It really isn't such a bad investment climate

Wednesday, December 12, 2007 Vincent Lingga, The Jakarta Post, Jakarta

The public debates over the role of tax holidays in attracting investment that Chairman of the Investment Coordinating Board (BKPM) Muhammad Lutfi revived last week could distract the government from the real reforms needed to reinvigorate the economy.

After a limited Cabinet meeting last Wednesday on economic policies chaired by Boediono, Lutfi told reporters the many investors in capital-intensive industries might flee Indonesia to Singapore or Malaysia because the latter two countries offered tax holiday facilities. Lutfi was quoted by Kompas daily as saying a bio-diesel producer in Riau was considering moving its plant to Singapore, which offered a 15-year tax holiday.

Boediono asserted the next day the government had no plan to provide tax-holiday incentives to investors, arguing that such a facility was not the main factor considered by businesspeople in making investment decisions.
Boediono said most investors looked primarily at the quality of the investment climate -- the political and macroeconomic stability, policy predictability and legal certainty.

He said the government, therefore, was still focusing its reforms on developing good governance practices in areas such as tax administration, customs service, licensing bureaucracy and other components of regulatory and legal frameworks.

Tax incentives, Boediono added, were now limited to tax allowances offered to particular investment ventures in the form of a deduction from taxable income -- up to 30 percent of the investment amount -- and accelerated depreciation of fixed assets.

He said the tax holiday offered during the 1980s failed to significantly attract the kind of investment the government wanted to promote in designated sectors and locations.

In fact, many investors, in collusion with BKPM and tax officials, had misused the tax holiday facility by manipulating the dates of the start-up of commercial production, thereby extending the period of the tax relief.

Indeed, the tax holiday incentive has never ranked prominently in the list of grievances aired by domestic and foreign investors in opinion surveys. Their main considerations for investment decisions covered the main factors Boediono cited above.

After all, tax is paid from profit or income. And most companies lose money anyway in the first year of operation.

Investors in the country often complain about tax issues relating to inefficient and corrupt tax administration and taxation regulations that put taxpayers at a disadvantage vis-a-vis tax officials.

The tax holiday incentive has a negligible impact on investors' decisions when such basic issues as the effectiveness of the judiciary and the ability to uphold and enforce contracts still rest on uncertain ground as they do in Indonesia.

It is these non-economic factors, in addition to excessive red tape, not tax policies, that have been the main reasons behind the lack of foreign direct investment in the country.

Reform measures in tax administration, customs services, labor regulations and strong law enforcement -- currently the main target areas of government reforms -- will have a much larger impact on attracting investment.

Low corporate income tax rates contribute significantly to attracting investment. The 30 percent tax allowance incentive the government recently gave to 52 companies could also help direct investment to particular locations or business areas.

But even such tax incentives would be meaningless if the tax administration is largely inefficient and corrupt.
The government is well advised to realize that special incentives, such as tax allowances for investment, are not substitutes for good governance and sound macroeconomic policies.

Unfortunately, Indonesia is still ranked very low in most of the key building blocks for good investment climate.
The World Bank 2008 Doing Business report, which rated 178 countries according to their performance in 11 areas relating to ease in doing business, ranked Indonesia in 123rd place. Even among ASEAN countries, Indonesia's performance was among the worst, better only than the Philippines.

Investors prefer good governance because this factor reduces the costs and risks of doing business and minimizes barriers to sound competition. The rationale is that strong and consistent law enforcement is key to minimizing government policy-related costs and risks as those regarding regulations on taxation, customs, labor, local autonomy and basic infrastructures.

Strong legal certainty in turn helps build the credibility and certainty of government policies, which is important for both domestic and foreign investors because direct (not portfolio) investment is basically forward-looking or long-term in nature.

Investors expect risks associated with changes in such factors as market competition and customer behavior but the government can offset these risks by helping maintain a stable and secure regulatory environment for doing business. Not by granting tax-holiday incentives.

Anti-monopoly body shoots Temasek, hits govt

Wednesday, November 21, 2007 Vincent Lingga, The Jakarta Post, Jakarta

The market may simply ignore the Business Competition Supervisory Commission (KPPU)'s ruling against Temasek, its subsidiaries and Telkomsel. It will most likely be business as usual for Telkomsel, which was found guilty of breaching the anti-monopoly law on Monday by a panel of KPPU judges.

The KPPU ruling that Temasek and its subsidiaries shall divest themselves entirely of their stake in either Indosat or Telkomsel will not either have an adverse impact on the shares of these two mobile operators.

