Investment may rebound in 3rd quarter
Rikza Abdullah, Contributor, Jakarta
Researchers have reported some improvement in business and consumer confidence in Indonesia but investors are still reluctant to start new businesses due to various problems related to legal and political uncertainties.
The Danareksa Research Institute, for example, reports that both the business sentiment index (BSI) and the consumer confidence index (CCI) have increased to optimistic levels but the Investment Coordinating Board (BKPM) and agencies related to new investment projects report declines in the opening of new businesses.
Such reports confirm Bank Indonesia's analysis, saying that the country's economy is growing but its growth is based primarily on increases of consumption. However, the central bank says in a report that investment activities are expected to rebound during the third quarter of this year.
The research institute said in its latest report that based on its April-May survey of top executives at leading companies in the country, the BSI rose to 11.3 from 11.2 in the February-March survey, reflecting greater confidence in the vigor of the economic recovery. It attributed the business sentiment improvement to the optimism of the surveyed chief executive officers on current sales performance and on expected sales in the six months ahead.
They also said that based on its June survey, the CCI increased by 2.2 percent to 101.4 from 99.3 in May. They explained that when the CCI was above 100, it was generally indicative of a growing economy underway.
However, while the business and consumer indices were improving, the institute reported executive officers' and consumers' concerns about poor preconditions for the economy's sustained recovery due to the government's poor performance in law enforcement.
It said the business confidence in the government index fell to 104.6 in the April-May period from 106.1 in the previous two months, while the consumer confidence in the government index in July dropped by 3.3 percent to 115.5 from its June level.
Such concerns were in line with the BKPM's report that foreign direct investment approvals during the first half of this year declined by 42 percent to US$2.5 billion from $4.3 billion in the corresponding period of last year, while domestic investment approvals dropped by more than 70 percent to Rp 11.1 trillion (about $1.2 billion) from Rp 39.8 billion.
In 2001, foreign direct investment approvals declined by 41.45 percent to $9.02 billion from $15.42 billion in 2000, while domestic investment approvals fell 36.5 percent to Rp 58.67 trillion from Rp 92.41 trillion.
The Nusantara Bonded Zone company (KBN) also reported recently that foreign exchange investments by companies operating in its industrial estate in Jakarta declined to $172.5 million during the first half of this year from $179.93 million in the same period last year, while rupiah investments fell to Rp 208 billion from Rp 214 billion.
Colliers Jardine, a property marketing agent, said in its latest market report that the occupancy rate in Indonesia's industrial estates declined to 71.4 percent in the latter part of 2001 from 75.5 percent in late 2000.
Willy Koes, Colliers Jardine's manager for the industrial sector, told The Jakarta Post that the occupancy rates were declining because many tenants sold their lots in industrial estates to minimize their costs.
He acknowledged that the sales of new industrial sites were on a downward trend, while the leasing of warehouses by logistics and forwarding companies was on an upward trend.
According to BKPM chairman Theo F. Toemion, the decline in new investment was caused by accumulated problems, including legal uncertainty.
The U.S. embassy said in an economic report that existing and potential investors had cited a number of concerns, including political uncertainty, the unknown impact of political and fiscal decentralization, uneven implementation of economic reform commitments, the unreliable judicial system, security issues and treatment of existing investors.
Djisman Simanjuntak, executive director of the Prasetya Mulia business school, cautioned that Indonesia could not rely on consumption alone for economic growth for very long, because the consumption increase, which was accompanied by declines in investments, might indicate that consumers had drawn down their financial or hard asset deposits for their spending.
According to Bank Indonesia, the country's economic growth of 2.47 percent in the first quarter of this year and about 2.9 percent to 3.4 percent in the second quarter was caused mainly by consumption increases. The consumption, by both the government and the private sector, increased by 9.9 percent in the first quarter and by between 7.6 percent and 8 percent in the second quarter, while investment activities declined by 6.1 percent and by about 2.4 percent to 2.9 percent respectively.
In spite of the gloomy data, the government seems optimistic about the future development.
Bank Indonesia, according to the quarterly report, for example, expected that investment activities would increase to about 11.9 percent to 12.4 percent during the third quarter, while the consumption would increase to about 5.3 percent to 5.8 percent. The economy was likely to grow by about 3.5 percent to 4 percent.
"But investors will remain cautious," Willy said. "We expect the sales of industrial sites might improve only after 2004, if the coming general elections run smoothly and fairly."