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Investors want a slice of Jakarta - Indonesia to privatize state owned banks - Brief Article

Business Asia, April 14, 2000 by Cameron Cooper

A likely rash of privatisation deals in Indonesia this year is enticing aggressive foreign investors, but analysts continue to champion the need for further corporate and judicial reforms.

Countering optimism over a tentative economic rise in Jakarta is the reality of continued finance sector instability and lingering corruption scandals.

Adding to the uncertainty for Australian companies operating in Asia -- for example, in Indonesia -- are new anti-bribery laws that took effect in December last year.

The Wahid Government plans to run a budget deficit of 5 per cent over the next nine months, and expects privatisation proceeds by the Indonesian Bank Restructuring Agency's (IBRA) asset sales to plug half the gap. The rest will come from foreign aid.

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The government has stated that part or all of 10 to 20 state-owned enterprises (SOEs) will be sold off this year, and analysts expect investors from Singapore, the United States, Europe, Japan and Taiwan to be the most likely buyers. In the past fortnight, Singapore's Cycle & Carriage Ltd, an automotive distributor, bought 39.5 per cent of major car manufacturer Astra from IBRA.

Phillip Crowley, managing partner, Deacons Graham & James Jakarta, said the government has listed major SOEs such as Krakatau Steel, Telkom and Indosat as targets for privatisation in 2000, along with companies in sectors such as airport management, electricity, fertilisers, mining, infrastructure and plantations.

He said there was increasing pressure on the Wahid Government to get the restructuring process "clicked up a couple of gears".

The International Monetary Fund expects Indonesia's economy to grow by more than the official forecast of between 3 per cent and 4 per cent this year. But most critics believe sustainable growth is contingent upon additional reforms.

Crowley said a focal point of government attention was reform of the judicial system, with President Wahid eager to pursue moves to appoint new judges with a "recognisably clean" background.

He noted, however, that reforming the court system would be a "slow process".

According to Crowley, investor confidence will rise if IBRA "scores a few wins" and concerns over the US$70 million Bank Bali scandal can be dealt with satisfactorily.

Investigations are ongoing into the Bank Bali case, which involves a huge loan recovery fee allegedly paid by the bank to a company controlled by a senior member of the former ruling Golkar party. A Jakarta district court judge recently dismissed a case against Indonesian businessman Djoko Chandra, who was accused of being at the centre of the scandal. Attorney General Marzuki Darusman plans to appeal the decision.

For Australian companies dealing in Indonesia, tough new anti-bribery laws are causing some angst.

The laws apply globally, but are expected to be particularly relevant in Indonesia, where business and political corruption has historically been endemic.

The new Australian legislation, The Criminal Code (Bribery of Foreign Public Officials) Act 1999, came into effect last December, and targets Australian businesses caught bribing officials with the intent to obtain or influence business decisions.

The legislation is a result of Australia's December 1998 signing of the Organisation for Economic Cooperation and Development (OECD) convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The anti-bribery stance is being driven by the US, which imposed laws in 1977 under the Foreign Corrupt Practices Act (FCPA) to address what was perceived as "open and flagrant participation in the corruption of foreign governments by US corporations".

Elizabeth Hallett, partner, Deacons Graham & James Sydney, said the Australian legislation was "far reaching" and companies had reacted to it with "disbelief". Maximum penalties for Australians in breach of the laws are 10 years' jail, A$330,000 for companies or A$66,000 for individuals.

"There's a lot of shock about the level of appropriate compliance systems that need to be put in place to ensure that the company is seen as a good corporate citizen ... " Hallett said. "(The legislation) is very broadly drafted, so all sorts of behaviour that may have been acceptable in the past may now be caught by the legislation.

"I think this is where there's a real trap for Australian companies because lots of Australian companies will say quite correctly, `We don't go and bribe foreign government officials to get our contracts', but the types of behaviour that will now be caught includes things like appointing an offshore agent and paying the agent a larger commission than is warranted for the work involved ... "

On the positive side, Hallett said there were clear benefits for honest companies of a transparent business environment in Indonesia or elsewhere. Indeed, she said larger American companies had used their legislation as a "shield" against corruption.

"It means that business gets awarded to the best companies that can do the job, not the ones that have the best contacts or pay the most money," she said.

Business Services Industry

Investors want a slice of Jakarta - Indonesia to privatize state owned banks - Brief Article

Business Asia, April 14, 2000 by Cameron Cooper

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