Indonesia's struggle for foreign investment

Indonesia needs to attract foreign investment

By Manuela Saragosa BBC World Business Report

Indonesia's economy is starting to show signs of life again, thanks to people spending more.

But economists warn that the country won't be able to maintain that growth unless it starts attracting foreign investment again.

So far though, the outlook isn't good.

Foreign direct investment into Indonesia has tumbled by over 40% since the start of this year.

Quieter times

Times have changed at the offices of Indonesia's Investment Co-ordinating Board.

Employees shuffle paper at their desk, newspapers are read from front to back.

President Suharto was ousted in 1998

The building's security guards yawn listlessly.

It wasn't always like this.

These offices used to be where the big contracts were authorised, fuelling Indonesian economic growth. Foreign companies battled over deals which would give them access to a market of over two hundred million people.

But the stream of foreign money coming into the country fell to a trickle after President Suharto was ousted in 1998.

His departure marked the end of 30 years of authoritarian rule.

The ensuing transition to democratic rule has often been bloody and messy.

Nowadays the foreign money stays away.

Staying away

It's not unusual to hear Indonesians accuse the outside world of turning up its nose at the country's fledgling democracy.

I went to see an Indonesian stockbroker, let's call him Djodi Do, in central Jakarta.

He complained that his bosses overseas had made him move offices four times in the past few years. Each time, they asked him to find smaller and cheaper work space.

Look at the Philippines, he sighed.

It has similar political turmoil to Indonesia.

It too is a large democracy grappling with separatist movements and a weak legal system.

But companies will put their money there, he said, because it's a Christian country. It's because Indonesia is mainly Islamic that foreigners now stay away.

Corruption concerns

Still, there've been some undeniably mixed signals going out to foreign companies already based in Indonesia.

"You still have to pay your bribes"

Indonesian stockbroker

In May this year, an Indonesian court declared a perfectly solvent Canadian owned insurance company bankrupt.

It took the intervention of a government minister to set that one straight. But it reinforced concerns about corruption with in the legal system.

Our stockbroker, Djodi Do, would argue that the rule of law was pretty arbitrary under President Suharto too.

But the power structures were clearer then. Mister Suharto's children and their cronies never made a secret of their business ventures.

The country's economic sectors were neatly divided between them.

Nowadays, there's a whole new set of tea leaves, and spheres of influence, to decipher.

Changing the system

There are other problems too.

Regional autonomy means local governments now have the power to tax and control resources and investments within their jurisdiction.

It's all in the name of a fairer democratic system.

But critics say many regional authorities have been making up for all those years during which they watched windfall profits flow back to central government in Jakarta.

As one businessman told me: "The principle is good. But the process has been a mess."

"Do you think things have changed since democracy?" is one of the questions Indonesians often ask returning visitors.

But it is Indonesians who are in a better position to judge that.

"Same old story"

I asked our stockbroker Djodi Do what he thought.

"It's the same old story," he shrugged. "You still have to pay your bribes."

The authorities have set up an anti-corruption commission.

But critics say even a hundred commissions won't do the trick.

The problem will go away when Indonesians get wealthy, they argue.

But that simply brings us back to square one because to do that the country will need to shape up and get the foreign money flowing back in.