Investment approvals plunge in the first two months

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.