Foreign investment plunge ’caused by Indonesian polls’

It’s a five-year cycle, says minister

INDONESIA’S recent general election caused a sharp drop in foreign investment approvals in the country this year.

Investment Minister Sanyoto Sastrowardoyo was quoted by the Bisnis Indonesia daily yesterday as saying that foreign investment approvals for the first five months of this year dropped by 36 per cent in volume, and 25.5 per cent in value compared to the same period last year.

“The decline in foreign investment this year is because of the election,” he said. He noted that the case was similar during the last polls in 1992.

“It is a five-year cycle,” he said. Indonesian elections are held every five years.

He noted that a total of 302 foreign investment commitments worth US$13.7 billion (S$19.1 billion) were approved in the first five months of this year, down from 473 projects worth US$18.73 billion a year earlier.

Domestic investment approvals totalled 267 projects worth US$20 billion in the first five months of this year, down from 387 projects worth 58,800 billion rupiah (S$35 billion) last year.

Analysts earlier predicted that the election campaign could have some short-term effects on the economy because of the potential for violence and food shortages.

Economists told The Straits Times that it was not immediately clear now if there was a drop in new investments or from foreign businesses which had invested in the country before.

Dr Mari Pangestu of the Centre for Strategic and International Studies noted: “Newer investors not used to the political climate in Indonesia could have changed their mind about investing here.”

Another analyst said that investors could have delayed or postponed their investments because of political uncertainty. The election campaigning saw a spate of riots across the country.

“Businessmen want to know what is in store in the future,” he said.

Economists and government officials said that besides the general election, a number of other factors could have affected foreign investments in the country.

These included a perception that wages were rising faster than productivity, as well as competition from other countries like Vietnam and Myanmar where labour costs were much lower.

The Indonesian government had said earlier that the polls had little impact on the country’s economy.

Former Information Minister Harmoko said last month that the country’s inflation rate now was lower compared to the same period last year. Inflation was 0.56 per cent this April compared to 0.78 per cent in April last year.

He also noted that the inflation rate from January to April this year averaged 2.52 per cent, much lower than the 4.04 per cent recorded over the same duration last year.

A report in The Jakarta Post recently said that while foreign investors were concerned about some volatility in domestic and financial markets, they had confidence in the government’s economic policies.

Some analysts even predict an 8-per-cent growth this year. Indonesia registered 7.82-per- cent growth last year.