RI better than China, Vietnam for investment

By Hendarsyah Tarmizi

TOKYO (JP): Indonesia is more attractive for direct investment than Vietnam and China even though the two competitors offer cheaper labor costs, says a senior Japanese banker.

"I, therefore, recommend that Japanese companies invest in Indonesia," Norimitsu Inaba of the Asian Development Bank (ADB) told the one-day seminar on the Indonesian capital market held here on Monday.

He said the business conditions here in Indonesia are still much better than those of the two countries.

Inaba, one of main speakers at the seminar, focused his presentation on macroeconomic trends, capital investment and capital market development in Indonesia.

He shared the view that labor costs in Indonesia are higher than those in China and Vietnam but warned Japanese investors that lower labor costs should not be the only factor used to direct their overseas investments.

"The market mechanisms in China and Vietnam have not yet been fully established. The number of private companies is also still limited," he said. He added that the legal aspect of business activities in the two countries is also still very much inadequate.

He said that Japanese companies will not only face difficulties in finding local partners in China and Vietnam but also in maintaining their competitive edge under the market conditions that exist there.

Development

Inaba said that Indonesia is relatively more developed in such sectors as the law and economic management.

Indonesia has succeeded in building business foundations through a number of reforms introduced in the past five years, he said.

Another advance was made in 1993, with economic growth improving as the monetarily tight conditions were eased and domestic demand increased, he said. He went on to say that exports of manufactured goods continued to grow rapidly and, despite slightly higher imports, the trade balance improved.

"The fiscal balance also improved even though the tax effort was undermined to some extent by a decrease in revenue from the oil sector because of lower oil prices," he said.

A less satisfactory development was the rise in the rate of inflation in 1993, but to a large extent this was because of an increase in administered petroleum and transportation prices. The macro-economy remains bright with GDP growth expected to reach 6.7 percent in 1995.

Inaba said that the government's commitment to further deregulate the economy will create a better business climate for both domestic and foreign companies.

Indonesia's experience advantage in making its economy more market-oriented also constitutes an advantage to foreign investors, he said.

Japan is the largest foreign investor in Indonesia, with total investment commitments of US$13.92 billion at the end of 1993. Hong Kong was in the second place, with investment commitments of $5.68 billion and Taiwan in the third rank with investment commitments of $4.04 billion.

Asked if the widely published reports on students' street protests and political situation in East Timor would threaten investors, Inaba said that Indonesia has a good track record in maintaining its political stability.

Commenting the same question, Terry Underwood, a senior officer of Japan's Arthur Andersen, said that the reports of the political unrest in Indonesia was blown up and very much dramatized by foreign press.

Underwood believed that such misleading reports would not affect the inflow of foreign investments in the country.