From Government of Indonesia

Sharp Jump in Project Approvals

The Investment Coordinating Board (BKPM) approved foreign direct investment proposals worth $21.99 billion during the five months to May, up fivefold from a year ago, a senior official of the agency said Friday (30/6/07).

BKPM secretary Yus'an said the solid rise reflects improved investor confidence in Indonesia's
investment prospects.

Domestic investment proposals approved by his office reached Rp110.6 trillion over the same period, up 94.58% percent from the previous year.

"Both foreign and local investors have seen that the government has done something to improve the investment climate," Yus'an told Thomson Financial.

He was referring to the passage of the new investment law in March, which gives the government a legal basis for providing tax incentives to new investors as well as to existing businesses planning to expand their operations.

It also stipulates that domestic and foreign direct investment "will be treated equally" in terms of rights, obligations and facilities.

Bank Indonesia (BI) Governor Burhanuddin Abdullah, meanwhile, said the same day there was still room for further reductions in the benchmark rate, although he did not provide any timeframe, Reuters reported.

Inflation and trade figures are due out this Monday, with most analysts tipping a further slight reduction in inflation but a likely pause in rate cuts. The central bank will meet on Thursday to decide its position on the rate, which now stands at 8.50%.

"The important thing for us is inflation ... As inflation can be pushed down to a low level, there is no reason for high interest rates," Abdullah told reporters.

A Reuters poll of analysts saw successful stabilization of rice prices as a major factor in controlling inflation.

The analysts also forecast May exports grew 10.5% from a year earlier, slowing from a 15.8% annual rise in April. Imports are also expected to slow.

Moody's Investors Service reaffirmed its positive outlook on Indonesia’s ‘B1’ local and foreign currency bond ratings, saying the position reflected improving political and economic stability, a diversified economy supporting stable growth, prudent fiscal policy and an improving debt trajectory and external payments position, Thomson Financial reported.

"In 2007, Indonesia's fiscal deficit is likely to exceed the government's original target of 1.1% of GDP, and reach 1.8%, based on an acceleration of VAT refunds, and some additional spending on infrastructure and disaster prevention," said Moody's vice president and regional credit officer for Asia, Tom Byrne, in Mumbai.

"That said, the overall trend reduction of the government debt/GDP ratio will remain on track owing to a combination of relatively strong economic growth, lower inflation and interest rates, a stronger rupiah and an expected pickup in privatization receipts," he added.

In Jakarta, Deborah Schuler told a briefing that banking sector health has improved greatly and will continue to improve as rates decline, and with improved earnings and shrinking bank non-performing loans.

She said Moody's expects Indonesian banks to continue their risk management reforms and restructuring, and to gradually move towards global best practices, though she added that the process would take time.

A survey by the Gallup organization found that major business leaders were generally positive about prospects.

Gallup interviewed 75 senior figures in the business community as part of a new Business Optimism Index (BOI) and found that 78% believed business conditions were improving, with 72% saying conditions were already positive.

On the Jakarta Stock Exchange, share prices ended down 0.60% on the week after recovering from earlier lows. The composite index closed at 2,139.278.

The rupiah strengthened to 9,045/9,055 to the dollar, compared to 9,075/9,080 late Thursday.
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