After all the market has become too familiar with the many questionable or even absurd rulings of the Indonesian antitrust body. In fact many of the KPPU's previous decisions in high-profile cases, though seemingly constructed from well-documented evidence, have been overturned by appellate courts either on technical or procedural grounds.

We understood that some bizarre rulings were unavoidable during the first few years after its launch in 2000, as KPPU staff and commissioners were still learning the ropes of their jobs. But the KPPU should have by now built up an adequate body of expertise to competently judge anti-monopoly cases.

However, its latest verdict, on the high-profile antitrust case against the Temasek group and Telkomsel, which is majority-owned by government-controlled Telkom, raises a lot of questions not only about its technical competence but also the integrity of KPPU commissioners.

Certainly, Temasek will appeal to the district court and the Supreme Court, though entering the court system in the country may plunge the Singapore government-owned investment company into another imbroglio.

The problem is that, unlike in many developed countries, there are no specific district courts here assigned to handle antitrust cases, which usually involve complex business deals. Hence, there is not a single court which has enough judges with an adequate body of expertise to examine cases related to the law on business competition.

But simply paying the fines and divesting its indirect stake in either Indosat or Telkomsel means acknowledging it has committed business sins and such an admission will damage its reputation all over the world.

A ruined reputation would adversely affect Temasek investment operations overseas on which this government's investment holdings have relied increasingly for incomes.
The KPPU ruling indeed puts Temasek in a very delicate position.

Therefore there is no other alternative for Temasek but to fight it out up to the Supreme Court, even with all the uncertainty about the legal proceedings and final results.

Since the KPPU ruling also requires divestment, this case may also be eligible to be filed with the World Bank's arbitration body, the International Center for the Settlement of Investment Disputes (ICSID) in Washington. The question, though, is whether Temasek -- which in the perception of the Indonesian government and general public is synonymous with the Singapore government -- is willing to pursue such a lawsuit at the risk of causing severe strains on bilateral relations.

But the KPPU's decisions are also a rebuke to the Indonesian government, as they reveal how utterly incompetent it has been in appointing directors and commissioners (supervisors) to Indosat and Telkomsel.

The fact is the government-controlled Telkom owns 65 percent of Telkomsel and 14.5 percent of Indosat, while Temasek, through its subsidiaries, holds only around 19 percent of Telkomsel and around 31 percent of Indosat. In addition, the government also owns a golden share in Indosat that provides it with a veto right over major corporate actions.

How could the government-appointed directors and commissioners, which make up the majority of the boards at both mobile telecommunications companies, allow Temasek to collude with Telkomsel in abusing its market dominance and committing other monopolistic acts?

But all in all, we should give credit where credit is due. The KPPU should be commended for its ruling that each buyer of the stake Temasek and its subsidiaries will sell either in Indosat or Telkomsel cannot acquire more than five percent.

This ruling at least will kill the rumor that a big foreign investment company, eagerly looking for investment opportunities in telecommunication in Indonesia, was behind the KPPU move on Temasek.

However, national and foreign investors eying stakes in Indosat or Telkomsel should have patience because, based on the KPPU ruling, Temasek shall complete its divestment within two years after the KPPU rulings become final and binding. This means more than 27 months from now (after all of the appeal process is completed) or even much longer if Temasek brings the case to the ICSID in Washington.

Oil prices only going up, analysts warn

Wednesday, November 14, 2007 Vincent Lingga, The Jakarta Post, Jakarta

Shell International BV analysts Choo Khong and Peter Snowdon forecast here Tuesday that international oil prices would go nowhere but upwards, and that fossil fuels -- oil, natural gas and coal -- would continue to dominate the energy mix until 2025.

"What matters is not the actual number, whether it is US$100 or something else, but the direction of oil prices, which is firmly upwards with some volatility," noted Choo when presenting Shell Global Scenarios to 2025.

They shared the views of the International Energy Agency that China and India, given their sheer sizes and robust economic growth, would play increasingly important roles in the international energy markets.

The Shell report says that China, having doubled its oil demand over the last decade to 6.4 million barrels per day at the present time, has become the world's second largest oil consumer, accounting for almost 40 percent of the increase in global oil demand.

Yet more worrisome in terms of oil demand is that the energy intensity of China's economic growth, like that of most other developing nations, will continue to increase until the next decade, reaching as high one barrel of oil equivalent for each US$1,000 of output.

