Savings-investment gap needs to be reduced: Emil

Savings-investment gap needs to be reduced: Emil

JAKARTA (JP): Former cabinet minister Emil Salim suggested
yesterday that the government improve Indonesia's investment
climate by attaining clean governance and creating savings-
mobilization instruments to reduce the savings-investment gap.

Speaking at a seminar entitled "Asia Pacific Exchanges in the
Borderless World," Emil quoted a World Bank report which
estimates Indonesia's annual gross investment to be about 30
percent of the country's gross domestic product (GDP), while
putting gross savings at 27.3 percent of GDP, leaving a savings-
investment gap of 2.7 percent of GDP.

He said the country's savings-investment gaps have been
covered up by significant capital inflow, either through official
development assistance or direct private investment.

"Official development assistance, however, is bound to decline
because Indonesia is gradually moving to the upper class of
middle income countries," Emil said. "And direct private
investment is facing fiercer competition from new emerging
markets, such as China, India, Vietnam and Cambodia."

Indonesia has revised its investment target for the current
five year development plan period, which will end in March 1999,
to Rp 815 trillion (US$358 billion) from the original target of
Rp 660 trillion, to attain economic growth averaging 7.1 percent
per annum.

To succeed amid fierce competition for foreign investment,
Emil said, Indonesia must strive to enhance its domestic
investment climate by forcefully adopting clean governance.

"Indonesia has now come to the point where irregularities,
corruption, bribes and similar traits are becoming the major
factor hampering its competitive position," he told the seminar,
which was organized by the Jakarta Stock Exchange (JSX) and
attended by more than 500 local and foreign executives.

Emil served as a cabinet minister from 1971 until 1988. He was
state minister of administrative reform and vice chairman of the
national development planning board from 1971 to 1973,
transportation minister from 1973 to 1978, state minister for
development and environmental management from 1978 to 1983 and
state minister of population and environment from 1983 to 1988.

Emil suggested yesterday that the government consolidate and
create as many instruments as possible for mobilizing domestic
savings.

"In this context, the government, most significantly, needs to
consolidate and revitalize the Indonesian capital markets," Emil
said.

Indonesia currently has two capital markets, the JSX in
Jakarta and the Surabaya Stock Exchange (SSE) in Surabaya, East
Java.

Emil said that the Indonesian capital markets are suffering
from serious weaknesses, such as low liquidity and low market
capitalization, compared with other exchanges in the region.

The number of domestic investors is only about 200,000, he
said, while Malaysia, Thailand, India and China already have
millions of domestic investors.

With such a low domestic participation, the capital markets
essentially float on foreign investors, which account for up to
70 percent of average trading transaction value in Indonesia, he
added.

"It is not an Indonesian capital market if it is dominated by
foreign investors," Emil said. "The time is ripe now to move
forcefully in the development of a viable Indonesian capital
market."

Following the passing of the capital market bill into law by
the House of Representatives on Monday, Emil said, the basic
legal framework is already in place.

He said that the automation of trading on the JSX, which was
launched by President Soeharto yesterday, represented the
fulfillment of an important prerequisite for strong JSX growth.

Emil also called on the central bank, the finance ministry and
the capital market supervisory agency to strengthen their
cooperative efforts to boost equity investment, saying that the
central bank's interest rate policies have a significant effect
on the volume of transactions on the capital markets.

State enterprises can also boost local capital markets by
selling their shares on the domestic markets, Emil said, even
though the limitations of the local markets' liquidity might make
meeting the needs of state enterprises difficult.

"However, by selling (the state companies') shares abroad, it
(the government) does not strengthen Indonesia's domestic
economic capacity. And it also leaves the second class
enterprises to operate on the domestic capital market, while the
strong and the bold are going international," Emil added. (rid)