Investment growth in Indonesia, from both domestic and foreign sources, is predicted to slow next year as the country feels the impact of the global slowdown. Tensions in domestic politics ahead of next yearâ€™s elections may also see investors delay some of their plans, economists said.
The Investment Coordinating Board, or BKPM, announced on Dec. 10 that actual foreign direct investment hit $14.22 billion from January to November 2008, an increase of 40.4 percent over the same period a year ago.
Actual domestic investment during the first 11 months of the year dropped 51 percent to Rp 16.73 trillion ($1.52 billion), as compared to Rp 34.11 trillion ($3.1 billion) in the same period last year.
BKPM reported that the transportation, storage and communications sectors attracted the largest amounts of investment, drawing some $8.53 billion in FDI from January to November.
Destry Damayati, an economist at PT Mandiri Sekuritas, said that tightening liquidity in both global and domestic financial markets and increasing risk perception over business sustainability would slow overall investment in Indonesia next year.
â€śThe banking sector will be reluctant to give credit because they perceive increasing risk in investing amid the economic slowdown,â€ť she said on Sunday, adding that â€śthe cost of funds has also increased globally.â€ť
â€śInvestors are likely to hold back any plans of investing anywhere,â€ť Destry continued. â€śEven though the private sector has the liquidity, they would prefer to strengthen existing business rather than expand.â€ť
Destry explained that some of Indonesiaâ€™s most reliable foreign investors - including Japan, Singapore and the United Kingdom, - could still be struggling with the financial crisis next year.
Bambang Soesatyo of the Indonesian Chamber of Commerce and Industry, or Kadin, said the government should work to safeguard consumer spending as investment decreases, while also taking care to prevent massive layoffs.