Investment in Indonesia is expected to expand 8.3 percent this year due to the country’s strong economic fundamentals, making a full-year growth of 5.8 percent, Citi has announced in its economic outlook.
The figure is higher than the government’s estimate of 7.8 percent in the proposed 2010 state budget revision, prior to approval from the House of Representatives.
“We’re more optimistic,” Johanna Chua, Citi’s chief economist for Asia Pacific, said after presenting the outlook, adding a stable political environment and improving investment climate should bode well for investment recovery.
Last year, investment in Indonesia grew by 3.3 percent while the economy grew by 4.5 percent, the Central Statistics Agency (BPS) says.
The government expects the economy to expand 5.5 percent this year on the back of stronger investment and exports.
Chua, based in Singapore, dismissed concerns that the heightened political tensions resulting from the Bank Century case would affect the economy, saying the “underlying fundamentals remain intact” whatever else happened.
Chua also said the government should focus on building more infrastructure to attract investment.
“Key to competitiveness in Indonesia is infrastructure,” she said.
Poor infrastructure has contributed to a high-cost economy, according to businesses.
University of Indonesia economist M. Chatib Basri, also an adviser to Finance Minister Sri Mulyani Indrawati, said to achieve 7 percent economic growth Indonesia would need US$320 billion in investment.
He added the government could only put up 15 percent of that amount, and stressed the need to attract private funding.
“If we want to achieve a 7 percent growth, there’s no other way but to build infrastructure,” Basri said.
“Without that, we can only achieve 6.5 percent, and then the economy will overheat.”
Chua said Indonesia had momentum in 2010 to attract investment.
“Investors will go to emerging economies,” she said, adding Asian ones would outperform all others.
The capital influx has seen the rupiah strengthen to 9,095 against the dollar Wednesday, according to Bloomberg.
The rupiah will trade at between 9,200 and 9,300 per dollar this year, said Manish Bhai, Citi’s head of markets in Indonesia.
“We’re not ruling out a temporary blip below 9,000,” he added.
Chua said the government should continue to manage macroeconomic policies and maintain reform to ensure sustainable capital flows.
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