So what governments do in the policy field now in order to improve energy efficiency will determine the global energy landscape, energy security and rate of climate change ten years down the road, Snowdon said.

"Measures to improve energy efficiency are the cheapest and fastest way to curb demand growth," he said, while urging governments to put in place incentives and policies that stimulate energy efficiency measures and investment in fuel conservation.

According to the Shell report, the annual increase in proven oil reserves in the world has slowed down from 4.5 percent in the 1980s to one percent in the 1990s, and new oil discoveries have been getting smaller in size.

Hence, Snowdon added, there is now a tightening in the supply-demand balance.
The message from the IEA's World Energy Outlook, which was issued last week, is even starker.

It warned that if governments around the world stick to existing policies, the world's energy needs could well be more than 50 percent higher in 2030 than today, with China and India together accounting for 45 percent of the increase in global energy demand.

Snowdon said that fossil fuels -- oil, gas and coal-- continue to dominate the energy mix worldwide. Of these, coal is set to grow most rapidly, driven largely by power-sector demand in China and India.

The IEA predicts that the consuming countries will come to increasingly rely on imports of oil and gas from the Middle East and Russia, while net oil imports in China and India combined will jump from 5.4 million barrels/day in 2006 to more than 19 million barrels/day in 2030, which is larger than the combined imports of the U.S. and Japan today.

According to Shell, the question now is which price mechanism can be relied upon to generate the appropriate signals, investment and technological developments.

The IEA is more blunt in its policy recommendation, urging governments to let market forces do their job more effectively by removing fuel subsidies that hide the true energy costs.

In many countries, including Indonesia, oil prices often do not reflect the real and full costs of the energy because of government subsidies, thereby hindering the viability of investments in energy efficiency and renewable energy.

Government subsidies keep the gasoline price in Indonesia half the price as that paid by people in Singapore.

But because of the generous subsidies for oil fuels, the oil market in Indonesia has failed to function well as there is no significant demand response to price signals.

Antitrust body's report is an embarrassment

Thursday, October 25, 2007 Vincent Lingga, The Jakarta Post, Jakarta

After about four months of controversial investigations, a special team of the Business Competition Supervisory Commission (KPPU) has concluded that Singapore's Temasek Holdings Pte. Ltd., PT Indosat and PT Telkomsel conspired in price-fixing practices in the mobile telecommunications industry, thereby violating the anti-monopoly law.

However, the KPPU report is unlikely to do any damage to Temasek's international reputation. It instead embarrasses the Indonesian government and causes great concern about the quality of governance at our state companies and the competence of their managements and supervisors.

I will not bore or confuse you with all the telecommunication, cellular or financial jargon used in the KPPU report. The 109-page document looks professionally impressive, showing the hard work of the five-member investigation team, which was assisted by eight investigators and two notaries public.

The essence or central message of the report is that Temasek, through its cross-ownership in Indosat and Telkomsel, was found to have masterminded price-fixing practices by both cellular operators and that Temasek deliberately obstructed Indosat's sound growth to allow Telkomsel to maintain its market dominance.

These findings, if they prove to be true -- the final ruling will be made in the middle of next month -- would be damaging to the government, especially the state minister for state companies.

The government controls PT Telkom, which in turn owns 65 percent of Telkomsel, the country's largest cellular operator, and consequently appoints the majority of its directors and commissioners.

Temasek, through its subsidiaries, owns only 18.9 percent of Telkomsel.
On the other hand, Temasek, also through its subsidiaries, holds 30.61 percent of Indosat, the country's second largest mobile operator, with 14.29 percent owned by the Indonesian government, 10.20 percent by the Qatari government and 44.89 percent by the investing public, including foreign institutional investors.

Even though the Indonesian government owns only 14.29 percent of Indosat, it succeeded in appointing five of the nine members of the board of directors, including the president director. More than half if its nine-member board of commissioners were either representatives of the government or independent commissioners.

The government holds a golden share (A share) in Indosat which gives it veto power over important corporate decisions.

What then is the logic of the KPPU findings? Wouldn't those allegations also insult the intelligence of the investing public, including foreign institutional portfolio investors, who own 44.89 percent of Indosat and 47.77 percent of Telkomsel?

If the conclusion of the investigation team is true, which theoretically should be the case because, as the vanguard and defender of fair business competition, the KPPU is supposed to come out with an assessment that has logic and makes economic sense, that would be worrisome indeed.

