Clinton Arrives in a Surprisingly Strong Indonesia

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Foreign Investors

Most multinationals operating in Indonesia, however, are there to serve the domestic market. Philip Morris International (PM), for example, is the largest foreign investor, after paying $4.9 billion to buy local cigarette maker PT Hanjaya Mandala Sampoerna; the company opened a $220 million cigarette-rolling factory outside Jakarta last fall. Unilever continues to invest in both its ice cream and skin care brands in the country, too.

Weak commodity prices bode ill for the country's investments, though. Some of the world's biggest mining companies, including Freeport McMoRan (MMR), Newmont Mining (NEM), and Rio Tinto have concessions in Indonesia, but output at some mines has slumped, and money to develop new ones is scarce. The country's decision to decentralize power in recent years has granted greater autonomy to provinces over how their resources should be exploited, but it has also created so many new bureaucratic hurdles (and new opportunities for corruption) that foreign companies have found it impossible to move forward with new projects. There have been no new metal mining projects in 12 years. Although Parliament passed a new mining law last December, implementing regulations that will clarify procedures aren't likely to be released until after presidential elections in July.

Indeed, corruption remains one of the country's biggest stumbling blocks to development. "This is a rich country, poor in governance," says one researcher at a foreign investment bank who asked his name not be used. This is a sentiment shared by many in the government of President Bambang Yudhoyono, and in recent years the Corruption Eradication Commission has made progress in several high-profile cases, including a conviction of a former Central Bank governor in a bribery scandal. Such successes have helped Indonesia move up from 143rd to 126th place on Transparency International's list of most corrupt countries, with first place indicating the lowest level of corruption. "The judiciary is weak and corrupt, and corruption is still of course rampant," says Wanandi. "There is hope now that at least things have started in the right direction."

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong.