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RI investment the highest in ASEAN-5 countries

Indonesia’s relatively stable political situation and improved economic fundamentals will help the nation attract more investment in 2011, Switzerland-based investment bank UBS says.

Indonesia was the only nation in the ASEAN-5, a group comprised of Indonesia, Malaysia, the Philippines, Singapore and Thailand, that was currently spending more on investment than before the 1997 financial crisis, UBS economist Edward Teather said.

“Indonesia spent more than 30 percent of its gross domestic product [GDP] on investment last year. Other ASEAN-5 countries mostly spent between 15 percent and 25 percent,” he told a media briefing on the sidelines of the UBS Indonesia Conference 2011 in Jakarta on Tuesday.

He said that higher investment in infrastructure and improving worker productivity might lead to faster economic growth in Indonesia.

“The combination of a young and growing population, moderate debt, potential productivity catch-up and healthy investment rates means Indonesia is still good for growth,” he told reporters, adding that Indonesia would remain a promising investment destination for the next several years.

Economic growth of 6.1 percent led Indonesia’s GDP to top Rp 6,422.9 trillion (US$721 billion) in 2010, according to the Central Statistics Agency.

The Investment Coordinating Board (BKPM) said the nation’s investment realization reached Rp 208 trillion in 2010, exceeding a previous estimate of Rp 160 trillion, and up 54 percent from Rp 132 trillion in 2009.

The board has set a target of creating Rp 240 trillion in investment in 2011.

Despite positive trends, Teather said that high commodity prices, particularly for oil, might lead to higher inflation, which in the end would force the government to increase subsidies and decrease investment spending.

“Don’t worry. Historically higher oil imports have been offset by increases in Indonesian commodity exports,” he said.

Teather said he expected Indonesia’s GDP to grow around 5 percent in 2011, lower than the government’s estimate of 6 to 6.5 percent.

UBS research division head Joshua Tanja, who also spoke at the briefing, said that the Indonesian government had several achievements in 2010 that would boost investor confidence, such as a clarified cost recovery mechanism for the oil and gas sector, implementing regulations to ease private investments in railroads and improving the BKPM’s performance.

He said he expected to see several milestones that would boost investment in 2011, including enactment of a land acquisition law, improved public-private partnerships in infrastructure development and revision of the 2009 Public Service Law, which mandates performance standards for state entities.

Many investors wait for the enactment of the land acqusition law which would allow the governemnt to “force” land owners to buy their land designated for infrastructure proejcts, if they refused to do so even if they had been offered fair prices.

The government said that the draft of the law would be soon submitted to the House of Representatives for approval.

“However, the government should keep its eyes on some risk factors like higher-than-expected inflation, high oil prices and delays in government reforms,” he said.

USB’s Indonesia country head, Rajiv Louis, said that stronger rupiah would be good for the country’s economy.

“Since 60 percent of Indonesia’s economy is fueled by domestic consumption and only 10 percent comes from exports, a stronger rupiah will allow business owners to import capital goods at cheaper prices,” he said.

Posted on the Jakarta Post 02/03/2011

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