Fuel problems may not hamper investment, BKPM chief says

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.