Investment may pick up in second half: Economist

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.