But the question then is how could Temasek, despite its cross-ownership at Indosat and Telkomsel, control both companies and dictate their prices while the Indonesian government simply sat back and relaxed, acting as a seemingly innocent bystander.

What then is the function of government-appointed directors and commissioners at both cellular operators, and why did the Telecommunications Regulatory Body close its eyes to the alleged price fixing?

Has the government been ignorant or grossly incompetent in recruiting and appointing directors and commissioners?

Is the way the government treats and oversees Indosat and Telkomsel typical of its management and supervision of the other 128 state companies?

It is Telkomsel, which is 65 percent controlled by state-owned Telkom, that would benefit the most if Temasek deliberately hampered Indosat's business growth, as the KPPU team concluded.

What is the logic of this? It simply insults the intelligence of even the man on the street, because Temasek indirectly holds only 18.9 percent of Telkomsel.

These are just some of a layman's questions about the logic of the most important conclusions of the KPPU report.

But then, the events that led to the KPPU investigation of Temasek, Indosat and Telkomsel were controversial and full of political intrigue right from the outset. The KPPU also seemed to have departed from its standard procedures and practices in handling the case.

Departing from the KPPU's normal practice, Benny Pasaribu, a member of the KPPU investigation team who disagreed with the conclusions of the team, was not included in the five-member panel of judges.

Very rarely has the KPPU chairman talked to the media about a case still under investigation. But over the past few months Muhammad Iqbal has often been quoted in the media about the case even though he was not a member of the investigation team.

Given the KPPU's reputation for absurd rulings -- many of these rulings were simply overturned by district courts or the Supreme Court -- the KPPU panel of judges that is scheduled to make its ruling in the middle of next month may simply adopt the findings of the investigation team.

Temasek and its subsidiaries will certainly appeal to the district court and up to the Supreme Court, and may even bring the case to the international court if unsatisfied.

Whatever ruling the KPPU panel of judges makes next month, the controversy and political maneuvering surrounding the Temasek business group's investment in Indosat and Telkomsel has damaged the investment climate in the country.

The Qatar government, which owns 10.20 percent of Indosat, may in retrospect ask itself, "Why in the first place should I have put my money in this Indonesian asset?"

The KPPU report will not affect the international reputation of the Singapore government's investment company, given the notorious image of Indonesia's law-enforcement system and, by implication, the integrity and technical competence of the KPPU.

All in all, the biggest victim will be Indonesia's investment climate and the Indonesian government, which was made to look silly by the report.

Trade expo opens with an attitude of optimism

Wednesday, October 24, 2007 Vincent Lingga, The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono opened the annual Trade Expo Indonesia at The Kemayoran fair grounds here Tuesday amid fears of a weakening global economy that could dampen international demand for the country's commodities.

The President cited the International Monetary Fund's downward revision of world economic growth from 5.2 to 4.8 percent next year and the steep rise in oil prices, warning "this could affect our exports, the state budget and the whole economy".

"But the government is fully aware of this challenge and has taken preemptive measures to minimize its impact on our economy," he said.

He said less favorable international market conditions should lead to stronger cooperation between the central government, regional administrations and the business community to improve the country's economic competitiveness and its exports.

The President urged all government institutions to improve public services and expedite the licensing process for businesses, saying the competition on the international market and for investment would only get tougher.

"It is a big sin to deliberately make things difficult for businesses," Yudhoyono said to the applause of businesspeople, foreign buyers and exhibitors attending the opening ceremony.
Trade Minister Mari Elka Pangestu said the five-day trade expo was being attended by more than 1,000 exhibitors and was expected to be visited by 4,000 foreign buyers and book US$200 million worth of export deals.

During the opening, the President also honored 29 small and large companies with the Primaniyarta export award for their outstanding performance in the international market.
Among those honored was PT Musim Mas, an integrated palm oil company in Medan, North Sumatra, which won the award for the eighth time. Its affiliate PT Megasurya Mas in Surabaya, also a palm oil industry, won that award for the third time especially for global brand promotion.
Most of the winners are natural resource-based exporters that process such commodities as palm oil, bamboo, rattan, rubber, wood, ceramic, pulp and coal.

Yudhoyono said Indonesian exports last year for the first time exceeded $100 billion, or almost 18 percent higher than 2005, and are expected to continue expanding by nearly 16 percent this year.

According to the Central Statistics Agency, non-oil exports totaled $59.9 billion in the first eight months of the year, up 19 percent from a year earlier, but most of the gain was generated by steep rises in the prices of primary commodities such as palm oil, rubber, coffee, wood, coal, pulp, copper and other minerals.

