta Post Sydney
Despite the numerous problems now confronting the country, Indonesia remains attractive to many foreign investors. But, Indonesia has to work hard to revive investors' confidence before they are willing to come back into the country with the same amount of enthusiasm they demonstrated for several decades prior to the economic crisis, Australian economist and investor said.
John Edwards, chief economist of the HSBC Bank Australia Limited said here on Monday that honoring contracts with foreign investors was a key step for the Indonesian government to revive investors' confidence.
"In order to restore Indonesia's status in the global economy, it needs to convince the world that contracts are enforceable and the government is acting in the way of welcoming investors," Edwards said here in a workshop with Indonesian journalists.
Edwards did not specify the contracts in question, but many investors, particularly in the energy, power and mining sectors, have often criticized the Indonesian government for failing to honor their contracts.
In the wake of the 1997 financial crisis, the Indonesian government suspended most of the 27 contracts between independent power producers (IPP) and state electricity company PT PLN as part of the retrenchment measure to deal with the economic crisis. Some of the IPPs took the case to international arbitrators who later ordered the Indonesian government to pay compensation to the investors.
Last year, the government revived all the contracts to avoid more arbitration proceedings and to ensure power supplies in the future.
In the mining sector, dozens of foreign investors have been complaining for years over the Forestry Law of 1999, which bans them from developing open pit-cut mines in protected forests, and the Ministry of Forestry's decision to designate the contract areas as protected forests. The investors regret the fact that the policy came years after they had conducted explorations. They accuse the government of failing to respect their contracts of work.
Due to Indonesia's failure to enforce the contracts, Edwards said, investors still prefer to stay away from Indonesia. This is despite the government's recent achievement in stabilizing the rupiah and restructuring the financial sector.
"Indonesia has been punished by investors the same way they rewarded it with a superior economic growth for 20 years prior to the economic crisis," Edward, who is the former principal economic advisor to former Prime Minister Paul Keating, said.
Also speaking in the same forum, Bruce Munro, president of PT Thiess Contractors Indonesia, the subsidiary of Australian construction giant Thiess Pty Ltd., said the Indonesian government's unwillingness or inability to maintain law and order as well as rampant corruption were among the main pushing factors for investors.
"We believe corruption will still exist in Indonesia in 2010," Munro said.
The increasingly active labor unions have also added to the troubles, while the existing labor law fails to address labor unions' demands and the government is unwilling to take actions against unlawful union actions, he said.
"In fact, Minister of Manpower and Transmigration (Jacob Nuwa Wea) supports unions," Munro said.
The implementation of regional autonomy, which investors believe would create a better investment climate in Indonesia in the long term, still causes a headache for investors as regional governments abuse it to enrich themselves,according to Munro.
The fear of terrorism threat and the nightmarish memory of Bali bombing keep haunting investors in Indonesia and make them feel insecure.
Thiess is one of the largest construction firms now operating in Indonesia's mining, energy and telecommunication sector with the existing contract value totaling US$2.7 billion.
Both Edwards and Munro however maintained that despite all the problems, investors believe that Indonesia still has a lot of advantages to lure back international investors, compared to many developing countries.
"It (Indonesia) is not like for example Nigeria which also has natural resources but nothing else. No agriculture, no manufacturing, no disciplined workers, no education," Edwards said.
Edwards said investors appreciated the fact that Indonesians consider education as a high value. Investors also found it attractive that Indonesia has a diverse industrial base, has managed to carry out a transition from agriculture to industry and has recorded 20 years of superior economic growth until the 1997 economic crisis, according to Edwards.