RI foreign divestment hit $3.3b: UN report

RI foreign divestment hit $3.3b: UN report

JAKARTA (JP): The flow of foreign direct investment to
Indonesia suffered a deficit of US$3.3 billion in 1999, higher
than the deficit of $350 million in the previous year, according
to the United Nations (UN) World Investment Report 2000.

Explaining the figure, economist Hadi Soesastro of the Centre
for Strategic and International Studies (CSIS) said that the
figure showed that the foreign capital outflow from Indonesia
exceeded foreign capital inflow by $3.3 billion.

The report said that foreign investment in Indonesia reached
$4.6 billion in 1997 but the financial crisis, which hit the
country at the end of the year caused the inflow of foreign
investment to fall into deficit in the following years.

"In 1999, only three countries recorded foreign net
divestments (net outflow), Albania, New Zealand and Indonesia,"
he said in a media meeting during the launching of the report.

According to him, improving Indonesia's foreign investment in
the near future would be difficult.

"We know why foreign investment dropped: political and legal
uncertainties," he said, but added that foreign investors feared
most the lack of security here.

"It (foreign investment inflow) cannot be improved through
roadshows. Investors don't want to hear talks, they want to see
what's happening," he said.

However, Indonesia also recorded a rise in foreign investment
through mergers and acquisitions (M&A), according to Hadi.

He estimated that this year M&A would reach over $1 billion
from last year's $300 million.

Hadi said the boost came mainly from large deals. Early this
year the Indonesian Bank Restructuring Agency (IBRA) sold its
shares at PT Astra International for around US$506 million to the
Singapore based Cycle & Carriege Ltd.

"It was just one or two big deals, Astra was a big deal, but
afterwards not many followed," he said.

He said foreign investors once lined up to invest here, but
got tired and left when Indonesia's investment climate failed to
improve.

At present, he said, Indonesia was so unattractive that IBRA
must sell its assets at a very low price because of the high risk
premiums.

Meanwhile, the United Nations Conference on Trade and
Development (UNCTAD), which issued the report, predicted foreign
direct investment (FDI) this year to exceed the $1 trillion
level, after reaching $865 million last year.

"Cross-borders mergers and acquisitions, including the
purchase by foreign investors of privatized state-owned
enterprises, are driving the foreign investment volumes to new
records," UNCTAD secretary general Rubens Ricupero in a press
statement.

In 1999, FDI into developed countries hit $636 billion from
$481 billion the year before, while FDI into developing countries
rose to $208 billion from $198 billion in the year before, the
report said.

It said that FDI became the largest source of external finance
for many developing countries, which during the crisis found FDI
more stable than portfolio investment and bank lending.

"The dramatic feature of recent trends in FDI is the
continuing high levels of growth in M&As. These have risen at an
annual rate of 42 percent over the past 20 years," it said.

The report said that the search for new markets, synergy, and
diversifications among others motivated the rise in M&As, which
also reflected a change in the global economic environment.

"International production by transnational corporations -
numbering 63,000 today, with approximately 700,000 foreign
affiliates - now spans virtually all countries and economic
activities, rendering it a formidable force in today's world
economy," Ricupero said.

Based on the report, the world's top 100 non-financial
transnational corporations, control over $2 trillion worth of
assets and employ over 6 million people.

The report cited that in 1998, the U.S. General Electric with
128.6 billion in foreign assets, held the top position among the
world's 100 largest non-financial transnational corporations
ranked by foreign assets.

Following are General Motors of the U.S. with $73.1 billion
and the Dutch oil and gas company Shell with $67 million. (bkm)