Urip Hudiono, Jakarta – The sharp drop in actual investment last year indicates that there are serious problem in the government's industrial development policies, a senior economist says.
"The figures clearly show that serious problems still affect our investment climate," economist Sri Adiningsih, from Yogyakarta's Gadjah Mada University, told The Jakarta Post on Tuesday.
Figures from the Investment Coordinating Board (BKPM) show that actual foreign direct investment (FDI) between January and December 2006 fell by nearly a third to only US$5.97 billion (involving 867 projects), from $8.91 billion (909 projects)
Similarly, domestic investment fell 32 percent to only Rp 20.78 trillion ($2.23 billion), from Rp 30.66 trillion the previous year.
"The recent macroeconomic improvements and the efforts to improve the business climate have yet to be translated into actual stimuli for manufacturers and businesses to invest and grow. If this continues, then it will be difficult to achieve 6.3 percent growth this year," she stressed.
Indonesia's economy started sluggishly last year, and only pickup speed in the second quarter, when growth came in at 5.1 percent, and the third, which saw 5.5 percent growth, as easing inflation and interest rates helped lift both public-sector and personal spending.
When the final figures come in, 2006 growth is expected to not be much different from the 5.6 percent recorded in 2005.
Investment failed to help spur growth in 2006, having instead shrunk by 0.98 percent in the third quarter and 0.25 percent in the second quarter. As a result, open unemployment as of the end of August stood at 10.28 percent of Indonesia's 220 million people, while 17.75 percent of the country's people lived in poverty as of the end of March.
On a positive note, however, the BKPM data also reveals a rising trend for investment approvals, with approvals for FDI rising to $15.62 billion from $13.57 billion the previous year, and those for domestic investment more than doubling to Rp 162.76 trillion from Rp 50.57 trillion previously.
Until last year, both investment approvals and realizations had been on the rise since 2004, which saw $10.43 billion in FDI approvals with $4.6 billion being realized, and Rp 44.52 trillion in domestic investment approvals with Rp 15.26 trillion being realized.
The BKPM said realized investment reflected approvals given in previous years, with last year's downturn due to investor caution about investment plans due to the 2004 general elections, in contrast to the upbeat sentiment prevailing in 2003.
Meanwhile, last year's rise in approvals was due to investor confidence recovering again on the improving macroeconomic situation.
The BKPM plans to overhaul its information system to provide a closer correlation between investment approvals and realizations in its data.
BKPM data excludes investments in the oil, gas and mining industries, banks and non-bank financial institutions, and the capital markets.
Although acknowledging the time lag between planned and actual investment, Sri Adiningsih said that last year's decline in actual investment also indicated that investors still faced difficulties in realizing their investment plans.
"It relates to the fact that investment loans from the banks are still costly for most businesses despite the central bank having cut its key rate. As a result, investors just cancel their investment plans," she said.
Regarding the fact that most investment approvals and realizations took place in the metal, machinery and electronics industries, which were generally considered to be labor intensive, Sri Adiningsih said it all depended on the actual industry.
"Many electronics industries are now less labor intensive, except in the case of assembly operations," she said. "So the important thing here is that the government facilitate investors in actually bringing their investment plans to fruition, and focus on promoting investment in those sectors that actually contribute to employment in the long run, like agroindustry."