World Bank urges Indonesia to revive investment climate

World Bank urges Indonesia to revive investment climate

Dadan Wijaksana, Jakarta

Investment will remain in the doldrums unless clear signs are
given to investors that various problems detrimental to the
business climate here are being addressed, the World Bank has
warned.

Andrew Steer, World Bank country director in Indonesia, said
investors have already realized that the complexity of the
problems was too deep to be resolved overnight, but what they
wanted to see was signs of a clear path towards improvement.

"Investors don't yet have confidence that this country is
moving clearly in a certain direction," Steer said in a seminar
on growth and investment on Thursday.

"They (investors) are not expecting solutions to these
problems overnight, but they do not have confidence that the
problems are being addressed."

The country's business climate has grown progressively worse
with investors shying away from the country and picking instead
other nations in the region as their investment destination.

As investment, particularly much-needed foreign direct
investment (FDI), remains in the doldrums, it is depriving the
country of its economic engine.

The economy consequently, has been forced to rely largely on
domestic consumption and exports which has resulted in only
modest economic growth -- 3 percent to 4 percent in the past
several years.

The unfavorable investment atmosphere, due in large part to
the weak legal system and corruption, has made Indonesia less
competitive in terms of investment compared to other countries.

Steer cited the case of Vietnam, which has emerged lately as a
favored investment destination in the region, as it pertains to
the legal system.

"If you go to Vietnam and ask investors a question: What do
you think of the legal system? They'll say it's terrible, but if
you then ask them: What do you think the legal system will be
like 10 years from now? They'll say: We think it will be a lot
better."

"But if you ask the same question in Indonesia: What do you
think of the legal system? Well, not very good. What do you think
it will be 10 years from now? They'll say: We don't know.

"That's the difference. That's why they won't invest here,"
Steer explained.

Sharing Steer's view were Chatib Basri and Mari Pangestu,
noted economists from the University of Indonesia and Center for
Strategic and International Studies (CSIS).

"The absence of that kind of sign is what creates uncertainty
-- which is pretty much what investors look for the most," Chatib
said.

"For business people, there has to be a clear direction for
the government's medium and long-term programs. Only then are
they able to draw up realistic business and investment plans,"
Mari added.

On the issue of corruption, former executive of the
International Monetary Fund (IMF) Hubert Neiss said that,
"corruption is not an absolute obstacle to investment, as long as
there are clear signs that something will be done to fix it."

"There is corruption in other nations, but investment is still
coming in, that's because they (investors) see the signals that
the government (in each of those countries) is doing something
about it."