Bleak Economic Future

Nov 23rd, 2006, in Business & Economy, by

The US ambassador to Indonesia says the country’s economic prospects are bleak unless big changes are made.

United States ambassador to Indonesia B. Lynn Pascoe is reported by the Jakarta Post to have said that so long as Indonesia is unable to fix its underlying problems, in particular the corruption of the bureaucracy and the legal system, the nation will continue to struggle to find sources of investment, from the U.S. as well as from other countries.

Ambassador B. Lynn Pascoe said in Jakarta on the 22nd that the recent meeting between U.S. president George W. Bush and president Susilo Bambang Yudhoyono earlier this week, where they are said to have discussed bi-lateral relations and investment, among other things, would not help in increasing foreign investment in Indonesia if the Indonesian government itself failed to remove the many barriers.

Just because Indonesia and the United States were on friendly terms was not enough to attract investors, he said:

Yes, they both discussed how to boost foreign investment into this country. But investment goes to countries that make it good for investment to come. You can’t invest in a place for political reasons.

He made particular note of the fact that when the US president visited Vietnam, just before he arrived in Indonesia, American companies signed investment deals worth up to $2.5 billion in that country. Vietnam was doing things right and he implied that Indonesia’s performance fell far short in comparison.

It goes to Vietnam and other places because they set conditions for the companies to come and do better.

He said that a lack of legal certainty remained a major problem for Indonesia in attracting foreign investment. To highlight this he pointed out the case of the prosecution of Newmont Minahasa Raya president director Richard Ness, an American, who is facing three years imprisonment if convicted in a North Sulawesi court of causing pollution.

What we want is Indonesia to become a competitive place … one thing you don’t do … is bring court cases against somebody where you don’t have any evidence. This is exactly what has happened in the Ness case. I read what they (the prosecutors) said, and we have had a whole year of testimony that says it’s wrong.

Indonesia could only hope for more foreign investment if it were prepared to change the legislation and ancillary regulations that hindered business and caused the uncertainty, and by making sure that the people in charge were doing the right thing.

The ambassador also complained about the problems faced by potential investors when “they run into the Indonesian bureaucracy”, as well as about xenophobia and “anti-foreigner” sentiment here, saying that every “comment aimed at telling foreigners how bad they are” only served to take investment away from Indonesia.

University of Indonesia economist Muhammad Chatib Basri was one who agreed with Pascoe, saying that Indonesia’s investment climate was still far from encouraging for investors due to a lack of legal and statutory clarity.

Newmont is only one of many cases that concern many people. Labor law, for instance, is another problem. We have the commitment but we need time.

Chatib went on to say that the U.S. was extremely important to Indonesia as it could influence other countries to invest.

6 Comments on “Bleak Economic Future”

  1. Munafikbangetloepade says:

    I hate that faggot SBY who have been unable to take firm actions against: Jusuf Kalla, Aburizal Bakrie, Abu Bakar Basyir, and all those twats.


  2. Magy says:

    I agree that there is much to be done, nevertheless the more I think of it I cannot more than feel quite upbeat on the prospect for RI. Just 10 years from now RI was a dictatorship today it is day by day taking steps to deppen its democracy. The Asian financial crises hit RI the most with large dollar debts and massive capital flight, RI took the thorough path and implemented IMF recommendations, of which many rightly were not very appropriate, nevertheless RI endured and is now out of the dark with low state debt, almost debt free enterprises and a better position to grow than ever.

    In 1997 many thousands of people very killed in “religious” fighting, 2006 this figure has been reduced to under 100. Terrorist extremists threaten tourists with suicide bombs, yet RI politics fail to engouragce extremist movements, instead polls show that people detest these killings, instead it is the US that engourage suiced killers with its “insensitive” agenda in the middle east. RI know this too well, that you cannot “root” out terrorists by force, this only breeds more hatred by those less uneducated.

    In the middle of all this think of all the crises, that has hit RI, everything from mud flows to tsunamis and volcanoes.

    I could not agree more that RI must never cease to improve and work even more intensely with what is recognized as major obstacles for a prosperous future.

