Robert Go, Jakarta – The Indonesian government appears keen to show that there is little "legal certainty" for foreign investors in the country, even after warnings from international donors that further loans would be tied to, among other things, reform measures for the judiciary.

Minutes after meeting officials from the World Bank, the IMF and other donor countries, who advised more consistency in Jakarta's treatment of disputes pitting foreign investors against local companies, Attorney-General Marzuki Darusman said that he is likely to halt probes into local tycoon Suyanto Gondokusumo, accused of defrauding Canadian insurer Manulife.

"We are heading that way, although we are still investigating. If there is no legal base, we will close the case," he told reporters. He added that investigators had turned up little evidence against Mr Suyanto, a member of the Dharmala Group's controlling family. The group owes more than three trillion rupiah (S$480 million) to the state and its other creditors.

Manulife's plight in Indonesia has sparked strong criticism from the Canadian government, the IMF and the World Bank, which say Indonesia's legal system is weighed in favour of local companies at the expense of foreign investors.

Manulife owned 51 per cent of a local insurance company, but last October increased its holdings by spending 170 billion rupiah (S$27 million) in a government auction, buying the 40 per cent stake previously held by Mr Suyanto's company.

But days later, Roman Gold Assets, an obscure company based in the British Virgin Islands, forwarded claims that it had bought the same 40 per cent from a Western Samoan company holding powers-of-attorney over the shares for US$50 million (S$91 million).

Despite Manulife charges that Mr Suyanto and his partners had committed fraud in order to prevent the sale, the police detained and grilled Manulife executives.

Roman Gold also offered to sell its holdings for 460 billion rupiah, nearly three times what the Canadian company had paid.

It was only last week, in the midst of tough negotiations with the IMF over the future of its bail-out programme, that the authorities began to investigate Mr Suyanto and other Dharmala executives.

But following the departure of international agencies' review teams, the government has apparently gone back to its past modus operandi: protecting its own people at foreigners' expense.

Several observers, both domestic and foreign, have used the Manulife case to illustrate why foreign companies may fear investing in Indonesia.

Mr David Chang, president director of Vickers Ballas-Indonesia, said: "Indonesia's judiciary system has no expertise in handling, investigating and settling global transactions, and investigating corporate entities in foreign countries."

A foreign businessman with years of experience in the country added: "It is a case of biting the hand that feeds you."