2001 foreign investment down 41.5%
Berni K. Moestafa, The Jakarta Post, Jakarta
Indonesia's direct foreign investment approvals fell sharply by a full 41.5 percent last year -- to US$9.02 billion from $15.42 billion the year before, confirming fears that the country's investment climate has been dealt a severe setback.
Data from the Investment Coordinating Board (BKPM) showed that, of the $9.02 billion approved last year, only 59 percent -- or $5.4 billion -- had been in the form of new projects.
This compares with the 65 percent, or $10.16 billion in new projects from $15.42 billion approved during the previous year.
BKPM gave no additional information explaining the data, but one official said that they were non-oil and gas investments.
The industries that generated the highest interest among foreign investors had been the trade and repair services, covering 447 projects, other services with 213 projects, and the metal, electronic and machinery services with 103 projects.
The highest investment values were recorded in the chemical and pharmaceutical industries with $2.3 billion. Second in was the service industry with $1.52 billion, along with the hotel and restaurant industry, with $891.6 million.
From the employment side, last year's foreign investment approvals may help create some 225,334 new workplaces.
Domestic investment in 2001 also ended lower at Rp 58.67 trillion from Rp 92.41 trillion the year before.
The government has been hoping for domestic investment to pick up this year to offset the declining foreign investment.
The sharp drop in foreign investment approvals came as no surprise to most economists, who had warned of such a downturn.
A high degree of legal uncertainty, weak law enforcement, coupled with political instability for most of 2001, effectively pushed foreign investors off to the sidelines.
This came to pass largely during the six months of political upheaval, prior to former president Abdurrahman Wahid's ouster last July.
The period bred fear of widespread unrest, sparked by rivalry among political powers wielding support at the grass-roots level.
Despite the change of government and the return of a fragile political balance, investment risks remain high.
One underlying threat to investment is great legal uncertainty.
This stems from a weak judicial system, often known for its anti-foreign leanings and corrupt ways, and a policy environment that is, at best, unpredictable in a fledging democracy.
Unruly labor unions, coupled with local administrations flexing their muscle under decentralization laws, have also conspired to put investor interest quickly to rest.
Rampant security problems across the country have also made investors uneasy about owning rich lands with natural resources.
Foreign investors further distanced themselves from Indonesia as they braced for the fallout from the September 11th terrorist attacks against the U.S.