Time running out, foreign investors warn Susilo

Kornelius Purba, The Jakarta Post/New York

Less than two weeks before completing his first year in office, foreign businesspeople reminded President Susilo Bambang Yudhoyono about the danger of the rising fuel subsidy and that time is running out for him to deliver the economic promises to those who voted him into office last year.

While fully acknowledging that Susilo's economic policy is going in the right direction and praising his hard work, they also emphasized that the government would not be able to achieve its economic growth target unless it has the determination to take bold economic measures.

They also pointed to the fact that the value of foreign direct investment commitment in the first semester of this year was lower than the same period last year.

Speakers in the Indonesia Global Investment Forum here on Thursday morning pointed out that unless the government immediately reduces its huge fuel subsidy and stabilizes its currency, the country's economy would be in jeopardy as foreign investment would dry up.

"The biggest risk to investment is if the President does not follow through with what he intends to do," said Steven Hess, vice president and senior credit officer of Moody's Investors Service.

"We are really concerned with the subsidy because the money can be used for other purposes," he added.

The President showed that he fully understood investors' complaints by presenting a detailed list of their complaints, starting from corrupt tax procedures, labor problems, poor law enforcement, red tape and lack of good governance and transparency.

He argued that he has worked hard in combating the negative aspects but acknowledged his government was still far from its target. "I fully realize your problems," the President told the audience.

Hess observed that the central bank, Bank Indonesia, was very reluctant to raise the interest rate because with a high interest rate the monetary authority fears it will affect investment because the lending rate will also rise. However higher economic growth is needed in order to maintain social stability, he said.

"But finally they have and they are moving in the right direction by raising the interest rate. Inflation is relatively high and therefore the higher interest rate will help to stabilize the currency," Hess said.

Irene Cheung, the head of Asia Sovereign and FX Strategy of ABN AMRO Bank NV, Keith Rabin, president of KWR International also voiced similar concern over the danger of the government's indecisiveness in rising fuel prices and stabilizing the rupiah. They believe the country's economy could grow if the government could resolve the major obstacles that hamper economic growth.

Rabin cited transparency and tax as among the main problems faced by foreign investment, and added if the government could overcome the problems of transparency and predictability "they can expect more investment".

Martin King, president of clove cigarette giant Sampoerna, which was taken over by the American cigarette company Philip Morris several months ago, gave a more encouraging picture of Indonesia.

He believes the government has done many concrete measures to combat corruption and to create a more conducive investment climate.

"Actual risk is actually low. But the perceived impact is higher than the actual risk," the executive said.

King however also expressed his concern over the weakening rupiah. "Currency is an issue for us, because we are doing business in rupiah," he said.

Earlier in the morning, the President visited the New York Stock Exchange (NYSC) and witnessed the signing of Memorandum of Understanding between the Jakarta Stock Exchange and the NYSC. He was also given the honor of opening Thursday's trading session.