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)