January 21, 2000 
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| January 21, 2000 | atimes.com | |
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| Southeast Asia Unrest threatens Indonesia's bailout STRATFOR.COM Global Intelligence Update 20 January 2000 Summary Shortly after Singapore announced a $1.2 billion investment plan for Indonesia, a Singaporean firm threatened to close its facilities on the Indonesian island of Bintan following several days of social unrest. The events in Bintan are symptomatic of the difficulties Indonesia is facing in attracting foreign investment. Jakarta's dilemma is that it is counting on foreign investment to solve the nation's social and political problems, and those problems are keeping the investment away. Analysis A protest on the Indonesian island of Bintan that began on January 15 led to a two-day shutdown of a Singaporean-operated industrial park. The industrial park's management threatened that further disruptions would lead to the permanent closing of the facility. The two-day shutdown occurred just days after Singapore's announcement of a $1.2 billion investment plan designed to stimulate further investment and help stabilize Indonesia's shattered economy. The events in Bintan demonstrate the ongoing challenges facing the Indonesian government at a time when the country is desperately seeking foreign capital. President Abdurrahman Wahid has said that foreign investment would be the key to the future of Indonesia's economy. Even Vice-President Megawati Sukarnoputri has emphasized the importance of foreign assistance in rebuilding Indonesia. Within Asia, Wahid's administration has particularly targeted Japan, South Korea, Hong Kong and Singapore as sources for investment and assistance. In addition, Indonesia is courting Europe and the Middle East for needed funds. However, despite several reassuring nods, including US agreement to give $80 million in aid in 2000, Singapore remains one of the few nations to offer any substantial investments in Indonesia. Singapore's $1.2 billion plan, however, is overshadowed by the estimated $80 billion or more withdrawn from Indonesia by ethnic Chinese businessmen fleeing social and political unrest at the end of Suharto's regime. Even with Singapore's vote of confidence in the stability of the Indonesian investment climate, it remains unlikely that much of this money will return to Indonesia soon. While Indonesia looks to the international community for financial assistance in resolving its problems, the domestic unrest remains a major hindrance to substantial new foreign investment. Not only does the threat of violent protests and demonstrations, as well as separatist battles, frighten away foreign money, but widespread corruption within Indonesia continues to discourage investment. A prime example is the UK's Standard Chartered Bank PLC pullout in December 1999 - because of a political corruption scandal - from a planned 20 percent stake in Indonesia's Bank Bali. Standard Chartered's withdrawal came just after a visit to Indonesia by a British business delegation that expressed confidence in Indonesia's government and in the country's chances for change and recovery. This leaves the Indonesian government in a quandary. It has already admitted that corruption runs deep and that the rapid removal of corrupt elements within the government will do more harm than good. In addition, a major cause of Indonesia's unrest stems from economic disparities among its regions, something that can, in part, be remedied by an influx of foreign funds. As it nears its 100-day benchmark, Wahid's government remains stuck in a cycle whereby it is counting on foreign investment to allow it to tackle its internal troubles. Indonesia must solve these internal issues before investors will gain confidence in Indonesia. It remains to be seen whether Indonesia's troubles will cause investors to lose interest, or whether Indonesia's strategic position in the region will trigger a push from foreign nations to invest and stabilize its position. ((c) 2000, Stratfor, Inc. http://www.stratfor.com/) _________________________________ For republication policy contact: STRATFOR, Inc. 504 Lavaca, Suite 1100 Austin, TX 78701 Phone: 512-583-5000 Fax: 512-583-5025 Internet: http://www.stratfor.com/ Email: info@stratfor.com | |||||||||
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