Foreign direct investment in RI expected to increase
Foreign direct investment in RI expected to increase
JAKARTA (JP): Foreign direct investment in Indonesia may reach
US$4.8 billion next year, up 20 percent from this year, if the
government applies sound conflict-management measures when
dealing with political issues, an economist has predicted.
Rizal Ramli, a director of the Econit economic advisory group,
said yesterday the increase will be pushed by the strengthening
of the yen against the U.S. dollar which is likely to follow the
currency's recent drop to a record low of 115 yen to a dollar.
"A high economic growth of around 7.5 percent next year and a
better purchasing power, especially of the middle class, will
also encourage foreign investors to come," he said at a
presentation on Econit's economic outlook for 1997.
"But there is a possibility that political uncertainty next
year will make the investors choose to wait and see," he said.
Policies on fiscal incentives alone may not be sufficiently
comprehensive to encourage companies to increase investment next
year, particularly if government decision-making processes
continue in a fragmented fashion, Rizal said.
Domestic investment, on the other hand, will be determined by
the rate of economic growth, changes in domestic demand and
interest rates.
"Domestic investment will be encouraged by intra-trade and
multi-sourcing trends and interdependency between ASEAN member-
countries," he said.
He forecast a shift in the market sector preferences of
domestic investors, who he predicted will opt for resource-
intensive industries.
Domestic investment in the manufacturing sector, which was
previously dominated by the textile and non-metal sub-sectors,
will move towards the chemical, pulp and paper and food
industries.
"An increase in investment in the chemical and paper
industries shows a shift towards resource-intensive sectors, in
which Indonesia has a strong competitive edge," he said.
Increasing investment in the food sub-sector results from a
change in urban consumption patterns and eating habits.
Rizal also anticipated the utilities sector -- comprising of
power, gas, and water -- and the construction and manufacturing
sectors, will be the three main sectors to contribute to
Indonesia's economic growth next year.
Except for the manufacturing sector, which is partly export-
oriented, growth in these key sectors indicates an increase in
domestic demand, which in turn creates a domestically demand-
driven economy.
A large proportion of domestic demand is for non-tradable
goods. This may cause a structural increase in the current
account deficit.
Rizal predicted the utilities sector will grow by 12.5 percent
next year; the manufacturing sector by 10.8 percent; the
construction sector by 11 percent; the agricultural sector by 1.4
percent; the retail and services sector by 8.6 percent; and the
transportation and communications sector by 8.2 percent.
(rid/pwn)