Peace and Order: Crucial to Foreign Investments

On December 5, 2005, the Political and Economic Risk Consultancy, Ltd. (PERC), an agency that provides international investors with analytical up-to-date information about the ASEAN region, greater China, and South Korea, published the results of its poll of foreign executives enumerating on a scale of zero to ten - ten being the worst - Asian nations in which investment confidence was graded in relation to their intrinsic corruption. Indonesia failed miserably, reflecting a crucial requirement for direct foreign and even portfolio investments: peace and order.

One of the bases of political stability is strong law enforcement on the local level, and a strong military on a national level to insulate against any armed external threat. A very sensational issue regarding the failure of peace and order was the October 12, 2002 Bali bombing in Indonesia, wherein 202 people perished, including 88 Australians and 38 Indonesians. Normally, investors would consider this tragedy no more than a minor set-back, if it were not for the radical Islamic Jemaah Islamiah claiming responsibility. The United States' statement regarding Indonesia as a fertile site for terrorism plunged the stock market 10.4% in two days. Along with other factors (until the recent tsunami early this year), Indonesia had shown no signs of recovery.

In 2006, the Philippines has been unsafe for journalists and political opponents of the present administration in that a number of them have been slain. A recent addition to the roster of targets was personalities from the religious sector. On November 11, 2006, the latest killing involved the gunning down of a farmer's cooperative director. Two days later, an unprecedented call came to President Arroyo pleading her to put an end to the political killings, or risk losing investments. The Joint Foreign Chambers of Commerce (JFC), comprised of business groups from the United States, Canada, Europe, Australia, New Zealand, Japan, and Korea explained that an approximated $8.5 billion of foreign direct investments has been accounted to flow into the country over the next four years should the country's investment climate improve. This can potentially generate an estimated 2.9 million jobs.

In the same issue, local officials of U.S.-based garment firms in the Philippines (such as Gap, Polo, Ralph Laurent, Wal-Mart, Liz Claiborne, and others), expressed alarm over the murder of a local priest inside his rectory and the violence against striking workers at the Cavite Economic Zone, both of which happened in the month of October.

As of November 13, the peso rate against the dollar has remained strong, at P49.76 from a P49.910 three days before. Should the calls for peace and order fall on deaf ears, this level will be the last bright spot the currency will ever see.

References:

"Corruption Still Serious In Asia's Developing Nations." Manila Bulletin 6 December 2005: B-16.

Domingo, Ronnel W. "Foreign businesses to GMA: Stop killings." Philippine Daily Inquirer 14 November 2006: A1, A6.

Rachel S. Taylor, "Indonesia and Australia: Bali's Blackest Day." Terrorism in Indonesia