AGENCE FRANCE-PRESSE, Friday January 18, 2002 5:21 AM ET
Investors Flee Lawless Indonesia
By SLOBODAN LEKIC, Associated Press Writer
PELABUHAN RATU, Indonesia (AP) - For nearly two years Ronald De Cost has been
laying the foundations of a seaside resort in this poor fishing village south of Jakarta.
But every time the Canadian businessman pours concrete, thugs rip it up.
It's not that villagers oppose development or fear an invasion of tourists. Rather,
district political bosses are making a fortune selling the tungsten-rich black sand they
dig up every night from De Cost's beach, and oppose anything that threatens their
lucrative business.
Last year, 20 toughs attacked De Cost and almost killed him. Police said they were
powerless to protect his property.
``I don't care. I'm determined to build this resort even if it costs me my life,'' says De
Cost, 54.
But most foreign investors aren't as stubborn. Six months after President Megawati
Sukarnoputri's new administration pledged to improve the investment climate, capital
is continuing to flee from this increasingly lawless country. Investors, meanwhile, are
few and generally limited to the highly regulated energy sector.
``It's horror stories like this that are driving investors away,'' said Ken Conboy, an
analyst with Control Risks Group, a London-based security consultancy.
Assurances by the government that things are improving ring hollow. Massive loans
by the United States and other donor nations, designed to bolster confidence in the
economy of a moderate Muslim nation, have not helped attract private capital.
In fact, about 40 percent of the $3.1 billion pledged to Indonesia will likely be pocketed
by corrupt officials, predicted an analyst with a major international financial
organization who spoke on condition of anonymity.
The economy has never recovered from its nose dive during the Asian financial crisis
of 1997-98. The administrations of B.J. Habibie and Abdurrahman Wahid, which
followed the 32-year dictatorship of President Suharto (news - web sites), struggled to
implement limited reforms.
Critics say that even those have stalled since Megawati assumed office in July.
This has caused a vicious cycle, dissipating investor interest and setting the
economic recovery program even further back.
Faced with opposition from entrenched business interests, the sale of companies the
government took over during its $60 billion bailout of the banking sector in 1998 has
virtually ceased, although Indonesia desperately needs the cash it would generate.
The bailout cost has pushed the country into a huge budget deficit, estimated at 3.7
percent of gross domestic product, forcing the government to rely heavily on foreign
loans to fill the gap.
Meanwhile, economic growth continues to slow - from five percent in 2000 to 3.2
percent last year, most of it in the first six months, analysts say.
Now, influential businessmen and political bosses are lobbying Megawati's economic
ministers to bar foreigners from buying public companies, hoping to snare them for
themselves at a fraction of their true value.
``The guys at the provincial and district level are trying to get their slice of a shrinking
pie,'' Conboy said. ``Things are so unstable that everybody is trying to build up their
nest egg fast at the expense of national interests.''
The $520 million sale of PT Semen Gresik, the country's largest cement-producer, to
Mexican giant Cemex S.A., was supposed to be a bellwether of Indonesia's
privatization program, but was blocked by community leaders in West Sumatra. They
opposed the sale of their local cement factory, one of three Gresik plants, to
foreigners.
The government quickly caved in and announced that that unit would be split off and
allowed to operate under local management.
Other asset auctions have faced similar hurdles. Attempts to privatize the Bank of
Central Asia, Indonesia's largest publicly owned company, has been stalled for
months.
In Pelabuhan Ratu, De Cost has given up trying to get the authorities to protect his
land. On the advice of a sympathetic law enforcement official, he has hired a rival
gang to defend his $4 million investment.
``Anybody who comes to this country to invest must be out of his mind,'' he said.
Copyright © 2001 AFP. All rights reserved.
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