Professor Mohamad Ikhsan of the University of Indonesia\u2019s Faculty of\nEconomics and Business has issued a stark assessment of the national\ninvestment climate, scoring it two out of ten and describing current\nconditions as the worst he has observed. The assessment deserves\nattention, particularly as it comes from an economist who has long\nstudied the relationship between policy credibility, investor\nconfidence, and economic growth. Yet precisely because the assessment\ncarries such weight, the claim also needs to be tested against\ninvestment indicators that can be observed and compared openly.<\/p>\n
The framework of concern is understandable. When policy certainty\ndeclines, investors may delay decisions, risk premiums rise, financing\ncosts increase, and ultimately investment and economic growth come under\npressure. In a modern economy, changes in expectations can occur well\nbefore their impact becomes visible in realised statistics. For this\nreason, warnings about policy credibility should not be ignored. The\nissue is not the mechanism itself, but whether current conditions are\nsufficient to be described as the worst point for Indonesia\u2019s investment\nclimate.<\/p>\n
It is important to distinguish between leading indicators and\nindicators that record decisions already realised. Market sentiment,\nbusiness perceptions, and policy expectations can change quickly and\nserve as early signals. By contrast, realised investment and Gross Fixed\nCapital Formation reflect decisions that have entered the implementation\nstage. The two groups of indicators can move differently at the same\ntime. Today\u2019s sentiment may warn of future conditions, while investment\nrecorded now is the result of decisions made several months earlier.<\/p>\n
However, if current conditions are to be called the worst, realised\ndata still deserve an important place in the assessment. Throughout the\nfirst half of 2026, realised investment reached Rp1,010.6 trillion,\ngrowing 7.2 percent compared with the same period the previous year. In\nthe second quarter alone, the value reached Rp511.8 trillion, up 7.1\npercent year on year. On the real economy side, Gross Fixed Capital\nFormation in the second quarter of 2026 also grew 6.87 percent. These\nfigures do not yet show an investment contraction, let alone the\nreversal commonly associated with a collapse in investor confidence.<\/p>\n
Foreign capital developments provide additional context. In the\nsecond quarter of 2026, foreign direct investment reached Rp257.7\ntrillion, or 50.4 percent of total realised investment, while domestic\ndirect investment stood at Rp254.1 trillion. A year earlier, foreign\ninvestment reached Rp202.2 trillion, or 42.3 percent of total\ninvestment. These data do not prove that all regulatory problems have\nbeen resolved. However, the increase in the value and share of foreign\ninvestment means the conclusion that investor confidence has reached its\nworst point needs to be treated more cautiously.<\/p>\n
Even so, positive data do not mean there are no signs worth watching.\nGrowth in realised investment is beginning to lose momentum. In the\nfirst half of 2025, investment was still growing at around 13.6 percent\nyear on year, whereas in the first half of 2026 growth fell to 7.2\npercent. In the second quarter, growth also slowed from 11.5 percent in\n2025 to 7.1 percent in 2026. The emerging problem is therefore not a\ndecline in investment value, but a slowdown in its pace. It is at this\npoint that warnings about policy certainty and consistency gain their\nrelevance.<\/p>\n
The difference in diagnosis matters. An investment climate that is\nlosing momentum requires efforts to continue strengthening regulatory\ncertainty, policy consistency, licensing quality, and competitiveness so\nthat investment that is still growing does not reverse into weakness.\nConversely, describing current conditions as already at their worst\npoint may paint a more extreme picture than the data show. Realised\ninvestment remains at a high level, foreign capital continues to enter,\nand real capital formation is still growing. Risks lie ahead, but\ncurrent conditions do not yet show an investment collapse.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/weighing-the-warning-about-the-investment-climate-1787565013", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }