Investment to pick up: Experts

Investment to pick up: Experts

Urip Hudiono, The Jakarta Post, Jakarta

With a new administration in office and current investments in
the country in need of replenishment, Indonesia is on a promising
path toward an investment boom this year, analysts say.

But for this to happen, the government has to provide more
than just political stability. Analysts say President Susilo
Bambang Yudhoyono and his administration must address several
persistent problems -- including the country's labor sector --
that threaten to derail the investment boom.

"Positivity is awakening in Indonesia," Morgan Stanley
economist Daniel Lian said in the global investment bank's latest
economic report on Indonesia, which was issued in Singapore.

"Under the right conditions, Indonesia's potential for an
investment pickup is sound."

Apart from the government's strategically wise move of
offering investors 91 projects worth some US$22.5 billion at the
recent Infrastructure Summit, Lian said Indonesia would likely
experience a rise in investment because earlier investments were
in need of upgrading in their productivity.

The capacity utilization rate of existing investments has
already reached a high of nearly 70 percent, at a time when they
are getting old from a lack of investment over the past seven
years since the economic crisis.

"A recent study shows that 30 percent of locomotives in the
transport sector have been operating for more than 30 years,"
Lian said.

Many investments in the manufacturing sector have also been
import-reliant, meaning that their technology transfer to local
workers has been limited.

"This implies that Indonesia has a lot of catching up to do in
terms of technology and skill, which we believe signals
substantial potential for investment," he said, adding that
investment -- in terms of public savings and real investments --
could reach 30 percent of Indonesia's gross domestic product this
year.

Standard Chartered economist Fauzi Ichsan said that with the
high level of market competition, companies needed more flexible
labor regulations to be able to maintain the efficiency of their
operations.

"Foreign companies investing here need to be able to
restructure their operations quickly in face of a possible
economic downturn, which may include layoffs," he said, adding
that there was nothing wrong with providing worker rights and
raising the minimum wage, but that it should result in an
increase in productivity.

The government, Fauzi added, must promptly address the labor
issue, in addition to the "classical" problems of red tape and
legal uncertainty that are hurting the country's investment
climate.

"The government should quickly resolve the Karaha Bodas, Semen
Gresik and Cepu oil field legal disputes, to show investors that
the government is serious about providing legal certainty for
them," he said.

Nevertheless, Fauzi sees real investment in the country
growing by some 17 percent this year, accounting for some 25
percent of GDP.

"This will help the economy to grow by some 5.5 percent this
year," he said. "However, a 30 percent contribution is still
needed to reach 6 percent GDP growth and absorb the unemployed."

The Investment Coordinating Board recently reported that
approved foreign direct investment (FDI) in the first quarter
rose 173 percent from a year earlier to US$4.28 billion.