Investment may rebound in 3rd quarter

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."