FDI falls 34 percent in first semester

The Jakarta Post, Jakarta

Indonesia continues to struggle to recover from an investment slump, with the National Investment Coordinating Board (BKPM) reporting on Wednesday a 34 percent year-on-year drop in approved foreign direct investment (FDI) in the first half of the year.

BKPM deputy chairman Yus'an said approved FDI declined to US$3.05 billion during the period.

Yus'an said the fall in FDI was largely due to a decline in new project approvals, but had been partly offset by a sharp increase in approvals for project expansions.

He also cited political jitters during the current election year as a factor in deterring new investment.

Despite this, however, domestic investment approvals rose 52 percent to Rp 15.77 trillion (US$ 1.77 billion) from the same period last year, the BKPM said.

The country has suffered from a lack of investment activities over the past several years as a result of various factors, including legal uncertainty, security fears, labor disputes and the poor implementation of regional autonomy.

This lack of investment has caused the country's economy to grow at the unspectacular rate of about 4 percent over the past several years.

Before the 1997 Asian economic crisis, investment was one of the country's main economic engines. Now it accounts for less than 10 percent of the country's gross domestic product (GDP), with domestic consumption contributing more than 75 percent.

Experts have said that overseas investment is crucial for the country to return to annual growth of at least 6 percent, which is the rate needed to begin cutting poverty and reducing massive unemployment.

Yus'an said the increase in project expansion approvals demonstrated that those foreign investors in the country remained confident about Indonesia's future.

"If you look at the details, there is hope that foreign investment will grow. Investors who have been here can better understand the situation and business prospects, so they are confident about expanding their businesses," he said.

He added that the peaceful legislative election on April 5 and the first round of the presidential election on July 5 had improved sentiment.

Yus'an said another factor that could boost new projects in Indonesia was China's efforts to rein in its overheating economy.