Fuel problems may not hamper investment, BKPM chief says
Rendi A. Witular, The Jakarta Post, Jakarta
The Investment Coordinating Board (BKPM) remains upbeat that domestic and foreign investment will reach Rp 179 trillion (US$18.2 billion) as projected in the state budget.
The board also dismissed concerns that the ongoing investment activities in the country would fade away following a disruption in the stable economic condition as an impact of the increasing global oil prices and ballooning fuel subsidy expenses that government will need to pay.
"I don't want to speculate on a possible drop in investment for this year's second semester. The fuel problem is unlikely to affect investor appetite although in other countries there are several investment corrections," BKPM chairman Muhammad Luthfi said on Thursday.
He made the remarks after a meeting with Vice President Jusuf Kalla on Indonesia's investment progress and the impact of soaring global oil prices on investment here.
The government has targeted approvals of foreign direct investment this year to reach Rp 133.41 trillion -- similar to 2003 -- while domestic investment is expected to reach Rp 46 trillion.
The influential National Economic Recovery Committee (KPEN) had warned the government that there was a concern among foreign investors about fiscal stability as the government continued to maintain its massive fuel subsidy.
KPEN chairman Sofjan Wanandi said earlier that foreign investors were now reassessing their stance toward Indonesia since there was an uncertainty in the country's fiscal condition that might affect currency exchange, inflation and interest rates.
The budget assumes a fuel subsidy of a total of Rp 76.5 trillion for the fiscal year, which it would be if the annual average price of crude oil stayed at $45 per barrel, an exchange rate of Rp 9,300 against the U.S. dollar and fuel consumption of 59.6 million kiloliters.
But with oil prices now hovering at $62 per barrel, the rupiah around Rp 9,800 (its closing rate on Thursday) and fuel consumption estimated to soar by 10 percent over and above the initial assumptions, the government may have to spend Rp 135 trillion, or more, to finance the fuel subsidy.
Luthfi, however, said he believed that the fuel problem was likely to be resolved soon as the government would not allow it to do further damage to the country's otherwise stable macro- economic condition, as well as putting at risk its fiscal stability.
"Thus far, the investment prospects in the country are still good, because there has been no sign from investors that would lead to a declining investment climate. We can actually see this positive trend in our first semester (2005) investment approvals," he said.
On average, fresh investment approvals -- both from domestic and overseas sources -- rose by 51 percent to Rp 80.85 trillion in the first semester compared to the same period last year, according to BKPM figures.