FDI inflow may plunge further, says Hamzah Haz

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)