    Nevertheless one of the major obstacles is in itself the image of RI internationally. I think RI must do more to promote and actually put forward all the things that are actually done, and has been done. It is the image, in my view many times much too negative, that could lead to a bleak economic future.

    The image of RI today internationally is that of a Muslim, backward country that houses terrorists, and were Sharia Laws are implemented, and corruption is rampant and, and, and”¦.almost all news are negative – but this does not fit with reality, were most developments actually are positve.

    RI need not only continue its efforts, also dare to stand up for all the battles that have been won and hurdles overcome. If RI does not put forwards also all the good, the bad imige of RI might eventually be self fullfilling.

  3. Avi says:

    Munafikbangetloepade, dude SBY is simply the best choice Indonesia had at the time of the election. It is, some may exclaim, a shame that Indonesia’s first direct election was marked by a lack of serious candidates. But the, I would be inclined to defend the nature of a first election and a new democracy and my anticipation of future cadididates. Now, while I agree that Bpk. Susilo has shown weakness and a lack of resolve in terms of erradicating corruption in Indonesia- he has taken some major steps in stabilizing the economy and its exposure to fluctuating oil prices. The value of the Rupiah has increased by over 10% since he came to power and the stock market has shown gains that are nearly twice that amount. But anyway, it is really great that you have such passion for Indonesian politics and I look forward to reading more of your political fervor and views. But, I fear, you’ll be perceived, by in large, as just another crude rambler unless you simply stop this bigotted vernacular. So please, do feel free to indulge us in more political rantings but save the profanity for your mother you crude child.

  4. O. Bule says:

    Until powerful Indonesians put their country first, and their family interests last, Indonesia will be crippled by corruption and held back from acheiving its great potential.

    O. Bule

  5. Deacon says:

    I agree that the Indonesian government should fix those problems but more for the sake of domestic investment than foreign investment.

    Not all foreign investment is good. The advantage of foreign investment is that it can create new jobs and help increase the productive capacity of the country. The disadvantage of foreign investment is that it would usually result in more money flowing out of the country in the long run.

    It can also crowd out domestic investment resulting in an inadequate level of productive asset ownership by locals. If most of the productive assets are owned by foreigners, any gains from increased productivity by the workers would fall into the hands of foreigners.

    The wages of workers have little to do with profit levels. The sweat shop workers in Jakarta get paid a couple of cents an hour and have to work long hours in bad conditions. They don’t get a fair days pay for a fair days work. There is a huge discrepancy between the wages they get paid and the value of their work.

    If the Indonesian government was to put in place policies that result in increased asset ownership by Indonesians, they would need to be very careful not to cause capital flight. Capital controls similar to what Malaysia used during the Asian financial crisis could be implemented before any of those policies get put into place.

    Policies could include:
    – a change to the exchange rate regime or central bank policy
    – provide an adequate ‘safety net’ (i.e. a welfare state) for Indonesians going into business.
    – micro credit schemes
    – partial nationalisation of assets if they ever become cheap (sometimes share prices plummet but with a bit of additional capital can be revived).
    – liberal funding of education particularly in training engineering and technical staff.
    – separate tax structures for foreign and local investors
    – a progressive land tax where those who own little or no land would pay no tax and those with a large amount of land pay the tax.
    – foreign investment legislation that encourages the good kind of foreign investment while discouraging the bad.
    – implement temporary tariffs so that the local industries can develop without getting crushed by developed equivalents from foreign economies.

    Suharto sold Indonesia’s economic interests out to foreigners. If Indonesia’s economy is to thrive, they may need to take some of it back.

    Recent history has shown that advice from the US government can’t be trusted, nor can advise from the IMF, World Bank or WTO. Economic development comes from good strategy, not neo-liberalism.

  6. Lala72 says:

    These comments, by the ambassador, look so humorous now, as the know-it-all Americans are on the verge of becoming an economic Titanic. What a farce. Americans always know it all, especially how you can print infinite money and expect it to still be worth something, just because you call yourself the U.S.A.

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