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Indonesia raises hopes for outside investors February 16, 2006

Posted by ekon in investasi.

By Shawn Donnan in Jakarta / FT Com / MSNBC – 2006-02-16 09:49:21

February 15, 2006

Indonesia has never been an easy place to do business and, in recent years, high-profile disputes between Jakarta and foreign investors such as ExxonMobil, Cemex and Newmont have stood as stark evidence of that.

The result, in a world where investors are able to shift foreign capital across borders quickly, is easy to identify. Eight years on, Indonesia’s economy continues to struggle to recover from the Asian financial crisis and rid itself of the structural legacies of 32 years of crony capitalism.

The 2004 election of President Susilo Bambang Yudhoyono, a former Suharto-era general who has positioned himself as an economic reformer, raised hopes among foreign investors.

But while Mr Yudhoyono’s government has launched an unprecedented war against Indonesia’s endemic corruption, the consensus remains that it has been slow to deliver on other investment climate reforms.

That may be about to change.

Jakarta is expected to sign an agreement on Thursday that will take its environmental dispute with Newmont, the world’s largest gold producer, over the Minahasa Raya mine in North Sulawesi a step closer to resolution – albeit one that will require the US miner to pay $30m over the next 10 years.

Economic ministers are also scheduled on Thursday to quietly brief an investment climate working group made up of key bilateral and multilateral donors on plans for what is touted as a re-energised reform agenda.

The policy package, work on which began last year, is built around revisions to a controversial draft tax law as well as new labour and investment laws.

On top of that is an infrastructure-related policy package designed to resuscitate a stalled $150bn infrastructure investment programme that Mr Yudhoyono’s government launched early last year.

According to Indonesian officials and others who work closely with the government, there are also hopeful signs that a final resolution to the longstanding dispute with Exxon-Mobil over the operatorship of the Cepu field in central Java may be moving closer.

Officials say it is now in the hands of Boediono, the respected academic who took over as chief economic minister last December.

He has been consulting with the president on how to break a deadlock between Pertamina, the state oil company, and ExxonMobil over who should operate the Cepu field.

People close to the negotiations say progress has been made in drafting the other components of a joint operating agreement, which could see a deal signed within days.

Mr Yudhoyono’s government still faces obstacles to needed reforms. Plans for an electricity tariff increase – something that investors say is badly needed to help attract foreign investment to Indonesia’s ailing power generation sector – face significant political opposition.

But analysts say the Newmont settlement, due to be unveiled on Thursday, is at least one concrete example that Jakarta has not lost sight of what it needs to do to lure foreign investors back.

“In the end what matters is the direction. Is the government moving in the right direction? And the speed. Is the government moving in that direction fast enough?” said Fauzi Ichsan, Standard Chartered’s chief economist in Jakarta.

“There will be different perspectives on the speed. But in the end, everyone agrees the direction is good.”

Analysts argue that a partial resolution to the Newmont saga is unlikely to carry the same weight as Jakarta finally resolving the fate of the $2bn Cepu field.

The field is expected to add about 170,000 barrels per day to Indonesia’s current production of just under 1m bpd.

“Cepu would be a milestone,” said Mr Ichsan.

Meanwhile, Newmont still faces a criminal trial over alleged pollution at the Minahasa Raya gold mine that is expected to drag on until June or July.

One of the company’s top executives faces a lengthy jail term if he is convicted.

The “goodwill agreement” to be signed today also contains a bitter pill – Newmont will pay $30m over 10 years to fund a new community development foundation and monitor both the environment and health of people around the former mine site for a decade.

Even Newmont officials, though, say that after months of negotiations and plenty of bad press they see a victory for Mr Yudhoyono’s government in its struggle to convince foreign investors to brave what remains a fraught investment climate.

“It’s a great outcome,” one senior Newmont official insisted on Tuesday.

“The government is reaffirming its commitment to a climate that is conducive to investment and a climate that is fair to investors. It’s very good for the government.”



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