Indonesia must brace for drop in investment: IMF
Berni K Moestafa, The Jakarta Post, Jakarta
The International Monetary Fund (IMF) warned Indonesia to expect falling foreign investment this year as the global economy takes a downturn, but urged it to stick to reform measures to offset the impact.
The IMF Jakarta senior resident representative, David C.L. Nellor, said on Tuesday that the global economic environment was now more difficult than it had been a few weeks ago.
"There are signs of greater risk aversion, so it's more difficult for emerging markets to attract foreign investment than previously," he said.
Nellor was referring to last month's terrorist attacks on Washington and New York that virtually suspended investment outflow from the United States.
Financial institutions scrambling to conserve their cashflow are unlikely to raise their exposures in markets considered to be high risk, according to analysts.
But Indonesia should push ahead with its privatization and asset sales programs despite the gloomy outlook, Nellor said.
"I don't think it's time to ease up (on the targets). Because if it's true that there will be less investment from the outside, the domestic economy must be even stronger to restore economic growth," he explained.
To fortify the domestic economy, the government must restructure the banking sector by getting their assets back to work he said.
"Privatization plays an important role as part of that exercise," he said.
State Minister for State Enterprises Development, Laksamana Sukardi, admitted recent global developments had made it harder to meet this year's privatization and asset sales targets.
"There will be less appetite from the Wall Street type of investors," he said, but added the government did not rely on them to invest in Indonesia.
"From the regional investors, in anticipation of AFTA (Asean Free Trade Area), there's still a lot of appetite," he noted.
AFTA is slated for 2002. A drop in trade barriers allows companies to operate more freely among ASEAN member countries, thereby encouraging ownership of local companies.
The government is aiming to raise Rp 6.5 trillion (about US$650 million) through privatization, and another Rp 27 trillion in assets sales by the Indonesian Bank Restructuring Agency (IBRA).
But these targets have been put at further risk by the rise in anti-foreign sentiment over the past few days.
Islamic militant groups took to the streets of several cities to protest against a possible U.S.-led military campaign targeting Afghanistan.
They also threatened to sweep for American citizens and expel them, should their government attack Afghanistan.
Laksamana said the protests were minor in scale, and should not affect foreign investors' perceptions of security in Indonesia.
He described the protests as an emotional reaction by locals to the U.S. retaliation plans.
"You should not forget that this is a country with a large Muslim population," he said.