Dean Yates, Jakarta – In the past two months foreign investors have snapped up a bond by Indonesia's top mobile phone firm, a US investment fund paid good money for the country's biggest retail bank and creditors agreed to roll over more state debt.
Has the world's fourth most populous country finally turned the corner after flying off the rails during the Asian economic crisis in 1997, disappearing from investor radar screens under the weight of political turmoil and communal violence?
"There is nothing imminent that makes us think we would dramatically shift direction so maybe we have moved out of crisis mode although we're on a fragile path fraught with difficulties," said Jim Castle, a prominent business consultant and former head of the American Chamber of Commerce in Indonesia.
Besides investors taking a fresh look at Indonesia, foreign capitals have become less panicky about a giant nation that straddles vital sea lines and which in the blink of an eye went from regional heavyweight and economic success to the East Asian country most fretted about after North Korea.
But many still doubt President Megawati Sukarnoputri will abandon her legendary caution and decisively tackle thorny economic and judicial reforms before the next election in 2004.
Sarwono Kusumaatmadja, a former minister in previous administrations, said the greatest danger for Indonesia was that the political elite had little interest in solving problems. "I think sanity is back in fashion ... but I don't think [the elite] have a grasp of things. We have a president who doesn't create problems but she doesn't solve them either," he said.
The Asian economic storm bludgeoned Indonesia, unleashing the forces that blew former President Suharto away in May 1998 after 32 years of iron rule and setting the stage for political chaos that only began to ease when Megawati took over last July.
Attitudes changing, slowly
At first glance, foreign investment approvals paint a bleak outlook. Pledges sank 79 percent year-on-year in the first two months to $490 million, after falling last year 41 percent to $9 billion from 2000.
But Castle and other business consultants said while foreign investors did not have their wallets out, there had been a clear shift in attitudes in recent months.
"A lot of people have begun looking over the wall at Indonesia. There is some sense of comfort this administration will hold together," said one foreign security risk consultant, whose clients represent a range of industries.
On Tuesday, mobile phone firm PT Telkomsel tapped foreign investors for $150 million in Indonesia's biggest dollar bond deal since Asia's financial crisis. More than 50 overseas investors made up 70 percent of total demand for the bond.
Last month US investment firm Farallon Capital Management bought a 51 percent stake in Indonesia's leading retail bank, Bank Central Asia (BCA) , for some $530 million.
The Paris Club of official creditor nations backed Indonesia earlier this month by rolling over $5.4 billion in debt, while ties with the IMF have been solid since Megawati took over.
Stocks have also been near two-year highs while the rupiah has firmed some 10 percent to the dollar since the end of 2001.
Don't forget what ails
All well and good, but what about the issues that bedevil Indonesia and have kept foreign investors at bay for years – judicial reform, graft, weak law enforcement, opposition to privatisation, militant Islam and haphazard governance.
Despite perceptions abroad that militant Islam represents a major threat to the world's largest Islamic community, the biggest headache is probably judicial reform and the rule of law – which both breed the graft that hobbles the economy.
Officials believe harsh criticism of Megawati is unfair. "Of course we haven't achieved all we wanted, but it cannot be denied that this government under President Megawati has made progress," Foreign Minister Hassan Wirajuda said last week.
Many analysts see Indonesia's relative political stability remaining and virtually no one believes Megawati – who sees eye to eye with the influential military on a range of national policy issues – will be ousted ahead of the 2004 election.
Her popularity among Indonesia's impoverished masses, the lack of a credible alternative and even a modest track record will make her hard to beat in 2004.
However, Megawati is vulnerable to Islamist politicians seeking to exploit her secular/nationalist credentials, partly explaining her unwillingness to crack down on small but extremist Muslim groups as part of the US war on terrorism.
"Megawati is certainly the frontrunner," said William Liddle, professor of political science at Ohio State University and an Indonesia expert, referring to the next election.
"A governing centre has been created around Megawati and her party that could last into the future if everyone plays their cards right. It's fragile but the wonder is that it's there."