Think ahead: Indonesia can gain without pain

Think ahead: Indonesia can gain without pain

John A. Prasetio and David Parsons, Jakarta

Amid his crisis talks last week, President Susilo Bambang
Yudhoyono addressed over 700 representatives of Indonesia's
foreign investment community. This large, influential group had
been called together by their foreign chambers, and they were
listening very carefully.

However, this important event with not less than 50 reporters
passed with only limited coverage because the media and the
nation were focused on the current national emergency -- the
plunging rupiah.

Perhaps the media thought that the meeting entitled "Making it
Happen: Building a Better Investment Climate for the Development
of Indonesia" was unimportant because it was not held as part of
the crisis talks. There was no appeal for calm, no air of
emergency or buzz about Bank Indonesia's capacity to save the
day.

They were right, in some respects. There was a sense of
urgency but not emergency. Economic stability was at the heart of
discussions but not the role of Bank Indonesia. The President and
the participants understood very clearly the importance of the
gathering and decided it should happen on a regular basis.

What were they doing? The foreign investors were attentive to
the resolve of the President to take action now on many seemingly
small issues that together would boost Indonesia's investment
climate and give Indonesia a more stable future. Their collective
interest is in defining and solving problems before they become
emergencies. Everybody, including the President, knows that if
these issues are not addressed, Indonesia will have a bigger
problem in the future than the one that surfaced last week.

Amid the panic selling of rupiah assets over the last two
weeks, soul-searching questions from foreign investors came to
light.

Despite the able leadership of the President, why is the
pace of reform so frustratingly slow? Yes, there was a timid
investment recovery in the first few months of the year, but, for
greenfield investment, no big capital inflow has yet come. There
is now a clear realization that it will never come unless the
structural weaknesses in the economy are addressed through
decisive policy reforms. Without investment we will limp from one
crisis to another, we cannot offer jobs or growth and we cannot
stabilize the value of the rupiah over the long term.

In the context of the tough week Indonesia has just been
through, the contrast between crisis meetings on oil and the
rupiah and the meeting the President had with foreign investors
is worthy of note. It reveals our attitudes to the challenge of
securing our future and how we operate in government and
business.

Too often Indonesia moves in and out of the crisis zone. In
reality, the only emergencies that Indonesia should now be
managing are natural disasters. Indonesia, having gained
political stability and the election of a strong leader, should
be thinking ahead and taking decisions for long-term economic
stability and sustainability.

Indonesia should be building a strong climate for investment
to lay down the foundations for 21st century infrastructure, new
factories and equipment and new services. Only this will give
them their jobs and prosperity.

Indonesians should no longer feel that gross or even petty
corruption is the way to get the engines of the government
moving, to achieve justice or to supplement their incomes.
Foreign business visitors should not be hassled at the airport,
the legitimate overpayment of taxes should be refunded without
delay, and the legal framework for private sector participation
in infrastructure projects should be made more transparent and
simple.

The days of burdening our children with debt to sustain our
present lifestyle and burning fuel excessively should be over.

While many of us are still hurting from the 1990s crisis, we
should no longer be nursing our wounds and blaming others. All
the specialists advise that we start a good health regime.
Indonesia can work with foreigners and compete with them if it
sets the rules of the game and abides by them.

What are the interests of foreign investors in Indonesia?
They are no different from domestic investors. They see the
potentials of Indonesian people and Indonesia's vast resources.
They seek a stable economic and political environment. They
survive and grow by making profits. They overwhelmingly want to
make long term commitments in the country -- not take and run.

Like most developing countries, Indonesia does not have enough
domestic savings or the expertise to develop alone. Foreign
investors are, therefore, a means to lighten our debt load by
bringing in significant sums of money, the latest technology and
new ideas for doing business.

They create jobs, opportunities in supporting industries, a
healthy flow of new tax revenues and much-needed export revenue.
They can reduce our foreign exchange needs by producing goods and
services domestically that Indonesia would otherwise have to
import. They can even help us explore for more oil and build
refineries.

But Indonesia must realize that we are in a very competitive
world. Foreign investors have many choices in many other
countries including in our immediate neighborhood. Even our
domestic investors look at these choices.

Foreign investors are not asking for any more than any citizen
or any domestic investor should have. They are not asking for
anything more than they can get in successful neighboring
economies.

Of course, a stable macroeconomic climate including a stable
rupiah is crucial. But on the ground, when starting their
operations and in their day-to-day operations their interests are
very basic. They seek timely government decisions and
implementation without corruption and endless red tape, legal
certainty with due process and without favor and a fair and
transparent tax system. They want labor laws under which good
workers can be hired and rewarded rather than laws that treat
good and bad workers in the same way.

Right now, our rules of the game do not measure up. They
neither serve our interests nor safeguard the foreign investors'.
They are not implemented efficiently and transparently.

The present problems with oil and the rupiah will require hard
decisions and quite a lot of pain before they are solved because
we kept putting off these "hard" decisions. This provides ample
evidence as to why the President should reenergize his economic
team to be more focused on executing the reform agenda to regain
the confidence of private investors and to open the way for the
return of the Indonesian money now parked overseas.

We have a chance to move now on building the right investment
climate to secure our development without the need for hard
decisions, without pain and without an emergency. The President
knows this. He deserves the support of the whole country.

John A. Prasetio is Vice President of Kadin Indonesia and
Head of its International Cooperation Department. David Parsons
is Senior Advisor to Kadin Indonesia.