Investment to turn the wheels of industry
ONGOING ECONOMIC REFORMS, RISING GDP, FALLING INFLATION, AND FIRM MOVES TOWARDS REAL DEMOCRACY ARE SET TO PERSUADE FOREIGN INVESTORS THAT NOW IS THE TIME TO ENTER THE INDONESIAN MARKET.

RESOURCE RICH Indonesia has the potential to use its energy as the bedrock for internal economic development and regional integration.

When THE People’s Consultative Assembly recently voted in favor of direct elections for the state presidency and an end to designated parliamentary seats for the military, Indonesia took another big step towards real democracy. The decision will back President Megawati Sukarnoputri’s mandate and pave the way for bolder governments.

The military’s departure symbolizes an important break from the past. Indonesia has come a long way since the autocratic Suharto was driven from power four years ago, yet many foreign investors are waiting to see what else will happen before engaging themselves fully with South East Asia’s most populous nation.
President Megawati – daughter of independent Indonesia’s founding father, Sukarno – has been taking a measured approach to political and economic reform, as she believes that attempting too much, too fast, could derail the entire process.
Despite occasional tension on some of Indonesia’s 17,000 islands, President Megawati has managed to keep unrest under control. She has won plaudits abroad not only for acquiescing to East Timor’s UN-monitored independence process earlier this year, but also for visiting the former Portuguese colony, which Suharto annexed in 1975.

The West wants this nation of 220 million people to achieve its potential. The archipelago has huge strategic importance, is rich in resources and could become a major player on the global stage. Much depends on the success of the economic reforms currently underway, which aim to remove the legacy of corruption.
Several economic indicators give credibility to the argument that Indonesia is on the way up. It has taken the country far longer than neighbors such as Malaysia and Thailand, to recover from the 1997 Asian financial crisis. But recently the rupiah – the national currency – has rallied strongly. In July, the inflation rate fell to 10 percent, almost reaching the state target of nine percent.
Simultaneously, the London-based Fitch rating agency upgraded Indonesia’s long-term foreign and local currency ratings from B- to B.
The stock market has risen by around 14 percent this year and the International Monetary Fund, which has been working closely with President Megawati’s government, says it is happy with the way the macroeconomy is shaping up.

PRIORITY PROGRAM aims to boost local trade by creating a conducive business climate and raising the population’s awareness of domestic products.

Like all major oil producers, Indonesia is susceptible to shifts in the world price of crude. But given the country’s oil reserves, and its development of other fuels such as gas and coal, it has the potential to use its energy as the bedrock for economic development and growing regional integration with the other member states of the Association of South East Asian Nations (Asean).
Until now, the country hasn’t fully utilized its influential place in Asean, but all this is set to change.
Development of the Trans Asean Gas Pipeline, which will transport Indonesian fuel, will provide new opportunities. The government has agreed to sell Singapore 2.27 trillion cubic feet of natural gas as part of a 20-year deal worth $9 billion, and with the rising demand for energy in the region, Indonesia can look forward to a growing market.

Trade Ministry Secretary Ansari Bukhari points out that the country’s largest export market is the Asia Pacific Region. “Indonesia’s non-oil exports to countries in Asia and the Pacific in 1996-2000 reached an average of 68 percent of total non-oil exports.”
In the Asean region alone, which has a population of 500 million, Indonesia’s market prospects in the trade sector in the last five years have been relatively high, he says. The country’s balance of trade has always been in
its favor by an average of 13.35 percent.
Mr. Bukhari suggests Indonesia should make the most of its membership of the Asia Pacific Free Trade Cooperation (APEC) forum by trading closely with other members and luring prospective investors to Indonesia.

Improved relations with the EU, Australia, Japan and the U.S. also mean that major foreign capitals are rooting for Indonesia’s success.
Though aid and trade will undoubtedly have a role to play in Indonesia’s short-term development, the government realizes that only by putting the domestic economy on a sound footing will it be able to guarantee sustainable growth and sufficient jobs for the millions of people entering the labor market every year.
Gone are the old days when Suharto’s golden boy – and brief successor – Habibi, aimed at making Indonesia a giant theme park of high technology and grandiose projects. Today’s priorities are much closer to reality, and include maximizing the country’s rich agricultural potential.

That means not only feeding the people, but also building up export markets for products such as rice, coffee, cocoa, coconuts, copra and palm oil. Mineral resources, including tin, copper, bauxite, nickel, and perhaps gold, also offer interesting possibilities for future exploitation.
A new development plan for 2003 aims to speed up the rate of growth. Minister for Trade and Industry Rini Soewandi says: “The priority program aims to boost domestic trade by creating a conducive business climate, raising public awareness of domestic products and by developing a national distribution system in a united national market.”

The government is confident that Indonesia will register four percent GDP growth this year, and slightly more in 2003. While that may not be grounds for celebrating in the streets, it could be enough to persuade potential foreign investors that this is the time to take the plunge.