Weighing the Warning About the Investment Climate
Professor Mohamad Ikhsan of the University of Indonesia’s Faculty of Economics and Business has issued a stark assessment of the national investment climate, scoring it two out of ten and describing current conditions as the worst he has observed. The assessment deserves attention, particularly as it comes from an economist who has long studied the relationship between policy credibility, investor confidence, and economic growth. Yet precisely because the assessment carries such weight, the claim also needs to be tested against investment indicators that can be observed and compared openly.
The framework of concern is understandable. When policy certainty declines, investors may delay decisions, risk premiums rise, financing costs increase, and ultimately investment and economic growth come under pressure. In a modern economy, changes in expectations can occur well before their impact becomes visible in realised statistics. For this reason, warnings about policy credibility should not be ignored. The issue is not the mechanism itself, but whether current conditions are sufficient to be described as the worst point for Indonesia’s investment climate.
It is important to distinguish between leading indicators and indicators that record decisions already realised. Market sentiment, business perceptions, and policy expectations can change quickly and serve as early signals. By contrast, realised investment and Gross Fixed Capital Formation reflect decisions that have entered the implementation stage. The two groups of indicators can move differently at the same time. Today’s sentiment may warn of future conditions, while investment recorded now is the result of decisions made several months earlier.
However, if current conditions are to be called the worst, realised data still deserve an important place in the assessment. Throughout the first half of 2026, realised investment reached Rp1,010.6 trillion, growing 7.2 percent compared with the same period the previous year. In the second quarter alone, the value reached Rp511.8 trillion, up 7.1 percent year on year. On the real economy side, Gross Fixed Capital Formation in the second quarter of 2026 also grew 6.87 percent. These figures do not yet show an investment contraction, let alone the reversal commonly associated with a collapse in investor confidence.
Foreign capital developments provide additional context. In the second quarter of 2026, foreign direct investment reached Rp257.7 trillion, or 50.4 percent of total realised investment, while domestic direct investment stood at Rp254.1 trillion. A year earlier, foreign investment reached Rp202.2 trillion, or 42.3 percent of total investment. These data do not prove that all regulatory problems have been resolved. However, the increase in the value and share of foreign investment means the conclusion that investor confidence has reached its worst point needs to be treated more cautiously.
Even so, positive data do not mean there are no signs worth watching. Growth in realised investment is beginning to lose momentum. In the first half of 2025, investment was still growing at around 13.6 percent year on year, whereas in the first half of 2026 growth fell to 7.2 percent. In the second quarter, growth also slowed from 11.5 percent in 2025 to 7.1 percent in 2026. The emerging problem is therefore not a decline in investment value, but a slowdown in its pace. It is at this point that warnings about policy certainty and consistency gain their relevance.
The difference in diagnosis matters. An investment climate that is losing momentum requires efforts to continue strengthening regulatory certainty, policy consistency, licensing quality, and competitiveness so that investment that is still growing does not reverse into weakness. Conversely, describing current conditions as already at their worst point may paint a more extreme picture than the data show. Realised investment remains at a high level, foreign capital continues to enter, and real capital formation is still growing. Risks lie ahead, but current conditions do not yet show an investment collapse.