Wed, 08 Jan 2003

Foreign, domestic investments plunged sharply in 2002

Adianto P. Simamora, The Jakarta Post, Jakarta

Foreign direct investment (FDI) approvals plummeted by 35 percent to US$9.7 billion last year from $15.06 billion in 2001, said the Investment Coordinating Board (BKPM) in a media statement.

A grimmer picture is given by the 57 percent drop in domestic investment approvals to Rp 25.26 trillion from Rp 58.62 trillion.

BKPM did not say what the reasons were for the drop in investment, but experts have often said that legal uncertainties, lingering labor conflicts, security problems and the lack of regulations governing regional autonomy are among the factors that discourage investment and even cause existing ones to flee. The giant Sony Corp., for instance, has relocated its audio equipment facility from Indonesia to Malaysia.

"The investment climate here is still very poor," University of Gadjah Mada (UGM) economist Sri Adiningsih told The Jakarta Post on Tuesday.

"The sharp drop in domestic investment is truly disturbing because it means that even locals are no longer interested in investing here," she added.

Sri warned the government that this should serve as a wake-up call to take immediate, serious action to improve the domestic investment climate.

"Our neighboring countries are now racing to provide better facilities and legal certainty (for investors), while we're moving nowhere," she said.

She added that the task this year would be even harder as political tension would be likely to increase in the run-up to the 2004 general election.

Regaining investment is vital for the recovery of the country's ailing economy to help create new jobs for millions of unemployed people.

Foreign direct investment has been on the decline since the country plunged into a combination of economic and political crisis in 1998.

The government has declared 2003 as Indonesia Investment Year in a campaign to attract more investors to the country.

The government has also established the National Investment Team, chaired by President Megawati Soekarnoputri.

BKPM Chairman Theo F. Toemion has been asking for tax holidays to attract new investors, given tougher competition from China and other neighboring countries.

Elsewhere, BKPM said that the number of approved foreign investment projects had dropped to 1,135 in 2002 from 1,333 the previous year.

It said that more than one-third of the FDI approvals were for expansion projects.

BKPM said that the most popular sectors for foreign investors were trading and services, metal, machinery and the electronics industry.

It remains unclear, however, if those foreign investors who have already obtained approvals will actually go ahead with their plans.

Meanwhile, BKPM senior official Yus'an blamed labor problems and poor implementation of regional autonomy, which resulted in frequent legal disputes involving investors and regional governments.

"We have to deal with labor and legal issues if we are to restore investor confidence," Yus'an told AFP.

"We need to assure investors that their capital is safe and that they will profit from their investment."