EIU rating on Indonesia unrealistic: Economists

EIU rating on Indonesia unrealistic: Economists

JAKARTA (JP): The poor rating given to Indonesia's investment
climate by the Economists Intelligence Unit (EIU) does not
reflect the real situation, said local economists.

Sjahrir, the managing director of the Institute for Economic
and Financial Research said Saturday that despite what analysts
saw as Indonesia's worsening political climate, foreign
investment continued flowing into the country.

"This is some kind of paradox. On one hand, the political
climate is like that. But, the economy and investment remain
good," Sjahrir said.

Kwik Kian Gie, a noted macroeconomic analyst, agreed that the
Indonesian political climate was heating up ahead of the general
election on May 29. "But it seems that this climate will affect
only flows of portfolio investment and not direct investment," he
said.

EIU downgraded Indonesia's political risk rating from C to D,
one level above the lowest rating of E (very risky). No Asian
countries were rated E.

The rating agency judged Indonesia as "politically risky" as
China, Pakistan and Sri Lanka in Asia, which were also rated D.

Among factors that made EIU increase Indonesia's political
risk rating were ethnic riots that rocked several parts of the
country over the past several months and the widening economic
disparity between the rich and poor.

EIU assigned a C rating to India, the Philippines and Vietnam,
and B to South Korea, Thailand, Malaysia and Hong Kong. An A, the
highest rating provided by the institute, was assigned to
Australia and Singapore.

Sjahrir disagreed with the institute's D rating for Indonesia,
saying "our economic growth is still good and our current account
deficit is still well under control compared, for instances, with
Malaysia and Thailand".

Sjahrir said Indonesia was still considered a good place for
investment because of two factors: the unrestricted capital
account policy and the high return of investment.

He said foreign investors were not only interested in making
direct investments but also portfolio investments.

"Foreign portfolio investors gain much bigger profit here than
in America. That's why I agree with the government's restriction
on foreign investors tapping into mutual funds. That gives our
people more chances to benefit from the funds," Sjahrir said on
the sidelines of the launching of the Garuda Tiga mutual fund.

Kwik told The Jakarta Post that foreign direct investment in
Indonesia was still high despite the worsening political climate.

The political climate would mostly affect portfolio investment
since, by nature, it is very sensitive to many factors, including
political climates.

Kwik said expatriates in Indonesia were increasingly worried
about the country's political climate.

Minister of Investment Sanyoto Sastrowardoyo earlier said the
political climate, including the recent riots, had not stopped
foreign businesspeople from investing in Indonesia.

He said the government approved 113 foreign investment
projects worth US$5.63 billion between January to the middle of
February. The board also approved 105 domestic investment
projects worth Rp 26.98 trillion ($11.73 billion) in the same
period. (jsk)