President Megawati accepted that many foreign businesses did not feel safe in Indonesia and felt unprotected by the legal system, but pledged government action in these areas.

"I understand... we need to keep improving our economic basics to create a good investment climate," she said.

"The government, along with other state institutions, are also continually taking steps to ensure legal uncertainty."

In the first nine months of 2002 promised foreign investment fell 39% to $3.5bn.

Key to success

As part of its strategy the Indonesian government is setting up an investment team which will include several senior ministers to help with the realisation of planned projects that have official approval.

Theo Tumion, chairman of the new body - the National Investment Coordinating Board - said on average only about 20% of these projects have actually been completed each year since 1997.

The board has the support of the World Bank.

Andrew Steer, the Bank's director for Indonesia, said the seriousness of the new body would be key to attracting foreign investors.

Concerns

Mr Steer told the AFX-Asia news agency the key problem was the poor investment climate, aggravated by bureaucratic power plays and red tape.

"At the moment, an individual cabinet member can stop a major deal from going through. Everyone seems happy to engage in power play. That has to change," he said.

"There are hundreds of things that can be done very quickly to improve the situation and I think the investment team offers a very good hope."

As well as problems with bureaucracy and the legal system, security issues concern many investors.

In May 1998 riots led to the overthrow of President Suharto and since then there has been persistent outbreaks of ethnic violence.

The terrorist attacks on the island of Bali in October last year have added to concerns.