Adinda Normala, Jakarta – Foreign direct investment in Indonesia declined by 12.9 percent to Rp 95.7 trillion ($6.66 billion) in the second quarter, compared with the same period last year, the Investment Coordinating Board, or BKPM, said on Tuesday (14/08).

The board cited the weakening rupiah and a possible negative impact of the trade war between China and the United States as investors take a wait-and-see approach.

Azhar Lubis, deputy chairman for investment control and implementation at BKPM, said this was the first quarterly contraction since 2013. In the first quarter last year, FDI realization stood at Rp 109.9 trillion.

Combined with the first quarter FDI realization, which stood at at Rp 108.9 trillion, investment realization in January-June was Rp 204.6 trillion.

"Amid uncertainties, investment usually slows down. Investors are now in wait-and-see mode," BKPM chairman Thomas Lembong told reporters on Tuesday.

BKPM's data excludes investment in the banking and oil and gas sectors.

The rupiah declined to its lowest since October 2015, standing at 14,625 a dollar on Monday morning, and weakened further to 14,630 a dollar by 12:42 p.m., according to Reuters' spot exchange rate.

Full-year target at risk?

Singapore remains the biggest source of investment, with $2.4 billion, followed by Japan, China and Hong Kong. Sectors that received the biggest investment were mining, industry, estate, utilities, metallurgy and transportation.

Meanwhile, domestic direct investment (DDI) grew 32.1 percent to Rp 80.6 trillion, compared with the same period last year. Most of the DDI was in transportation, mining, the food industry, utilities and plantations.

With weak FDI in the second quarter and careful investors, the board said the FDI target of Rp 477.4 trillion this year may be hard to reach.

"Unless we can stabilize or convince the market and investors that the rupiah has achieved stability, investors will tend to wait and see or delay [their investment]. Rupiah stability is important for investment sentiment," Thomas said.

The government's plans to reduce imports of raw materials and capital goods to help narrow the current account deficit gap and prop up rupiah value by delaying some infrastructure projects, also pose threats to investment.

Source: http://jakartaglobe.id/business/fdi-declines-in-q2-investors-wary-of-weakening-rupiah-trade-war/