Foreign, domestic investments plunged sharply in 2002

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."