BKPM expects no sharp falls in foreign direct investment

JAKARTA (JP): The Investment Coordinating Board (BKPM) expects no significant drop in foreign direct investment this year, despite a sharp fall in the last four months.

BKPM deputy chairman Sugihono Kadarisman said on Friday foreign investment was likely to stay unchanged at about the same figure as last year -- US$13.6 billion.

He was optimistic foreign investment would pick up in the coming months, given the improvement in Indonesia's economy and the better than expected outlook for the general elections which will be held on June 7.

Electoral campaigns, which started two weeks ago, have run smoothly, with no reports of major unrest as earlier feared.

Kadarisman said many foreign investors had expressed an interest in expanding their business in Indonesia, but that they preferred to wait until the country's political conditions stabilized.

"Despite the slow investment inflow in the first four months of this year, we are optimistic that we will see an influx in foreign investment approvals in the six-month period after the general election," he said.

He said foreign direct investment approvals during the first four months of this year amounted to 279 projects worth $935 million, down 80 percent from the same period last year.

He said most of the projects were in the agribusiness and fishery fields.

"They realize that exports of agriculture commodities have great potential and that Indonesia is one of the best places for such investment."

Sugihono said the general election, the first democratic election since 1955, would be a determining factor for the return of foreign investors to Indonesia.

"If the election process does not run smoothly and there is unrest or riots here and there, the effect will be very damaging to Indonesia's investment climate."

In this worst-case scenario, potential foreign investors would lose interest in Indonesia, while those who had already obtained investment approvals this year might not be able to meet their one-year deadlines to start projects, he said.

The economic crisis and political upheavals over the past year and a half have driven investors from Indonesia.

Last year, foreign direct investment fell 60 percent in value to $13.6 billion, from $33.83 billion in 1997.

However, despite their sharp drop in value, in terms of the number of projects, foreign investments rose by 23.7 percent to 1035 projects last year, from 790 projects in 1997.

Sugihono said foreign investors also feared possible changes in investment policies if an inward looking political party won the elections.

Investors feared a new government would dump the open investment policy introduced by the current administration.

"But I doubt if there will be a major change in investment policy, even if there is a change in government after the elections."

Sugihono said signs of improvement in the country's economic indicators would also play an important role in attracting foreign investors in the coming months.

The country's economic fundamentals, such as the inflation rate and the rupiah, have indicated marked improvement in the past several months. Such indicators would certainly provide more incentives for foreign investors, Sugihono said.

He said sectors which would still have good prospects next year included agribusinesses such as fisheries, food crops and animal husbandry, as well as oil palm, cocoa, coffee and pepper plantations.

Export-oriented industries using natural resources such as the mining and furniture industries, as well as management, marketing and technical consultancies would also remain buoyant this year, he said. (gis)