Minister plays down investment cancellations
JAKARTA (JP): Minister of National Development Planning Ginandjar Kartasasmita dismissed concerns yesterday that the rising cancellations of foreign investment would have a significant impact on economic growth.
"Cancellations are normal and it is immaterial to the impact of our growth forecast, which we maintain at around 7 percent plus for the rest of the current Five-Year Development Plan (which runs until March 1999)," Ginandjar told journalists after speaking at a conference on the economic outlook of Southeast Asia.
The conference was organized jointly by The Jakarta Post and the Asia Pacific Economics Group.
So far this year the Investment Coordinating Board has revoked 88 investment licenses, of which 63 belonged to domestic investment projects worth Rp 900 billion (US$383 million) and 25 to foreign investment projects worth $458 million.
In his keynote speech at the conference, Ginandjar noted that Indonesia has enjoyed an economic growth of 7.5 percent and 8 percent for the last two years and anticipates to maintain an average of 7 percent or more for the rest of its long-term plan, ending in 2018.
"With this growth, we expect to quadruple real income in 25 years. By 2018, we will have an economy close to $1 trillion (in 1993 dollar value) and almost double than in purchasing power parity terms," Ginandjar said, adding that by that time Indonesia may be the world's fifth largest economy.
Ginandjar noted that Indonesia's continuing impressive economic growth, coupled with policy initiatives on small and medium enterprises, will pay off in an increasingly dynamic industrial structure.
"Such a structure should be composed of foreign firms, their large domestic competitors and a multitude of efficient, modern smaller establishments that are the seedbeds of new generations of establishments.
"With this transformation, the middle class will become the backbone of our maturing economy," Ginandjar continued.
He predicted that Indonesia's ongoing industrial transformation will be, at the same time, followed by a momentous shift of the country's population from rural to urban areas.
Indonesia's urban population is predicted to grow by 60 percent to 155 million people by 2018 from 65 million people today.
"Thus Indonesia of the future will have more urban dwellers, more people working in modern skill-intensive factories and a large and more professionally oriented service sector," Ginandjar said.
He noted that such a fast urbanization rate will reduce rural population density and make the remaining farmers more productive and better able to afford to implement more capital intensive farming procedures. The rural areas will become a vast and growing market for industrial products and thus support the industrial transformation.
Ginandjar acknowledged that while rapid growth often raises incomes, at the same time inequality can grow, sometimes rapidly. And the government must address these problems.
Therefore, he added, the government will continue its efforts to reduce the existing disparities among regions and groups of people to reduce possible political instability.
"The government will use its regulatory and spending power to raise opportunities within regions and groups left behind and help them attain their economic potential," Ginandjar said.
The government's intervention on the matter will be necessary considering that high growth does not automatically translate into equal opportunities for all, he noted.
"People with more education, located closer to economically dynamic areas, or with other advantages are in a better position to take advantage of improved conditions than those less fortunate," Ginandjar told the conference.
To illustrate, Ginandjar said, recent manufacturing investment has been too concentrated in Java, potentially limiting the ability of other regions to achieve their potential and creating environmental stress on Java itself.
According to the Investment Coordinating Board, 62.9 percent of Indonesia's cumulative approved foreign investment value of US$159.49 billion between 1967 and May 4 of this year was located in Java, and 60.5 percent of cumulative domestic investment of Rp 432.3 trillion (US$183.9 billion) was also in Java. (rid)