Investment approvals plunge in the first two months

Berni K. Moestafa, The Jakarta Post, Jakarta

Approvals issued over the first two months of the year for domestic and foreign direct investments fell by almost 80 percent from the same period last year, signaling that investment growth has yet to catch up with recent signs of improving investor confidence.

Data from the Investment Coordinating Board (BKPM) shows that domestic investment approvals as of Feb. 28 dropped by 78 percent to Rp 1.34 trillion from Rp 6.1 trillion in the same period last year.

In the same period, foreign direct investment approvals fell by 79 percent to US$489 million from $2.33 billion.

For 2001, domestic investment amounted to Rp 58 trillion while foreign investment was $9 billion, said BKPM chairman Theo Toemion on Thursday.

He said these results showed Indonesia still had a long way to go in attracting investors.

This appears to contradict signs of improved investor confidence, most visible in this year's more than 35 percent rise in the stock market and the stronger rupiah.

Underlying these positive signals are improvements on the political and economic fronts.

The domestic investment climate deteriorated in the first six months of last year, with political instability marking the period before then president Abdurrahman Wahid's ouster in July.

Business confidence sank to new lows and the slow economic reform process hampered Indonesia's ties with creditors like the International Monetary Fund (IMF).

Megawati Soekarnoputri's appointment as President in July marked a turning point, with the IMF now appearing upbeat over Indonesia's macroeconomic stability.

Among the first government actions to bolster investor confidence was the smooth sale of a 12 percent stake in local call operator PT Telkom in December.

The transaction earned the government about $300 million, yet more importantly it kick started its privatization program after two years of waning efforts.

Since then, more state assets were sold off, with the Bank Central Asia (BCA) sale in March proving to be another milestone deal.

Analysts say these transactions could be the precursor for more direct foreign investment.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said domestic and foreign direct investments would soon follow the uptick in investments in shares and stocks.

Unlike current investments in the stock market and through mergers and acquisitions, direct investments can better stimulate economic growth.

But domestic direct investment is stifled because most local assets remain locked up with the Indonesian Bank Restructuring Agency.

The government also needs foreign direct investment to bolster the country's dollar supplies.

The rupiah's bullish trend depends on a steady flow of U.S. dollar to offset mounting foreign debt payments this year.

For now, foreign capital outflow remains strong, with the Asian Development Bank (ADB) saying that last year more money left the country than came in.

A stronger rupiah also eases inflationary pressure, which the ADB recently singled out as the biggest threat to reducing poverty here.

Poverty in Indonesia remains high, with some 40 million people unemployed and more people entering the job market each year than there are new jobs to accommodate them.

Analysts say Indonesia needs see its economy grow by 7 percent a year to absorb the growing workforce.

However, for this year growth is seen at between 3 percent to 4 percent, coming largely on the back of domestic consumption.