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Jakarta investment approvals collapse

Source
Straits Times - April 8, 1999

Jakarta – Indonesia yesterday reported a collapse in foreign investment approvals, a heavy economic blow blamed on fears of growing violence in the run-up to elections.

Investment Minister Hamzah Haz said foreign investment approvals between Jan 1 and March 15 had dropped 90 per cent to US$560 million from US$5.1 billion in the same period last year.

The figures come as Indonesians register to vote in their first democratic election in more than 40 years in June, and as religious and ethnic violence flares across the archipelago.

Market analysts said the sharp fall in new foreign investment is unlikely to be reversed until after the election – and only if the campaign goes peacefully. Campaigning for the vote starts in May and many analysts see a peaceful ballot as the key to economic reform and confidence.

"It is the turning point," said Mr Laksono Widodo, head of research for ING Baring Securities Indonesia. "If it runs smoothly with no violence and trouble, then there would be an increase in the level of foreign investment in Indonesia as well as a return of capital..."

Others are not as sure. "Indonesia still has massive risks," said Mr Ferry Yosiahartoyo, head of research from Vickers Ballas Tamara Securities.

"Everything is very uncertain. It is hard to predict what's going to happen in the next few months, let alone in the long run. Therefore, it is quite understandable to see the massive drop."

Indonesia is grappling with its worst economic crisis in over 30 years amid instability following the forced resignation of disgraced president Suharto in May.

The crisis began in mid-1997 with a massive fall in the rupiah's value, triggering deep recession. The rupiah now trades around 8,700 to the US dollar – about 70 per cent of its value in July 1997. Analysts said the massive drop is inevitable.

Yesterday, Indonesian central bank governor Syahril Sabirin tried to play down the investment figures, saying that three months' data does not tell much, and that foreign investment figures "have always fluctuated".

But University Indonesia economist Sri Mulyani Indrawati said uncertainty runs so high most investors perceive it as a permanent factor, disrupting long-term investment commitments.

"Some investors perceive the current uncertainty in Indonesia as something that is no longer temporary. Therefore, they have chosen to hold back any decision until fter the election," she said.

She added: "A peaceful election that promises stability would break the uncertainty stigma in Indonesia. Unfortunately, signs of trouble have not calmed down. So, no one really is going to put money into Indonesia at the moment."

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