The President said exports were not the sole responsibility of the Trade Ministry because the competitiveness of export products was influenced by numerous factors under the jurisdiction of other ministries.

"The projected decline in global economic expansion should force all of us to work together to strengthen the competitiveness of our exports to make our economy more attractive to foreign investment. Customs service should be expedient, taxpayers should pay their taxes in full," he said. Inefficient logistical arrangements related to roads, transportation services and seaport handling have often been cited as one of the biggest difficulties facing Indonesian companies seeking to expand exports.

Market mechanisms, not government, should enforce CSR initiatives

Friday, October 05, 2007 Vincent Lingga, The Jakarta Post

Good reputation in the community is a company's best defense against business risks and its strongest competitive advantage to gain market share and increase corporate value for shareholders and stockholders.

That is the most outstanding message conveyed by business and civil-society leaders from more than 25 countries who shared their managerial successes and mistakes at the sixth annual Asian Forum on Corporate Social Responsibility (CSR) in Ho Chi Minh City last week.

They asserted that merely abiding by the laws is no longer sufficient to secure smooth business operations as firms are now required to expand their social responsibility and do more to protect the environment and empower the communities around their operational areas.

However, the CSR concept is not about philanthropy, which will only create a sense of artificial prosperity. Nor is about throwing money around or simply writing a check for a foundation which is not sustainable in the long term.

The core of CSR is the process of empowering the local community through programs that gradually transfer business, technical and social competence.

Highly profitable companies are not automatically great or admired by the public. Cases of successful businesses presented here testify that businesses, which have fulfilled their social obligations and care much about the natural environments are the most admired companies.

The mainstream thinking on CSR is converging on two basic issues: The ethical conduct of business and the contribution of business to sustainable development involving all stakeholders. Sustainable development itself is regarded as another term for the triple bottom line -- social, environmental and economic lines.

For example, honoring human rights, meeting labor, occupational health standards and fulfilling environmental regulations are simply good corporate governance practices. That is obeying the laws not CSR in its broadest sense.

CSR requires companies to share a portion of their profits for programs to empower the people or at least the local communities around their areas of operations.

Accounting investments or spending in CSR programs as part of production or operation costs (hence tax deductible), as Indonesia's Limited Company Law No.40/2007 stipulates, will reduce the meaning of the concept.

Certainly, companies must abide by regulations in any country where they operate, but implementing CSR should not depend on a specific law. It should be inspired by the strong commitment of the shareholders and management to create sustainable development. Making CSR mandatory may shift the focus of attention to the amount of spending, not the outcome.
No wonder, there have been many international initiatives launched to promote standards of business conduct which are all designed to create sustainable development.

The United Nations Global Compact, which was formed in 2000, brings companies together with UN agencies and civil society groups to promote universal principles on human rights, labor, the environment and fighting corruption.

Then there is the World Business Council for Sustainable Development and the Dow Jones Sustainability Index. Other well-known initiatives include the Business Charter for Sustainable Development drawn up by the International Chamber of Commerce, the Charter for Good Corporate Behavior drawn up by Keidanren in Japan and the Consumer Charter for Global Business developed by Consumers International, which links 200 consumer groups in more than 80 countries.

Memberships in these organizations are mostly based on invitations, meaning that only companies which have good records in CSR or honor their principles or codes of business conduct they are entitled to join.

However, the implementation of the business codes of the organizations is voluntary, not legally binding. But even though voluntary in nature, the business codes have made positive impact because companies which join the CSR organizations impose the codes and standards on their business partners within their respective supply-chain management.

Such a kind of arrangements, though without law enforcement mechanism, has unleashed market pressures to force companies to implement the business codes or CSR principles pursued by the various organizations oriented to the promotion of CSR.

The emphasis of the CSR principle certainly differs from one company to another, depending on their areas of operations. Environmental concerns, for example, are the top priority for businesses engaged in the extraction of natural resources. But labor rights are the main concerns for such labor intensive industries as shoes and garments.

However, enforcing CSR principles through legislation as Indonesia did with its new corporate law in July could be counter-productive and even cause a new source of uncertainty in the business world.

The stipulation of mandatory CSR for natural resource-based businesses in the 74th article of the Limited Liability Company Law simply reflected the muddled thinking about CSR among the politicians at the parliament.

