Sat, 03 Feb 2007
From: The Jakarta Post
By Ary Hermawan, The Jakarta Post, Jakarta
While welcoming President Susilo Bambang Yudhoyono's speech on Wednesday, which emphasized the need to intensify efforts to boost investment, economists say that now is the time for "less talk and more action."

"Investors are still waiting to see what the government will do to improve the investment climate here," Danareksa chief economist Purbaya Yudhi Sadewa said Thursday.

In his New Year's speech, Yudhoyono said that the lack of legal certainty, unattractive fiscal policies, an inefficient bureaucracy, especially in the regions, and inadequate infrastructure were all working to deter new investment.

The latest Investment Coordinating Board (BKPM) figures reveal that realized foreign direct investment (FDI) last year fell by 32 percent to US$5.97 billion from $9.81 billion the previous year.

Domestic investment also dropped to Rp 20.78 trillion (US$2.23 billion), representing a 32 percent decline from the Rp 30.66 billion recorded the previous year.

Yudhoyono, while lauding the fact that exports last year exceeded $100 billion for the first time ever, said he was very concerned about the investment figures.

"Together, we, the government, as well as the House of Representatives, the judiciary and law enforcement institutions, businesspeople, and the public at large, have to overcome the pressing problems that are currently deterring investment," Yudhoyono said.

While the president had identified the right problems, said Standard Chartered chief economist Fauzi Ichsan, he had yet to clearly outline the concerted efforts that were needed to improve the country's investment climate.

"The government must keep its promise to provide investors with legal certainty, sustainable infrastructure development and stability so as to boost investment," Fauzi insisted.

Government spending should also be directed at the productive sectors of the economy so as to help spark further investment, both domestic and overseas, Fauzi added. Such investment would eventually lead to more robust economic activity and growth.

The economy is estimated to have grown 5.5 percent last year, according to the central bank, a little slower than the 5.6 percent growth recorded the previous year, after spending was hit hard by high inflation and interest rates.

In fairness to the government, Purbaya said, the unfavorable inflationary and interest-rate environments last year had also stymied investment.

"Why would anyone invest at a time when demand is declining?" he asked. However, he added, this did not mean that things could not be improved.

"Now that the effects of the fuel price hikes on inflation are working their way out of the economy and the Central Bank has begun lowering its rates, the government must use this as an opportunity to get the economy back on the rails," he said.

He stressed that the government needed to speed up the deliberations in the House of the much-awaited new tax, mining and investment legislation. In addition, conflict between central and local government regulations needed to be eliminated.

"They are all confused by the existing regulations," he said. "It is clear that many government regulations and ministerial decrees are actually inimical to investment, and the President clearly has the power to deal with this problem," he said.



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