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To Reassure Investors, Hard Look at Law Enforcement Is Where to Begin
Yohanes Sulaiman | June 05, 2012
As the euro is teetering on the brink of collapse due to the political paralysis in the European Union and the intransigence of Greek voters, Asian countries are watching with trepidation, fearing that the collapse of the euro could trigger another contagion, not unlike the Asian financial crisis of 1997 and 1998.
The fear is the most acute in Indonesia, which saw its economy shrink by 14 percent during the crisis, resulting in the fall of President Suharto and his New Order regime.
While Indonesia has had its share of bad economic policies, the government often stresses the fact that Indonesia is in much better shape this time around, with the macro-economic figures looking good, making Indonesia better prepared to withstand the expected economic turmoil, should Greece be expelled from the European Union.
Still, what many Indonesian decision-makers often forget is that what destroyed Indonesia in 1997-98 was not so much an economic problem, but rather the political uncertainties and lack of security, caused by the failing health of Suharto and a power struggle among Indonesian elites. This, in turn, contributed to the outbreak of ethno-religious conflicts that further rattled investors. It was not until 2002 that the situation finally stabilized and investors started to return.
As the global economic situation seems to get worse due to political uncertainties in Europe, Indonesia should heed the fact that what is important is the perception of other countries, especially investors, of the real condition in Indonesia, independent of all the lofty rhetoric about Indonesia’s seemingly gravity-defying economic growth in the past few years.
One of the main reasons why Indonesia’s economic growth and investment remain healthy is the perception among investors that President Susilo Bambang Yudhoyono is a good steward of the economy while providing political stability and security at the same time.
Events in the past few months, however, have done grievous harm to Yudhoyono’s credibility. First, the Nazaruddin corruption trial revealed entrenched corruption within the highest ranks of the government. Then, the central government’s impotence in handling the Ahmadiyah killings, the GKI Yasmin case in Bogor, the HKPB Filadelfia Church in Bekasi and various other human rights violations brought into question whether Indonesia was truly committed to upholding the rule of law and protecting religious minorities and human rights.
There are also questions, justly asked, whether the president is truly in control of the situation or whether he is held hostage by vested interests in society and thus is unable to do provide the security and stability craved by domestic and foreign investors.
The cancelation of the planned Lady Gaga concert is just another affirmation in the narrative that the government is paralyzed, unable to rein in extremist groups. While the National Police rejected Lady Gaga’s management’s assertions that the concert was canceled due to security concerns — stressing that they were truly in control of the situation — the fact that the threats of violence had continued unabated, unchecked for weeks, with the Jakarta Police at first denying the permit due to security reasons, belied their claims.
The National Police’s protestation notwithstanding, it is clear the police were unable to credibly assure Lady Gaga’s management that they were in control of the situation. The National Police simply have zero credibility on this matter, having dithered for weeks in the face of opposition from the Islamic Defenders Front (FPI). Had the National Police been serious about the matter, they could have sternly warned the FPI and other groups that were fishing for trouble. They would have spent some constructive time in prison, reflecting on their boorish behavior.
It is not assuring for investors who crave stability and a government that upholds the rule of law that the government and the National Police apparently can be intimidated by violence.
Already, according to the Wall Street Journal, investors have started to pull out from Indonesia and in mid-May they sold off more than half their net purchases of stocks and bonds in the first quarter. While the Wall Street Journal attributed it to the fear of the Greeks exiting the euro, the withdrawal would not be that rapid had investors been assured that the government was truly competent.
It is time for the Yudhoyono government to realize that talk is cheap and what really matters are its deeds. The president is losing his credibility fast and investors are paying very close attention.
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Jubal.Harshaw
3:00pm Jun 5,
2012
Not only is investor confidence being shaken by a government too terrified to upset marauding vigilantes, investors are becoming more aware that the cost of bribes (currently estimated at 17% of operating costs) is seriously impacting their ROI as well. In addition sudden ad hoc policy changes make budgetary planning an exercise in guesswork.
Then there is straight-out extortion by government instrumentalities, such as the Tax Department.
In Bali, for example, it is common practice for officials to regularly arrive at accommodation venues to 'audit' the accounts, then ignore all legitimate records, insist that the place 'should' have had a 60-70% occupancy rate, and demand exorbitant tax payments commensurate with their made-up figures.
All in all, despite the spin from government apologists and the anti-bule crowd, investment in Indonesia is a precarious proposition.
DrDez
4:44pm Jun 5,
2012
What amazes me is that in Q1 we declared our best ever investment figures... Another govt lie?
simplesimon14
5:16pm Jun 5,
2012
- Agreed. Best to avoid investing, many large corporations are heading elsewhere - private investors too, just far too risky with the instability in the country.
jchay
5:31pm Jun 5,
2012
@DrDez: not lie, just another culture of denial.. SBY's legacy.
Jubal.Harshaw
6:10pm Jun 5,
2012
Not only is investor confidence being shaken by a government too terrified to upset marauding vigilantes, investors are becoming more aware that the cost of bribes (currently estimated at 17% of operating costs) is seriously impacting their ROI as well. In addition sudden ad hoc policy changes make budgetary planning an exercise in guesswork.
Then there is straight-out extortion by government instrumentalities, such as the Tax Department.
In Bali, for example, it is common practice for officials to regularly arrive at accommodation venues to 'audit' the accounts, then ignore all legitimate records, insist that the place 'should' have had a 60-70% occupancy rate, and demand exorbitant tax payments commensurate with their made-up figures.
All in all, despite the spin from government apologists and the anti-bule crowd, investment in Indonesia is a precarious proposition.
nugwump
10:19pm Jun 5,
2012
DrDez
5:52am Jun 6,
2012
nug... which is why we are going he wrong way in almost every kpi
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