SBY told to scrap high-cost economy

Ridwan Max Sijabat, The Jakarta Post, Jakarta

The likely president-elect Susilo Bambang Yudhoyono must uphold legal certainty and security, and phase out the high-cost economy to encourage investment and create jobs, investors and employers say.

They said the next government must work to restore security and guarantee legal certainty if it wishes to attract foreign investment.

Indonesian Employers Association secretary-general Djimanto said Indonesia was no longer a major destination for foreign investors due to legal uncertainty, security problems, rampant illegal fees and a complicated and corrupt bureaucracy.

He said direct foreign investment in Indonesia had slumped in the first semester of 2004 from the same period in 2003, because the country was no longer considered an attractive investment destination.

"Many foreign companies have suspended investment in Indonesia because of legal uncertainty and security problems, including terror attacks. Worse, many investors have pulled out of the country because of the high-cost economy, which has left them unable to compete with other countries' products," he said.

Apart from legal certainty and security, the next president will also have to deal with the country's poor infrastructure

"Repair all damaged the infrastructure in the regions, otherwise more investors will relocate their investments to other countries, causing more layoffs," Djimanto said.

In the latest World Investment Report, Indonesia was ranked 138th out of 164 investment destinations across the globe. The absence of security and legal certainty, damaged infrastructure and a high-cost economy were cited as the reasons for Indonesia's lack of competitiveness compared to other Asian countries.

Former manpower minister Bomer Pasaribu said Indonesia should follow the lead of Vietnam, which has become more competitive than Indonesia in attracting investment by maintaining security and legal certainty, developing its infrastructure and providing incentives for foreign investors.

He said the pledges made by Susilo during the election campaign were a political contract that he had to implement.

In outlining his economic program during the campaign, Susilo said he wanted to develop a employment-friendly economic policy to help resolve the problem of unemployment.

Almost 10 million people nationwide are unemployed, while 35 million are underemployed, meaning they work less than 35 hours per week.

Bomer said Susilo and his Cabinet had to design a new manpower plan that was investment-friendly and encouraged people to create small and medium-sized companies to create more jobs.

Susilo's government will need to raise economic growth to 7 percent annually in order to create about 17,500 jobs annually. If that works, unemployment could be solved within five years.

"But it is impossible for this to occur under such poor political, social and economic conditions," Bomer said.

Djimanto and Bomer were both of the opinion that besides attracting more foreign investors, the next government must develop the informal sector, especially the agricultural sector, spur labor exports and create more development projects that are financed by the state budget.