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December 2, 2008

Indonesia records 54% rise in FDI

Foreign direct investment (FDI) in Indonesia jumped 54 percent to $13.95 billion for the first 10 months from a year ago, driven by the telecoms sector and beating the government's 2008 target, Reuters reported, quoting official data.

However, the head of the state investment agency (BKPM) warned that much of the investment took place in the first eight months of the year, and that the impact of the global financial crisis is only just starting to be felt.

"Growth was very high in January to August. We have beaten the full-year target," Muhammad Lutfi, the head of the agency, told Reuters by telephone.

"The impact of (tight) global liquidity has just been felt," he said. He declined to comment further.

Indonesia has introduced several reforms aimed at creating a more attractive investment climate. The FDI figure for January-October is more than double the government's total 2008 target of $5.4 billion.

But the state investment agency said in a document obtained by Reuters that domestic investment fell 52 percent to 16 trillion rupiah ($1.34 billion) in the first 10 months from a year ago, with the food-related sector accounting for the largest portion.

The agency has refused to release investment data on a regular monthly basis since early this year.

Analysts have warned that Indonesia, a major exporter of commodities such as palm oil and rubber, could see a slowdown in investment on the back of lower commodity prices, and as Southeast Asia's biggest economy heads for elections next year.

"The strong foreign investment this year, particularly in telecommunications, has been due to strong demand from areas outside of Java, which benefitted from high commodity prices," said Helmi Arman, economist at Bank Danamon in Jakarta.

"With the bursting of the bubble, demand will decline," he said.

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