Investment board reports FDI drop

The Jakarta Post, Jakarta

Foreign direct investment (FDI) approvals in the first five months of the year dropped by 41 percent compared to the same period last year, the Investment Coordinating Board (BKPM) said on Friday.

The government approved 405 foreign investment projects worth US$2.51 billion in the January-May period, much less than the $4.24 billion it approved last year, Bloomberg quoted BKPM data.

Domestic investment approvals, on the other, rose to Rp 13.35 trillion ($14.35 billion) from Rp 7.47 trillion.

The board said the figures excluded investment in oil and gas, banking and non-banking financial institutions, as these sectors were not within its jurisdiction.

Foreign investment has been low over the past few years due to a poor investment climate, experts have said. Without an increase in investment, the country would not achieve the 6 to 7 percent economic growth needed to create enough jobs for the millions joining the workforce annually.

In the past couple of years, economic growth was driven largely by domestic consumption, as both export and investment remained weak, and grew at a mere 3 to 4 percent.

Factors that are discouraging investors -- particularly foreign investors -- include legal uncertainties, labor disputes, rampant corruption and poor implementation of regional autonomy.

Most investors have canceled plans due to the uncertainty connected with this year's elections, a protracted process that is likely to continue until the runoff in September.

The World Bank reiterated on Thursday calls for the government to move quickly to assure investors that it was taking measures to address investor issues.

"They are not expecting solutions to these problems overnight, but they do not have confidence that the problems are being addressed," World Bank country director in Indonesia Andrew Steer said.

Fixing the domestic investment climate is an urgent issue, as Indonesia is competing against other neighboring countries to lure foreign investment.

Meanwhile, analysts said, tightening measures taken by Beijing to help cool down an overheating economy should be seen as an opportunity for Indonesia to attract foreign investors, which had largely gone to China these past couple of years.