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.