Boediono sees rising investment next year

Dadan Wijaksana, The Jakarta Post/Jakarta

The government was upbeat on Monday about the country's economic prospects for 2005, which it said would be marked by the revival of the industrial sector activities due to the return of investors, both foreign and domestic.

The brisker real sector activities would then help the economy to expand by 5.4 percent, as targeted under the 2005 state budget plan, Minister of Finance Boediono told members of the House of Representatives State Budget Commission during a hearing.

"Even this year, the signals of improved real economic activities, due to a boost in investment, are already there. We expect the trend to continue next year," Boediono said, adding that the peaceful elections have helped reduce the level of uncertainty for investors.

He was responding to criticism by some legislators who suggested last week at a plenary session that the 2005 economic growth target of 5.4 percent was overly ambitious and unrealistic.

However, Boediono said that investment in the first and second quarter of the year alone had managed to grow by 7.4 percent and 9.3 percent respectively from previous quarters. In comparison, investment grew in the third quarter last year by only 1.3 percent and was even contracted by 0.5 percent in the fourth quarter.

This helped accelerate economic activities in the industrial sector during the first half of this year, Boediono added, as can be seen in an improvement in the import of raw materials and capital goods in the first semester, which rose (year-on-year) by 29.4 percent and 17.9 percent, respectively.

"This is one of the indications of improvement in domestic real economic activities. This will continue in the upcoming period, and in turn will drive a higher economic growth," he said.

Indonesia's economy grew by 4.1 percent last year, the highest level since the crisis in late 1990s, with domestic consumption being the prime mover, taking over from investment as the main economic driver. The economy is estimated to grow by 4.8 percent this year.

Foreign and domestic investors have been shying away from the country due to various reasons, from political and security uncertainty to rampant corruption.

But, things would change for the better next year, according to Boediono. Foreign investors would start coming and investing in the country following the forming of the new government, resulting from the trouble-free election.

The role of domestic investors would also improve in line with more robust lending demand from the private sector to the banking sector to finance its business expansion.

"As of June this year, the undisbursed loans have reached Rp 20.2 trillion. It shows the private sector has yet to maximize the banking loans potential, which has a lot to do the political uncertainty.

"We expect the amount to reduce following the forming of the new government," he said.