BKPM's FDI growth deceptive: Economist

BKPM's FDI growth deceptive: Economist

Evi Mariani, The Jakarta Post, Jakarta

The government report of a nearly 40 percent hike in foreign
direct investment (FDI) approvals is "deceptive" because a large
proportion of the total came from acquisition transactions that
do not translate into higher production capacity, an economist
has said.

"There was no growth in fresh investment to indicate an
increase in capacity," said Centre for Strategic and
International Studies (CSIS) economist Djisman Simanjuntak.

Earlier this month, the Investment Coordinating Board (BKPM)
reported a 43.9 percent hike in FDI approvals, from US$3.03
during the first semester last year to $4.37 billion this
semester, with tiny African island-state Mauritius topping the
list of countries of origin.

However, BKPM recorded a 34 percent decline in the value of
new projects and a 27 percent decline in expansion projects.

The sharp rise in the FDI total resulted from companies
changing their status from domestic to foreign investment
schemes.

Of the increase, Mauritius accounted for 73 percent ($1.75
billion) -- comprising seven projects -- of the total "change of
status" investment value.

BKPM information and planning bureau chief Azhar Lubis told
The Jakarta Post on Wednesday that according to agency data,
about $1.6 billion of total Mauritius investment was a single
transaction, namely the acquisition of government shares in state
telecommunications firm PT Indonesia Satellite Corp. (Indosat).

Earlier this year, Singapore Technologies Telemedia Pte. Ltd
(STT), through its special purpose vehicle (SPV) Indonesia
Communication Ltd. (ICL), purchased a 41.9 percent stake in
Indosat.

Apparently, ICL was registered in February at BKPM as a
Mauritius-based company, according to Lubis.

The use of an SPV is normal in international business practice
when acquiring assets.

Nevertheless, the fact that the growth in FDI was accounted
for, not by fresh investments, but by a change in status, clearly
shows that the country still faces difficulties in attracting the
new investment that Indonesia needs to spur economic growth.

Analysts have said that Indonesia needs to achieve economic
growth of about 6 percent per year to help resolve the huge
unemployment problem resulting from the late-1990s economic
crisis. However, during the past few years, growth has been
running at a meager 3 percent to 4 percent. For this year, the
government is targeting economic growth of about 4 percent.

Experts have said that despite current stability in the
country's macroeconomic indicators, foreign investors have
continued to avoid the country due to uncertainties in other
areas, including labor relations, corruption, poor implementation
of regional autonomy and political tension ahead of the 2004
general election.