Indonesia must brace for drop in investment: IMF

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.