Wary investors tell government to clear up autonomy uncertainty
JAKARTA (JP): Inadequate preparations for decentralization of political and economic power combined with the slow pace of debt restructuring and asset sales are hindering new investment and economic recovery, businesspeople, analysts and diplomats warned on Wednesday.
They noted that uncertainty about the process of empowering provincial and district administrations was blocking new investment in resource-based ventures, which are precisely the most promising business at present.
"We feel frustrated. We had hoped the removal of political uncertainty last October (election of the new government) would immediately woo back foreign investment. But we don't see new investment yet," said American business consultant James Castle.
The main reason, he added, was the uncertainty about the new equation in the relationship between the central government and regional administrations where the bulk of natural resources are located.
Singaporean Ambassador Edward Lee asked if stronger and broader regional autonomy would facilitate the growth of the economy or prove a hindrance.
"During my visits to the provinces I found that many local administrations were worried. They did not know what to expect, whether they would be able to compete with other provinces."
Lee and Castle were among the participants in a roundtable discussion on the topic "Toward a New Indonesian Economy". Members of the National Economic Council, which advises the President, were panelists.
The council chairman, Emil Salim, conceded that the uncertainty creeping into the relationship between the central government and local administrations was worrisome to investors.
"But you must live with the reality that the decision-making process in the current democratic era is very slow. This is the learning process that we must undergo," Emil said.
"When we proposed some policy measures to the President, he told us to go to the ministers concerned. But the ministers said they cannot decide immediately as they have to consult with the House of Representatives. And you must have noticed how vigorous and time consuming is the deliberation at the House."
Under the Soeharto administration, Emil added, "I simply went to the president, and when he ordered something it surely got implemented".
He hastily added that nobody wished a return to the previous regime.
The government enacted two laws last year regarding the decentralization of political and economic power to local administrations. Given the huge volume of preparatory work that has to be completed, the laws will be enforced only next January while people and officials in many provinces, especially those in provinces outside Java, have been demanding immediate empowerment.
Castle urged the government to prioritize the decentralization process to coax new investors off the sidelines.
"New investment is needed to create new productive capacity, without which the nascent recovery would not be sustainable," Castle noted.
Not sustainable
Emil agreed that the current consumption-led recovery was not sustainable without new investment.
"I suspect the robust growth (5.8 percent) in the last quarter of 1999 lulled our economics ministers into complacency and slackened the pace of reform measures.
"And I think the wake-up call from the International Monetary Fund was timely to speed up the reform programs," Emil said, referring to the stern IMF warning and decision to delay the disbursement of its loans to Indonesia.
Boediono, a member of the council, concurred the current economic recovery could continue until next year but it would eventually grind to a halt without new investment.
"A more sustainable and powerful recovery will come when new capacities begin to be created."
He said the speed of recovery depended on the pace of the revival of investment and the smoothness of the process of resource allocation.
"But this process in turn depends on the reestablishment of law and order that is the prerequisite to reduce high transaction costs and high-risk premium in our economy now."
The Indonesian Bank Restructuring Agency (IBRA) also came under fire at the discussion for what businesspeople termed bureaucratic inertia in its decision-making process.
"There is actually a huge appetite among foreign investors for the assets under IBRA. But its asset sales are very slow," Castle said.
Several other businesspeople criticized the lackadaisical process of debt restructuring at IBRA which left many large companies crippled because they were closed to credit lines.
IBRA is managing around Rp 600 trillion (US$80 billion) in equity and bad loans taken over from closed, nationalized and recapitalized banks.
"I wonder why the highly paid officials at IBRA work like bureaucrats. Sudden changes in personnel also often obstruct the debt-workout process as every time a new official takes over, the process has to start again from square one," Setiawan from PT Kalbe Farma pharmaceutical company said.
In the earlier presentation of the National Economic Council's policy concept on a new Indonesian economy, Emil proposed an economic framework whereby prosperity was achieved through equity.
He said strategic policies under the new framework constituted comprehensive financial-sector development, poverty alleviation, decentralization and regional autonomy and fair market competition. (vin)