Rising foreign investment driving RI's economy<\/p>\n
The Jakarta Post, Asia News Network, Jakarta<\/p>\n
Despite the natural disasters that have devastated parts of the
\ncountry, Indonesia's economy is expected to remain on track to
\nrecovery this year, largely because of rising foreign
\ninvestments, improved exports and strong domestic demand.<\/p>\n
Indonesia, Southeast Asia's largest economy, is expected to
\ngrow by between 5 percent and 6 percent this year, with the
\ngovernment posting an official projection of 5.5 percent growth.<\/p>\n
Economists expect the tsunami in Nanggroe Aceh Darussalam and
\nthe massive earthquake that devastated the Nias island in North
\nSumatra to slow Indonesia's economic growth by a meager 0.2
\npercent at the most.<\/p>\n
They warn that a failure by the government to anticipate
\nsoaring global oil prices and a volatile rupiah could result in a
\nhigh inflation rate that could hurt the economy. The government
\nhas another huge task -- to improve Indonesia's investment
\nclimate and invigorate the real sector to ensure growth and
\nreduce the country's poverty and unemployment rates.<\/p>\n
Nevertheless, the numbers are encouraging. Data from the
\nCentral Statistics Agency shows that the country's gross domestic
\nproduct (GDP) grew by 5.13 percent last year, on the back of
\nstrong domestic consumption, improved investment and increased
\nexports.<\/p>\n
This was higher than the earlier estimate of 4.8 percent
\ngrowth. Indonesia's GDP reached Rp 2.3 quadrillion last year,
\nhigher than pre-Asian financial crisis levels.<\/p>\n
Despite the fact that consumption accounted for the majority
\nof the country's GDP -- 66.54 percent, as compared to 20.99
\npercent from investments -- it was in fact investments that drove
\nlast year's economic growth.<\/p>\n
Investments grew 15.71 percent and accounted for 5.9 percent
\nof last year's economic growth, while domestic consumption only
\ngrew 4.94 percent and accounted for 3.1 percent of total growth.<\/p>\n
Standard Chartered Bank country economist Fauzi Ichsan said he
\nexpects this trend to continue, with new investments this year
\nsupporting the domestic consumption sector.<\/p>\n
Standard Chartered estimates that Indonesia's economy will
\ngrow by 5.3 percent this year.<\/p>\n
\"There are indications that new investments are being
\ncommitted to sectors such as the retail and automotive
\nindustries,\" he said, adding that last year's imports largely
\nconstituted investments in manufacturing equipment.<\/p>\n
In its latest report on Indonesia's economy, global investment
\nbank Morgan Stanley said Indonesia had the potential to attract
\nmore foreign direct investment, considering that many existing
\ninvestments in the country were in need of restructuring because
\nof their already high capacity rates.<\/p>\n
New investments are expected to boost production and
\nIndonesia's export capability.<\/p>\n
Meanwhile, Bank Mandiri chief economist Martin Panggabean said
\ninvestments could pave the way for this year's economic growth,
\nwith new investments most likely in the infrastructure sector,
\nparticularly the construction of roads and highways.<\/p>\n
\"The Infrastructure Summit that the government recently
\norganized was a catalyst for investor interest in investing in
\nIndonesia's infrastructure sector,\" he said. Bank Mandiri
\nestimates Indonesia's economy to grow by 5.7 percent this year.<\/p>\n
Despite the upbeat views, there is still a danger of inflation
\nbecause of high global oil prices, which could force the
\ngovernment to raise fuel prices -- again. That danger is even
\nmore imminent as Indonesia is now a net oil importer.<\/p>\n
Higher inflation would in turn lead to higher interest rates,
\nhurting businesses and eventually the whole economy, economists
\nhave warned.<\/p>\n
Inflation has indeed begun to rear its ugly head, with the
\nCentral Statistics Agency reporting the on-year inflation rate
\nfor the first quarter of this year at 8.81 percent because of the
\ngovernment's decision to raise domestic fuel prices last month.<\/p>\n
Bank Indonesia has, however, said it will continue its tight
\nmonetary policy throughout the year -- including adjusting
\ninterest rates to maintain the inflation rate at between 5
\npercent and 7 percent.<\/p>\n
A weak rupiah could also prove to be a problem for the
\ncountry. Indonesia is still at risk of currency problems, as its
\nexports are offset by high imports and debt payment obligations.<\/p>\n
Data from the central bank shows the average exchange rate
\nstood at Rp 9,279 per dollar during the first quarter, off from
\nthe government's assumption of Rp 8,900.<\/p>\n
Another issue that could derail Indonesia's growth is weak
\ngovernance, which could thwart the country's efforts to improve
\nthe investment climate.<\/p>\n
\"The main problem that the government should promptly address
\nis corruption,\" Martin from Bank Mandiri said. \"The legal
\nuncertainties plaguing the country can be traced back to
\ncorruption.\"<\/p>",
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