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)