Indonesian Recovery Fund faces hurdles

Indonesia's Industry and Trade Minister Rini Soewandi says details of the recovery fund are still being worked out

By Yenni Kwok

JAKARTA, Indonesia (CNN) -- Jakartaıs proposed Indonesian Recovery Fund will struggle to attract investors because of the country's ongoing political and security problems, economic experts and observers warn.

Officials of the Asian Development Bank and the World Bankıs International Financial Corporation -- two institutions named to contribute to the fund -- said Tuesday they were yet to be contacted by the Indonesian government.

On Friday, Minister of Industry and Trade Rini Soewandi announced the governmentıs plan to launch a joint fund with foreign institutions early next year to attract much-needed investment into the country.

She named the Asian Development Bank and the International Finance Corporation, the World Bankıs investment arm, as possible contributors to the fund, local media reported.

However, neither the ADB nor the IFC had heard anything from the government as of early Tuesday.

Trying to find out more

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"We first learnt about it from the press," Amitava Banerjee, the IFC's regional representative in Indonesia, told CNN.

"We have done this (invest in a similar fund) in Thailand and other emerging markets, such as Latin America, but we are trying to find out more about the Indonesian Recovery Fund," Banerjee said.

"We are not yet ready to say whether we are ready to contribute, because we need to look at the details," he added.

Jan P.M. Van Heeswijk, director of the ADB's Indonesia Resident Mission, said while he had not yet been contacted by the Indonesian government, the ADB would be interested in details of the plan.

Both the IFC and the ADB participated in the Thai Recovery Fund, which is the model for the Indonesian Recovery Fund.

"It (the fund) succeeded in Thailand, and it has withdrawn about $1.6 billion (from it)," Soewandi said, as quoted by the Jakarta Post newspaper.

Government still working on details

She said the government still needs to decide on the details of the fund, but she already expects it will reach $200 million, of which the government may have to contribute $10 million.

She said the fund, to be managed by a professional private institution, would be a trial to see how interested foreign investors were in putting their money back into Indonesia.

However, many observers are doubtful about the success of the proposed fund.

"I am rather skeptical," said M. Chatib Basri, economist at the Institute for Economic and Social Research.

"I think the problem is handled with a reverse logic. If the foreign investors are interested to come in, they will do it even without the Indonesian Recovery Fund."

Basri said the real problem is the lack of confidence.

"There are inconsistencies in the governmentıs economic policies, uncertainties about the supremacy of law and the security issues."

Basri also said it may not be a good idea to apply Thailandıs method in Indonesia because of a fundamental difference between the two countries.

Investors watching key indicators

Banerjee of the IFC agreed, noting: "For this to work, there are things that have to be in place."

He listed macro-economic stability, decentralization policy, legal reform and the governmentıs ability to finance its deficit budget as among several indicators private investors are looking at.

"However, the ones they are watching very closely are the privatization of state-owned companies and the sales of assets under the Indonesian Bank Restructuring Agency," he said.

Success in this would be considered "an important milestone."

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