Making CSR mandatory only makes doing business in Indonesia unnecessarily more complicated, especially if regional governments join the fray and come up with their own standards or guidelines of CSR.

There are already too many laws governing the conduct of business and fulfilling these laws alone is already an uphill challenge for most companies. And in so far as Indonesia is concerned, these numerous laws, instead of strengthening the legal frameworks and law certainty, have often incited conflict, caused bribery due to acutely inadequate enforcement, caused either by technical incompetence or high venality among officials.

How is then to contain the damage already done by the 74th article of the company law?.
Simply by not issuing regulations on its enforcement. This particular article stipulates its implementation shall be governed by a specific regulation. Hence without the desired specific implementation regulation, the specific article will not be effective.

Let the market mechanisms -- pressures from shareholders and stockholders such as suppliers, consumers, civil society organizations -- work to enforce the CSR principles.

UN, WB seem more determined to trace Soeharto's assets

Friday, September 21, 2007 Vincent Lingga, The Jakarta Post, Jakarta

The World Bank-United Nations joint initiative to help developing countries recover assets stolen by corrupt leaders could be a tremendous boost to the Indonesian government's efforts to hunt down the billions of dollars allegedly stolen by Soeharto between 1967 and 1998.

However, the final results of the campaign to trace and recover the embezzled funds will still depend on the integrity and performance of our law enforcement agencies, notably the court and anti-money laundering systems.

The experiences of countries such as Nigeria, Peru and the Philippines, which have succeeded in tracing and recovering billions of dollars of state assets stolen by their former heads show that strong domestic political will and the ability to implement legislative reforms and prosecute former corrupt officials is fundamental to successful asset recovery.

However, none of our presidents -- B.J. Habibie, Abdurrahman Wahid, Megawati Soekarnoputri or incumbent Susilo Bambang Yudhoyono -- seem to have the political courage required to prosecute Soeharto.

It is a further disgrace to the integrity of our justice system that the World Bank-UN report puts Soeharto at the top of the 10 most corrupt former leaders, alleging he stole anywhere between $15 billion and $35 billion.

Even the latest legal move -- the US$1.50 billion civil lawsuit filed by the attorney general against Soeharto at the South Jakarta District Court in early July -- appeared to be simply a public relations ploy to assuage the public's frustration with the government's indecisiveness regarding the former authoritarian ruler's alleged crimes.

But how could the new initiative of the UN and the World Bank help strengthen the hands of our law in tracing and recovering the billions of dollars allegedly hidden by Soeharto and his family?
After all, the World Bank itself has acknowledged it closed its eyes to corruption within its multi-billion-dollar projects in Indonesia during Soeharto's rule.

First of all, the new program, called the Stolen Asset Recovery (StAR) initiative, will step up legal action against corrupt government leaders from bilateral to multilateral battle under the World Bank-UN umbrella.

Hence, the 140 countries that have signed and ratified the UN Convention Against Corruption (UNCAC), are obliged to provide mutual assistance to each other to trace and recover stolen assets.

Under StAR, the World Bank and the UN Office of Drugs and Crime will help such countries as Indonesia with technical assistance and grants to improve its institutional capacity to trace and recover stolen assets, and will see to it that countries on the receiving end of the stolen assets comply with the UNCAC provisions.

The initiative will thus foster much needed cooperation between developed and developing countries and between the public and private sectors to ensure that looted assets are returned to their rightful owners.

Yet more importantly, the UN-World Bank joint battle could strongly deter countries from becoming havens for corrupt money, and corrupt leaders will find it increasing difficult to hide their ill-gotten gains.

Many developing countries have been hindered by their inadequate capacity to prepare indictments, collect and present evidence, properly adjudicate cases and win convictions, trace the proceeds of corruption and obtain valid freezing and confiscation orders.

The problem, as Indonesia has encountered, is that asset tracing and recovery always entails a host of complications and difficulties, including conducting investigations in two or often more jurisdictions, legal differences between common law and civil law between countries or dual criminality conditions.

Herein lies the importance of UNCAC, the legal foundation for the StAR initiative. State parties (signatories) to UNCAC are obliged to extend mutual legal assistance in investigations, prosecutions and judicial proceedings for the return of embezzled public funds on the basis of a final judgment in the requesting state.

It is thus quite clear that any action involving cooperation of other countries within the UNCAC framework still depends on the final (court) judgment in the requesting state.

Other countries, notably developed ones, where our stolen assets are hidden, may not cooperate because they do not trust our court decisions and the credibility of our court system.