BKPM Certain Brexit Will Increase British Investment in Indonesia

The UK’s exit from the European Union (Brexit) on Thursday last week has
rattled the global financial market. As stocks plummeted, sterling fell
to its lowest since 1985, at 1.33 per US dollar.

However, Investment Coordinating Board (BKPM) Chief Franky Sibarani is
optimistic that Brexit will not have a negative impact on UK investment
in Indonesia because direct investments are generally long-term
investments. Therefore, the UK’s decision to leave the EU would not
affect existing business deals.

Franky even saw this as an opportunity for the UK to increase its
investment in Indonesia. “We don't need to worry about the UK leaving
the EU because it will not affect existing business agreements,” Franky
said in an official release on Saturday (25/6).

He believes that Indonesia is now in a good position to attract
investment. Indonesia has trade agreements with its main trading
partners and is negotiating free trade deals with the EU and US. Also,
British companies could use Indonesia as a production base for entry
into the global market.

BKPM Deputy for Implementation Control Azhar Lubis said the BKPM will
intensify its relationship with potential investors as the government
moves to reform the nation's investment policies. “The BKPM
representative in London continues to communicate with British investors
on investment services, deregulations to create an investment friendly
climate, infrastructure development, and improving the quality of human
resources,” said Azhar.

The UK is one of Indonesia's main investment partners. Between 2010 and
2015, UK investment in Indonesia amounted to US$4.8 billion and the UK
was ranked Indonesia’s eighth biggest investor.

UK investment commitment in 2010-2015 amounted to US$3.1 billion. In
January-May this year, its investment commitment amounted to US$111
million, up 517 percent on the same period last year.

Bank Indonesia released an official statement after the UK voted to
leave the EU. The central bank said Indonesia’s economy has been
resilient. Low inflation, controlled current account deficit, and a
stable exchange rate are evidence of its continued macroeconomic stability.

This will help the Indonesian economy weather the effects of the UK
referendum. Bank Indonesia said the UK’s exit from the EU would have a
little impact on the nation’s domestic economy, including on the money
market, and on trade and investment activities.

While Brexit continues to wreak havoc on the European and Asian money
markets, on the domestic money market, the value of the rupiah is
relatively stable.The Indonesian stock market has also been left
relatively unscathed, “Unlike the stock markets in India, Thailand and
South Korea,” said Tirta Segara from BI’s Communications Department.

The medium-term impact of this Brexit on trade will be limited too
because trade with the UK makes up only around 1 percent of Indonesia’s
export market. However, it will be important to keep an eye on the UK’s
future trade relationship with Europe.

Indonesia’s exports to Europe, excluding the UK, accounted for 11.4
percent of total exports last year. Raw materials make up the majority
of exports from Indonesia to Europe. “Bank Indonesia will continue to
keep an eye on any potential risks,” said Tirta.