Investment may pick up in second half: Economist
The Jakarta Post, Jakarta
Indonesia could expect investment to pick up in the second half of this year, especially in machinery and equipment components, assuming that the general election starts smoothly, an economist said on Tuesday.
Coupled with steady improvement in exports and consumption, a rise in investment would drive economic growth by over 4.8 percent this year, better than last year's 4.1 percent, Citibank economist Anton Gunawan said.
"Demands for machinery and heavy equipment will likely rise sometime in July and August to anticipate infrastructure development in some government sectors and supported by private investors," Anton told The Jakarta Post.
He said large-scale infrastructure projects in the electricity and telecommunications sectors, for example, could eventually boost demands for machinery.
His remarks differed from those of other analysts, who said that investment would arrive only after the elections concluded, provided that the new government was credible and showed a commitment to reforms. By then, investors should have a clear picture of the country's political situation.
According to the Central Statistics Agency (BPS), investment grew by a modest 1.3 percent last year, primarily because of a 6.7 percent rise in the construction and property sector, while investments for machinery remained stagnant.
"While improvement in construction is good, it has to be followed accordingly with a surge in machinery expenditures if we want investment to make up a larger share of growth in the economy or the GDP," Anton said.
The construction sector was one of the fastest growing sectors last year, according to the BPS. The manufacturing sector, which has largely delayed investment in new machinery since the economic crisis of the late 1990s, saw a decline in contribution to the gross domestic product (GDP).
Lack of investment as a whole had hampered speedier economic growth in past years, Anton said.
Overall, investment only contributed a small share of the GDP, with domestic consumption remaining the largest contributor and accounting for 78 percent of the GDP, reported the BPS.
Investment has been in the doldrums since the crisis, due to the adverse local business climate, compounded by a corrupt judiciary, lack of tax incentives, confusion over regional autonomy and labor problems.
The latest data issued on Monday by the Investment Coordinating Board (BKPM) shows that foreign direct investment (FDI) declined sharply by 24 percent in January compared with the same period in 2003.
The BKPM said that FDI approval stood at US$246.4 million in January, from $324 million the previous year.
Earlier on Tuesday, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said: "This year, spurred by the elections, economic growth must be better, close to five percent." He was referring to the expected high campaign expenditures by political parties.
The government has set the 2004 growth target at 4.8 percent.