Riots may affect RI investment, economists say

JAKARTA (JP): Economists have raised concerns about investment in Indonesia following last weekend's riots, but differed on the magnitude of the impacts.

Sri Mulyani I. Sumartono, an economist at the University of Indonesia, predicted that the riots will deteriorate the country's balance of payments and affect the investment climate.

"The immediate impact of the riots will be on our balance of payments because of possible massive short-term capital outflows," Sri said before speaking at an auto seminar yesterday.

Sri noted that massive capital outflows -- especially of short-term funds -- is inevitable following the riots, as short- term funds move easily across country and they are sensitive to both economic and political issues.

"In this condition, the capability of Bank Indonesia to manage the exchange rates of the rupiah (against the U.S. dollar) depends on the amount of its reserves to counter such short-term capital outflows," Sri said.

Sri also predicted that the rate of the realization of investment commitments, which currently stands at 50 percent for foreign investments and 40 percent for domestic investments, will drop further considering that political and macroeconomic stability serve as the necessary conditions for investment.

"Investors will not dare to take the political risks ... It will be safer for them to wait after next year," Sri said.

Analysts from around Asia were quoted by AFP as saying that they did not expect the riots or any political uncertainty in the run-up to Indonesia's general elections in mid-1997 to cause any long-term damage to the investment climate. But they said some caution prevailed.

"The fundamentals have not changed at all -- Indonesia remains an attractive investment," Dennis de Tray, the World Bank's chief representative in Indonesia, said.

"I will be very surprised if there are more than a few bumps on the road. I don't expect the road to change direction."

Rioters burned 10 buildings and torched vehicles in Jakarta on Saturday following clashes between the conflicting members of the Indonesian Democratic Party. By yesterday, however, the city was mostly peaceful, although there was tension with troops out on the streets.

Investors from around Asia tended to play down the rioting as a hiccup in one of the most attractive countries in the region in which to invest.

Indonesia has enjoyed strong growth and political stability since President Soeharto took over in the mid-1960s. Rising incomes among its 200 million people offer good market potential, but labor remains comparatively cheap, analysts have said.

Foreign investments totaled $20.9 billion in January-June this year against $19.4 billion in the 1995 period, the government said earlier this month.

"I believe it (the riots) may be just a temporary thing," said Arashi Sasaki, chairman of the Japan Mining Industry Association, in Tokyo. "I don't think (Japanese investment) will be disrupted."

Japanese auto manufacturers -- who dominate the Indonesian market -- also dismissed the violence as a one-off occurrence, although two car showrooms were gutted during the violence.

"We have no change in our program for boosting output in Indonesia," said a Toyota Motor spokesman in Tokyo, referring to plans by the company's Indonesian joint venture to raise output to 150,000 vehicles by 1998 from the current 77,000.

"If you look beyond the headlines, economic factors are strong," said Steve Taran, head of credit research at Lehman Brothers in Hong Kong. However, he said he would expect to see more periods of instability in the short term. (rid)