FDI approvals fall 42% in first semester: BKPM

Dadan Wijaksana and A'an Suryana, The Jakarta Post, Jakarta

Foreign direct investment (FDI) approvals dropped by 42 percent to US$2.5 billion in the first half of this year from $4.3 billion in the same period last year, the Investment Coordinating Board (BKPM) said in a press release on Tuesday.

The board, however, did not offer any explanations for the decline or provide other details.

Separately, a senior government official attributed the drop in FDI approvals to a combination of uncertainty in the global economy and the country's declining investment competitiveness.

"The global downturn had prompted investors to be more careful and selective in investing their money," Firman Tamboen of the Office of the Coordinating Minister for the Economy said on Tuesday.

A string of financial scandals in the U.S. has painted an even bleaker outlook for the global economy, threatening to jeopardize the fragile recovery process.

Firman also said that as an investment destination, Indonesia was considered less competitive than other countries.

While he did not provide any data, Firman said many analysts and businesspeople had said that labor disputes, the volatile political situation and confusion over regional autonomy discouraged investors from bringing their money into the country.

But most of all, the country's corrupt and unpredictable judicial system has lessened investors' appetite for investment here, he said.

BKPM chairman Theo F. Toemion previously acknowledged that legal uncertainty played a significant role in pushing investors away, saying that efforts to attract more investment would fail if the country remained half-hearted about legal reform.

Since the economic crisis struck in the late 1990s, investment approvals for both foreign and domestic investors have declined, as the risks for investing in the country have risen.

Last year, FDI approvals dropped by 41.5 percent to $9.02 billion from the previous year. For 2001, domestic investment amounted to Rp 58 trillion.

The BKPM also said in its press release that domestic investment approvals dropped by more than 70 percent to Rp 11.1 trillion in the first half of this year, from Rp 39.8 trillion in the same period last year.

Indonesia badly needs foreign investment to help push its higher economic growth, which would create more new jobs for the millions of unemployed in the country.

The government projected the economy to grow by 4 percent this year, but experts have said that this would not be enough to absorb the millions of people made jobless by the late 1990s economic crisis.

Unlike short-term investments, such as those in the capital market, direct investments are seen as having a greater impact on economic activity and sparking quicker economic growth.

Over the last two years, domestic consumption has been the primary mover of the country's economic growth.

Firman promised that the government would take steps to regain the confidence of foreign investors.

"We are determined to create a favorable climate for investment, including the immediate completion of a new investment law being drafted by the BKPM," said Firman.