RI better than China, Vietnam for investment

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.