RI risks losing out to ASEAN peers in attracting investment

Urip Hudiono, The Jakarta Post, Jakarta

With the integration of Southeast Asia's trade and investment on the horizon, the government must begin improving Indonesia's development policies in line with the region's future economic landscape, analysts say.

Indonesia in particular must iron out lingering uncertainties that have long shrouded the country's investment climate, and roll out those sectors it wants to develop to attract more investors, according to the analysts.

Failing to do so will see Indonesia left out of the increased trade and investment in the region following the planned economic integration.

"We all know uncertainties in law and infrastructure have been the major stumbling block for investment. But equally important to be resolved is uncertainty in policies," economist Sri Adiningsih of Gadjah Mada University in Yogyakarta said.

Sri Adiningsih said other countries in the region were already a step ahead of Indonesia, with Singapore and Malaysia having conceived industrialization blueprints -- with incentives for investments -- that they are fully committed to implementing.

"Thailand has also set its focus on its automotive industry. Even countries outside the region have done so too -- India with its information technology specialization and China in manufacturing and goods processing.

"If we continue with this lack of direction, then we'll face a serious problem in joining the region's single market, much less from benefiting from it. And we only have a few years to prepare ourselves," she said.

The Association of Southeast Asian Nations (ASEAN) has agreed to work on forming a European-style economic community by 2015, five years earlier than originally planned, uniting the 10-member region into a single market for the free flow of goods, services and investment.

Foreign direct investment (FDI) into ASEAN during the first quarter of 2006 soared by nearly 90 percent to US$7 billion compared to the same period last year. It rose by 48 percent to $34 billion in 2005, with the manufacturing sector being the top FDI recipient.

Indonesia attracted some $6 billion of last year's FDI inflow to the region, coming second only to Singapore's $20 billion.

While ASEAN is upbeat that the FDI figures will continue to rise, Indonesia risks stuttering in its investment growth.

According to data from the Investment Coordinating Board, actual FDI in Indonesia in July, the first month of the second semester of 2006, was down 25 percent to $3.7 billion, after slowing to first-half growth of only 4 percent from the first quarter's 29 percent.

Total investment in the first quarter shrank by nearly 1 percent to $17 billion, according to the Central Statistics Agency.

Separately, Trade Minister Mari E. Pangestu was quoted by AP as saying Indonesia's trade growth was seen reaching 10 percent next year on a continuing rise in global commodity prices.

"We think that the outlook for commodity prices is relatively high. A lot of it is being pushed by high oil prices and continued growth in China and India," she said late Wednesday on the sidelines of the ASEAN meeting in Kuala Lumpur.

"If the commodity prices outlook is still favorable, we could comfortably reach 10 percent (trade) growth next year," she said.

Sri Adiningsih, however, said Indonesia could not rely forever on exporting commodities for sustainable growth, stressing the importance of investment in industries that process the commodities, as well as manufacture goods.
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