Washington Times, Feb. 24, 1998
JAKARTA, Indonesia – Indonesia’s economic storm has some U.S. companies battening down the hatches, others scavenging for deals among the local casualties, and many left with contracts that aren’t worth the paper on which they were written.
U.S. power companies are among those on the phone to their lawyers after an announcement by the state electricity company, PLN, that it would pay for power at a rate that is effectively about 25 percent of the contracted price.
“They keep moving the goal posts. We build a half-billion-dollar plant based on certain agreements, and then they arbitrarily change them. How do you explain that to the shareholders back home?” asked an executive at a U.S. company involved in the power industry.
Despite the uncertainties, the big companies responsible for the bulk of the estimated $16 billion in U.S. investments in Indonesia are digging in. The message: They’re here for the long haul.
“We’re fairly optimistic. We’re committed to Indonesia, and we see a light at the end of the tunnel,” said C. Donald Carden, president of Sewu New York Life, echoing a sentiment many U.S. companies want their Indonesian partners and customers to hear.
But off the record, American managers admit that with little prospect of economic recovery for at least a few years, it’s going to be a tough, expensive ride.
To cope, many companies are reducing expensive expatriate staff, slashing advertising and marketing budgets, and becoming more efficient.
“Some of the relative newcomers among our competitors will probably pull out,” predicted Barry Halpern, president of Danamon Aetna Life Insurance, the joint venture in which Aetna has invested $25 million. “But we’ve got the knowledge of the market and the capital to turn this into an opportunity.”
The Indonesians have long memories, according to George Whitfield, a business-culture consultant. Those who leave now will have a hard time returning.
The rupiah’s roller coaster ride is one of the challenges faced by those who stay. When the currency plunged 50 percent almost overnight in January, GM Blazers, which retailed for more than $30,000, suddenly sold for the equivalent of $10,000.
The company now is releasing vehicles in lots of 100, adjusting the price based on the latest exchange rate.
Shortages and fluctuating prices of raw materials are other challenges. Smaller firms are being hammered by the refusal of banks to issue letters of credit. And then there’s the problem of a shrinking market as the economy collapses.
Goodyear, which has been in Indonesia since 1935, intends to offset lagging local sales by producing a new, cheaper tire for the U.S. market that will compete with inexpensive Korean and Eastern European imports.
“This opens an opportunity for us to look at particular niches which we haven’t been able to penetrate before,” said Christopher Clark, president of Goodyear Indonesia.
To companies with deep pockets and a long-term view, the cheap rupiah and distressed local market offer tempting opportunities for expansion.
General Motors recently bought the 40 percent stake held by its local partner and is beginning to eye local manufacturers, most of which are bankrupt.
New York Life has had several calls from interested sellers.
But while some firms are ready to spend money, others are finding collecting it a problem. Industry sources say Bechtel and several other U.S. contractors pulled out of deals with the local phone company, Telcom, because of large unpaid bills. “It’s a problem across the economy. Our pockets aren’t very deep,” said an executive at a mid-size firm.
“If we can’t collect our receivables and there is little prospect of new business in sight, we’re better off somewhere we don’t have to wait years to turn a profit.”
The crisis also has left firms involved in some of the huge infrastructure projects commissioned over the past few years playing a guessing game.
Since September, one geothermal plant being built by CalEnergy has been canceled by the government, resurrected and canceled again.
It’s that kind of shell game that sends a chill through the investment community, one business consultant said.
It is also one of the reasons that while there’s a lot of talk about acquisitions, not many checks are being written.
“People are just trying to find out what’s out there and who’s willing to sell. When things stabilize, they’ll make their move,” said Richard Howard of the Castle Group
Credit: SPECIAL TO THE WASHINGTON TIMES