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NEWS UPDATES Asean Affairs                      16  August 2011

Indonesia seen as attracting FDI

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“The crisis in the US and Europe will drive a ‘flight to safety’ and ‘flight to quality’ among investors,” Gita Wirjawan, chairman of the Investment Coordinating Board (BKPM) said in Jakarta on Monday.

Mr. Gita said he was optimistic this year’s direct investment target of Rp 240 trillion (US$28 billion) would be achieved. In the first half of the year, investment realization reached Rp 116 trillion, or 48 percent of BKPM’s full-year target. Investment accounts for about 20 percent of Indonesia’s gross domestic product, which is dominated by consumption.

“Our economy fundamentally is strong. For example our current debt-to-GDP ratio is 26 percent. This is relatively good compared to the US and Europe,” Gita said on the sidelines of BKPM’s “Strategic Review” conference. The debt-to-GDP ratio of the United States and most European countries is above 100 percent.

“If we can keep up this performance, our debt-to-GDP ratio could be pushed below 20 percent in the next three or four years,” he said.

“Neighboring countries such as China, Malaysia, Vietnam, Singapore, Thailand and India are increasing their interest rates to curb inflation. Indonesia has only increased the interest rate once this year,’’ he said.

“The [Indonesian] market, like it or not, is affected by sentiment from the US, but I am sure the market will soon become stable again. The market will understand which countries have strong fundamentals.”

This meant investors would shift from countries with volatile economic conditions to less risky markets elsewhere.

“In terms of fiscal, monetary and demographic [considerations], the business opportunity is in Indonesia,” he said. “I am sure [foreign investors] would eye Indonesia more than before, because it is in a stronger position compared to other countries.”

Asked whether companies were relocating from China, Gita said it was possible Indonesia could capture investments in sectors Asia’s largest economy was no longer focusing on, such as textile and footwear.

“China has started using robots to produce their high-tech products. That would dislocate certain fields of employment to developing countries, and Indonesia could become one of the recipient countries,” said Gita.

He said Indonesia could become a recipient if it could improve its regulatory frameworks, such as the rules for property, workforce, tax holiday and tax allowance.

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