Jakarta – Foreign investment in Indonesia dropped by nearly 42 per cent last year due to political instability and increasing lawlessness that the government of President Megawati Sukarnoputri was unable to control.
According to data from the Investment Coordinating Board (BKPM), investments last year amounted to US$9.02 billion.
Despite the change in government from former president Abdurrahman Wahid, who was ousted last July for incompetence, investment risks remained high because of political upheavals, social unrest, legal uncertainty and poor law enforcement, analysts said.
A recovery in foreign investments seems unlikely due to the lacklustre performance of Ms Megawati's administration and its failure to meaningfully address any of these problems.
Economic analysts have repeatedly warned of a mass exodus of capital from Indonesia to China and Vietnam, where the investment climate appears to be safer.
The largest foreign investments were in chemical and pharmaceutical businesses followed by service sectors and the hotel and restaurant industries, the BKPM report said.
Domestic investment was also sharply lower, falling to 59 trillion rupiah (S$11.2 billion) from 92 trillion rupiah in 2000.
Another report yesterday said Indonesia must put people first with major investments in education and health care if it wants to recreate the economic miracle of past decades. The Indonesia Human Development Report 2001 said: "Indonesia faces enormous and diverse challenges – consolidating democracy, addressing regional conflicts and regenerating the economy.
"They will only be achieved if they are based on common values and a new consensus – on a shared commitment to human development." The report added that Indonesia ranked only 102nd in the world in terms of human development, based on income, life expectancy and educational achievement.
Between 1997 and 1998, inflation surged from 6 per cent to 78 per cent while real wages fell by around one-third, leading to a sharp rise in poverty.
"In the aftermath of the economic crisis, Indonesia faces serious challenges of human development," the report said. "Their long-term outlook for public services is poor. Because of the decision to bail out the banks, the government is now deep in debt. Effectively, the population as a whole has assumed a massive burden that will require them to pay higher taxes and have less effective public services." The report calls for much greater investment in education, noting that Indonesia spends only around 1.4 per cent of gross national product compared with the global average of 4.5 per cent.
Health spending should also become a priority, the report added, calling for a new "social compact: an agreement that all Indonesians, as Indonesians, are entitled to nationally-mandated standards of human development".