Wednesday, January 19, 2005

Govt told to remedy legal uncertainties

Source: The Jakarta Post

Despite assurances from the President, Vice President and other top government officials that their money was safe here, some investors at the Infrastructure Summit on Tuesday remained concerned whether the reform commitments could be translated into action by the country's weak bureaucracy.

Meanwhile, AFP reported that the World Bank, the Asian Development Bank and Japan have agreed to provide up to US$5 billion worth of loans as a catalyst for other investors to invest in Indonesia's power sector, roads and other infrastructure facilities.

The concerns of foreign investors are primarily centered on two long-running issues: legal uncertainty and rampant corruption.

"We have been operating here for more than eight years. Through that period we have learned that legal uncertainty has become the main problem for the business community," Philippe Louis-Dreyfus, president of French trading, property and shipping group Louis-Dreyfus Armateurs, said on Tuesday at the end of the two-day summit.

He said legal certainty was crucial to investors because investment in the infrastructure sector was a long-term investment involving a huge amount of money, and investors would need at least 10 years before they could start enjoying a return on their investment.

The chairman of Singapore Power, Ng Kee Choe, agreed. "We are afraid that investment in Indonesia may run aground as there is a huge possibility of legal disputes either with our local partner or with the government as a result of legal uncertainty."

Japan Sumitomo Corporation chairman Kenji Miyahara said another area that had to be tackled by the government was the rampant corruption that contributed to the high cost of doing business in the country.

"Indonesia will remain uncompetitive compared to other countries unless it manages to reduce the rampant corruption," he said.

During the key investment forum, held to attract about US$120 billion worth of investment to develop the country's infrastructure over the next five years, the government promised it would move swiftly to fix the weak investment climate here and provide various incentives for investors through what it called a "new partnership".

In what may be part of the efforts to ease investor concerns, the government signed the Jakarta Declaration with representatives of companies from 20 participating countries in the summit. The declaration underscores the government's commitment to remove all bureaucratic hurdles to private sector investment.

The government promised to finalize all of the required policies to improve the investment climate, as well as revising any problematic regulations, within six-months. It also pledged to honor all contracts made with the private sector.

"We have to make this work otherwise that's it, we will never be able to do this again," said Vice President Jusuf Kalla at the summit's closing ceremony, underlining the government's commitment to the infrastructure projects.

Attended by more than 500 companies from 20 countries around the world, the government offered some 91 projects valued at US$22.5 billion during the summit. A second batch of projects valued at about $57.5 billion will be offered during a summit in November.

"Under the new government, legal certainty is here and will remain," said Minister of Justice and Human Rights Hamid Awaluddin.

"I am aware that my country's bureaucrats need to be improved and the regulations should be made more investor friendly," said Coordinating Minister for the Economy Aburizal Bakrie, adding that a number of investors from several countries had expressed interest in investing here.

But Deutsche Bank director for Singapore Paul Sempere said that despite the assurances, there remained questions about whether the government could realize its promises.

"The intention is always good at the top, but to translate these intentions into reality in the bureaucracy is another question," he said.

He said investors would wait until the government was able to fulfill its commitments on private investment.

"I think the way forward is to use some pilot projects ... a maximum of two or three pilot projects in each of these sectors, and push that," he said.

Jakarta Declaration

* Indonesia's Vision for Infrastructure Development

- Government will focus on non-commercially viable projects

_ Government will focus on sectoral reforms to ensure

sustainable private sector participation

- Government will enact program to support greater private sector involvement in infrastructure

* Removing Bureaucratic Hurdles for Private Investment

- All contractual commitments will be honored

- Develop clearly articulated strategies and sectoral plans

- Invite investors to participate in upcoming fast-track infrastructure investments

- Issue an interim regulation that addresses the issue of private participation in infrastructure development

- Issue a regulation that will serve as the basis for private participation

- Committed to revise law No. 36/1999 on telecommunications

- Develop pragmatic and effective risk management strategies

- Develop local financial and capital markets for infrastructure financing

- Revise Presidential Decree No. 7 on private participation in infrastructure development

- Develop action plan for independent tariff setting mechanism

- Strengthen regulatory agencies by providing the necessary budget and staff