Jakarta’s business bungles
The uproar over the sale of PT Indosat to Singapore Technologies Telemedia and the arrest of Polaris executives shake foreign investor confidence in Indonesia.
Foreign investors are driven by two key factors before they venture into any country: fundamentals and sentiment.
For Indonesia, both appear to be conspicuously veering towards the negative – especially sentiment – in the face of some bizarre incidents here over the last month.
The most glaring of the lot must be the attempt by a few Indonesian politicians, hiding behind a nationalist veil, to derail the sale of a major stake in the country’s second-biggest phone operator, PT Indosat, to Singapore Technologies Telemedia (STT).
Another saw two Indian business executives of Polaris Software Lab in jail, albeit briefly, for failing to resolve a dispute with local partner Bank Artha Graha over a US$1.2 million (S$2.1 million) software deal.
The two cases do little to soothe already frail investor confidence in Indonesia.
They reveal a shoddy judiciary that is predisposed to double standards and the inherent weakness of a political system lacking in leadership, where the vested interests of some have superseded national interests.
It is very clear that the STT deal was done in a transparent fashion.
It could inject much-needed funds for an Indonesian economy recovering in fits and starts.
Indeed, this was the raison d’etre for legislators to approve plans to privatise state-owned enterprises weeks before STT clinched the deal. Why all the fuss, then?
The reason is simple.
Legislators, especially from the Reform Faction (PAN), stood to lose a lot in terms of commissions if their choice of Malaysia Telekom didn’t win the bid.
That money could have been channeled to the party coffers and used in the presidential fight in 2004.
Having lost out in the tender, national assembly chairman and PAN leader Amien Rais was presented with the golden opportunity to question President Megawati Sukarnoputri’s nationalist credentials and pave the way for a series of other salvos fired against her administration.
This included supporting plans by students, labour unions and activists to carry out mass protests against the Megawati administration’s price hike policy.
It must leave any potential investor wondering why he should pump money into Indonesia only to be held hostage by chronic infighting among the political elite.
Likewise, why should any foreign businessmen spend time in jail for a seemingly innocuous deal when those who have committed crimes against the state walk free?
While the two Indian executives of Polaris were detained at police headquarters, the government freed four former bank owners after they agreed to return millions of dollars owed to the state coffers.
Are double standards being applied at the whim and fancy of the courts – one for foreign investors and the other for powerful Indonesians?
The Polaris case points to a concern by foreign businessmen that they do not have legal protection in Indonesia, especially in the event of a fallout with local partners.
When a multinational company’s CEO is locked up, as Mr Arun Jain was, it shows just how easy it is for the Indonesian party to initiate criminal procedings against the foreign partner, with the help of police officials who appear prepared to act independently of the government and courts.
In most cases, these incidents get resolved quietly.
But there have been glaring exceptions.
In 2000, for example, several executives of Manulife, at the time the fourth largest life insurer in the country, were accused of embezzlement and thrown into jail.
The statistics are already grim. Foreign investments plunged by 35 per cent to US$9.7 billion last year from US$15.06 billion in 2001.
If a traffic light analogy were to be used to describe investor confidence in Indonesia, it is in grave danger of switching from amber to red.
President Megawati has gone some way to repair a few potholes and won the support of the International Monetary Fund and the Paris Club.
But as the latest incidents show, sentiment appears to be souring against a backdrop of unhealthy nationalist mistrust of selling out to foreign interests.
Economic recovery in Indonesia will remain an illusion unless there is a mindset change in dealing with foreign investors.
Or, as famous economist John Maynard Keynes put it: In the long run, we’re all dead.
