Irvan Tisnabudi & Muhamad Al Azhari

Domestic Investors Help Fill Void as Indonesia FDI Plunges

Indonesia recorded a 28 percent drop in realized foreign direct investment in 2009, the chief of the Investment Coordinating Board said on Wednesday.

Analysts said this showed that the nation had not escaped the impact of the global financial crisis, which hampered the ability of banks to supply the private sector with the cash needed for expansion.

Gita Wirjawan, the chairman of the board, also known as the BKPM, told the Jakarta Globe that $10.7 billion of FDI was realized last year, down 28 percent from $14.87 billion in 2008.

Gita did not give a reason for the decline, but Purbaya Yudhi Sadewa, chief economist at Danareksa Research Institute, said the fall “was normal and as predicted. When global economic growth fell, many business players suspended their expansion plans, causing the FDI figure to fall.”

But Indonesia recorded a near 72 percent increase in the realization of domestic investments in 2009. Gita said domestic investment reached Rp 35 trillion ($3.78 billion) in 2009, compared with Rp 20.36 trillion in 2008.

BKPM data excludes investment in the oil and gas, banking, insurance and mining sectors. The data also differs from that released by the Central Statistics Agency (BPS), which releases quarterly investment figures alongside the nation’s gross domestic product numbers.

Gita said on Dec. 9 that the value of FDI was expected to rise by up to 15 percent in 2010 after bottoming out in 2009, thanks to stabilizing domestic and international economic conditions.

With the country’s huge markets and natural resources, Gita said he saw no reason why total investment would shrink further from what was already a “bottom position.”

Coordinating Minister for the Economy Hatta Rajasa said on Monday that Indonesia would count on rising investment to speed growth, on top of the expected recovery in exports.

But Eric Sugandi, an economist at Standard Chartered Bank, said investment was still hampered by serious obstacles, the biggest being poor infrastructure.

“I agree that a large market with a positive growth outlook at 5.5 percent for next year should be attractive, but the question is can we really provide international investors with what they need? Infrastructure obstacles such as electricity shortages are still troubling for potential investors,” Eric said.