Tuesday, October 31, 2006

Indonesia Attempts to Attract Foreign Investors

Sources: Indonesia Woos Investors, Indonesian Ministers Defend Pace of Reforms

After years of crisis that have chased foreign investors away, Indonesia is attempting to attract the investors back by holding a three day forum where the country's Ministers will introduce various infrastructure projects that they hope the eight hundred investors attending the forum will invest in. Similar attempts in the past have not shown to be successful, however, for example of the 91 projects offered in 2005, only about 10% of them were actually implemented. Some of the factors lending to investor resistance include tax and labor laws that are unfavorable to them, legal uncertainty, and a chaotic decentralization process.

The strategy Indonesia is putting forth consists of three prongs. The first aims at addressing the legal uncertainty problem by introducing and implementing 120 new regulations to help ensure investor confidence. The second centers on ten model projects valued at $4.5 billion. These include the building of ferry terminals, toll roads, a telecommunications scheme, and water supply systems. The final prong involves the Ministers making themselves available to work out details and answer any questions and quell concerns of the investors during the length of the forum. The country's efforts have been supported by the Asian Development Bank, however, the international community is also still critical of Indonesia's exceptionally low spending on development. Prior to the 1997 Asian Financial Crisis, Indonesia spent about 6% of its GDP towards development, but is at 2% this year. This low spending has manifested itself in an infrastructure that needs a major overhaul, in the opinion of the international development community. The water supply and sanitation systems have been called "abysmal."

1) Will foreign investors buy what Indonesia is trying to sell? or will it take more than optimism and enthusiasm to get investor cash back into the economy?

2) Indonesia has suffered a 44% drop in foreign investment since this time last year and is desperate to revitalize its lagging economy. What other steps can it take to try to bounce back from this investment collapse?

3) Can Indonesia surpass its pre-Asian Financial Crisis development spending rate by 2009 as it plans?

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