Total investment rose 16.9 percent to a quarterly record of 124.6 trillion rupiah ($9.6 billion) in the first three months of 2015 from a year earlier, helped by a weaker rupiah, Franky Sibarani, the head of the Indonesia Investment Coordinating Board, said in Jakarta on Tuesday. Approved foreign investment climbed 14 percent in rupiah terms, faster than the 10.5 percent rate the previous quarter.
Widodo, known as Jokowi, took office in October pledging to lift growth by cutting red tape, building infrastructure and attracting investment. By January, he had scrapped gasoline subsidies to free up government funds for spending on transportation and other works. Yet in the ensuing months, his ministers announced rules that made it harder to do business, and a persistent current-account deficit weighed on the rupiah.
“So far investment is still doing well despite depreciation in the exchange rate,” Josua Pardede, an economist at PT Bank Permata in Jakarta, said before the data. “Investment commitment was high due to hopes on Jokowi as he has done structural reform since the beginning of the year.”
In dollar terms, foreign direct investment fell more than 4 percent from a year earlier last quarter, a smaller decline than the previous three months, according to Bloomberg calculations based on previously reported data. The rupiah was little changed at 12,982 a dollar today.
Manufacturing Slice
Jokowi, a furniture exporter before he entered politics, has pledged to simplify permits, upgrade ports and curb corruption. He set a 7 percent goal for gross domestic product growth within a term ending 2019, up from last year’s 5 percent.
One way to achieve that is to get a slice of China’s manufacturing and wean the country off a dependence on commodity exports. Coca-Cola Co. plans a $500 million investment, the investment board said in January.
Singapore, Japan and South Korea were the three biggest sources of foreign investment in the last quarter, the investment board said on Tuesday, without giving details on companies. Total investment growth is expected to stay above 16 percent from April to June as tax incentives lure projects, with a 2015 target for 519.5 trillion rupiah, Sibarani said.
The country is one of the largest single-currency markets in the world by population, after China, India, the U.S. and the euro zone. Balanced against that, the country has some of the worst infrastructure and bureaucracy in the region. Indonesia ranked 114th out of 189 in the World Bank’s 2015 ease of doing business survey, almost 100 places behind Malaysia.
“Favorable demographics, competitive wages and a large and fast growing domestic market is helping Indonesia draw foreign direct investment,” Hak Bin Chua, an economist at Bank of America Merrill Lynch in Singapore, said before the data. “The risk is that infrastructure bottlenecks may threaten to undermine FDI, if the government does not act quickly enough.”