FDI inflow may plunge further, says Hamzah Haz

JAKARTA (JP): Indonesia will likely see a slow inflow of foreign direct investment (FDI) in 1999, and, if the worst comes to the worst, the political debacle would drag down next year's investment approvals still further, State Minister of Investment Hamzah Haz said on Wednesday.

Hamzah said the conduct of the general election and the presidential election next year, the first of either since the 32-year rule of Soeharto ended in May, would be a crucial factor in determining the country's success in wooing foreign investors.

"Considering the progress of the economic indicators, and with the assumption that there would be no major social or political upheavals, we expect investment approvals to continue to decline next year, but the drop would not be as sharp as this year's," he said.

Investment approvals would drop between 40 and 50 percent compared to this year's 60.7 percent downturn in such approvals, he added.

"But should anything bad happen in the event of the election, the effect would be widely damaging to both domestic and foreign investment," he said.

Not only that, potential foreign investors would lose their interest in Indonesia, while those who had already obtained investment approvals this year might not be able to meet their one-year deadlines to start projects due to the upheavals, he said.

However, Hamzah said the country's economic indicators had shown positive signals in the past few months since the start of the crisis, which has seen an over 60 percent fall in the rupiah against the U.S. dollar since August 1997.

He cited the rupiah strengthening against the U.S. dollar from around the 12,500 level in August to the current level of 7,500 to 8,000, a continuing decline of inflation rates and the gradual lowering of bank interest rates.

The improvement could attract investors back to the country again, he said.

Hamzah said sectors which would retain good prospects next year would include agribusinesses such as fisheries, food crops and animal husbandry, as well as oil palm, cocoa, coffee and pepper plantations.

Export-oriented industries which used natural resources such as mining, and furniture industries, as well as management, marketing and technical consultancy would also remain buoyant next year, he said.

Industries with close affiliation to counterparts in the region such as components industries for electronics, automotives and machinery, as well as tourism-related industries would be among those with brighter prospects for investors, he said.

Hamzah said foreign direct investment fell by 60.7 percent this year to US$13.3 billion, while domestic investment approvals shrank to Rp 59.4 trillion ($7.42 billion) this year from Rp 199.9 trillion.

The number of domestic investment projects dropped by 57 percent to 308 projects, but the number of foreign investment projects rose by 23.9 percent to 979 projects this year despite the sharp drop in their value.

He said the rise in the number of approved foreign investment projects indicated a shift in the interest of the investors to medium-scale projects from large-scale ones in previous years.

Britain continued to be the largest investor in the country, totaling $4.8 billion in 49 projects this year.

It was followed by Singapore with an investment value of $1.3 billion on 118 projects, Japan with 73 projects worth $1.2 billion, Malaysia with 61 projects worth $1.1 billion and the United States with 44 projects worth $600 million.

In 1997, Britain was followed by Japan, Germany, Taiwan and Malaysia as the largest foreign investors in Indonesia.

Hamzah said the economic crisis had forced some of the investors who had obtained approvals in 1995 to postpone or cancel their projects.

He said 64 foreign investment projects worth $2 billion and 282 domestic investment projects worth Rp 7.36 trillion were canceled this year as the investors missed the deadline.

Before the government limited the FDI realization term to one year after the approvals issuance, investors were given three years to materialize their projects.

Hamzah said the turmoil had made projects no longer feasible or profitable to the investors. (das)