Realized investment continues to drop

Urip Hudiono, The Jakarta Post, Jakarta

Despite all the efforts to improve the investment climate, little seems to have changed in terms of results, with the figures for actual investment in Indonesia continuing to fall.

Realized overseas investment for the eleven months ending Nov. 30 consisted of 801 projects worth US$4.69 billion, the Investment Coordinating Board (BKPM) said, representing a 46 percent drop in value as compared to the 831 projects worth $8.67 billion recorded in the same period a year ago.

Actual domestic investment up until the end of November similarly saw a 37 percent drop in value to Rp 16.9 trillion (US$1.86 billion) involving 145 projects, from Rp 26.9 trillion involving 192 projects previously.

This puts Indonesia's realized investment on a declining curve for the fifth straight month since June, which was the last month that saw a rise in actual investment. Both realized overseas and domestic investment between January and November 2005 doubled in value from the previous year.

On a more optimistic note, the BKPM's latest figures showed that foreign direct investment approvals between January and November this year rose 18 percent to $13.88 billion from a year ago, while domestic investment approvals nearly tripled to Rp 157.5 trillion.

FDI approvals from Malaysia were the highest, rising fivefold to $2.2 billion from last year, while those from Switzerland and Spain also grew significantly to $477 million and $132.6 million, respectively. FDI approvals from Japan -- Indonesia's main investment source -- and China, however, dropped by 61 percent to $430.1 million and 43 percent to $114.8 million, respectively.

A rise in investment approvals reflects improving confidence in the country's investment climate. However, it is investment realization that actually translates into economic growth and job creation.

Speaking during a hearing with the House of Representatives' trade, industry and investment commission, BKPM chairman M. Lutfi acknowledged the decline in actual investment over the course of the year.

Last year's fuel price hikes -- which translated into weaker purchasing power -- and Indonesia's lingering electricity and gas supply problems, had discouraged investors from putting more money into the country, Lutfi said.

Investors from Japan also complained of problems revolving around legal certainty, taxation, customs and excise, infrastructure and labor relations.

Meanwhile, the recent slowdown in China's manufacturing sector has affected that country's mostly natural resources-based investments in Indonesia, which supply raw materials for China's factories.

"But the investment commitments (in the form of approvals) have actually begun to rise again in 2006," Lutfi said. "And with the recent improvements to our macroeconomic situation, we expect investment to continue growing in 2007."

In recent remarks, Coordinating Minister for the Economy Boediono said that the government wanted more long-term investments that would contribute more to sustainable economic growth, indicating that Indonesia may screen potential investors in the future. However, Lutfi told reporters that the BKPM's function was only to facilitate investment and record the statistics.

"But, if a special committee is needed for that, than we could establish it under the auspices of the BKPM," he said.
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