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The government is aiming to reap Rp 390 trillion (US$41.1 billion) in investment next year, up by 37.57 percent from the Rp 283.5 trillion officially targeted this year, but business players and analysts are warning that the target will be hard to achieve without improvements both to external and internal conditions.
A sizeable rise in investment, both domestic and foreign, would significantly drive the government’s economic growth target of 6.8 percent for 2013, Investment Coordinating Board (BKPM) chief, Chatib Basri, said.
“Can we achieve this goal? I think there are several factors that make us quite optimistic that this can be realized,” he told a press conference on the 2013 state budget at the Office of the Coordinating Economic Minister.
Economists and businesspeople, however, are less optimistic about this target.
Indonesian Employers Association (Apindo) chairman Sofjan Wanandi described the government’s target as too “ambitious”, saying that it would be very hard for Indonesia to attract such sizeable investment amid the global slowdown, with banks tightening their hold on credit.
“Foreign investors are struggling with the crisis and many are postponing their investments as a number of banks affected by the crisis are unwilling to finance long-term projects. This also applies to domestic investors. The target is too high,” Sofjan told The Jakarta Post on Monday.
Tony A. Prasetiantono, an economist from Yogyakarta’s Gadjah Mada University, shared a similar view to Sofjan’s, saying the target was “too difficult to achieve” considering the prolonged uncertainty regarding the global economy.
“But if the government is brave enough to spend more on capital expenditure, that would trigger private investments. The government should cut subsidies and increase its allocation for capital spending,” he said, pointing out that the reduction of fuel and electricity subsidies was a prerequisite for higher spending on infrastructure projects.
Tony added that the government should raise fuel prices and electricity rates to offer a fiscal stimulus to the economy and attract more investors.
In the proposed 2013 state budget, energy subsidies total Rp 274.74 trillion, far higher than spending on infrastructure projects, which only amounts to Rp 188.4 trillion, out of a total capital expenditure of Rp 193.8 trillion.
Indonesian Institute of Sciences (LIPI) economist Latif Adam said that legal certainty and adequate infrastructure were crucially important for investors, more so than fiscal or non-fiscal incentives.
“If the government seriously works on it, investment can contribute to our economic growth at the same level [as domestic consumption],” he said.
Investment can also become an alternative to international trade, which traditionally gives a significant boost to the country’s gross domestic product (GDP), and can even create a healthier economy. “However, the government cannot continue with ‘business as usual’,” he said.
Behind the government’s optimistic target is Indonesia’s growing middle class, which offers an attractive market for investors of consumption goods, made by the likes of Taiwan-based electronics giant, Foxconn.
The country’s middle class was predicted to increase over the next 10 years to 110 million people, each with a daily spending ability of more than $10, in addition to the solid economic expansion seen at present, Chatib said. “This [growing middle class] will attract investors who hold a long-term view of between 10 and 15 years,” he explained.
Indonesia, Southeast Asia’s largest economy, expanded by 6.4 percent in the second quarter of this year, which was higher than most analysts had predicted, after growing by 6.3 percent in the first quarter.
The country’s economic growth during this period outperformed some of the highest economic growth figures in the world, coming second after China among the G20 countries, as strong domestic consumption and investment offset lower demand for its exports.
In the first half of the year, total realized investments amounted to Rp 148.1 trillion, of which 70 percent came from foreign direct investment (FDI). With robust investment during the period, the government said it was on track to reach its full-year target.
Speaking separately after the press conference, Trade Minister Gita Wirjawan said the increased investment in the first half of the year was a positive sign, despite a downward trend internationally, with global investment dropping by 66.67 percent to $1.2 trillion last year due to the global economic downturn.
“Contrary to this situation, we have seen a 30 percent rise in investment in Indonesia. That is something positive and investment will continue to drive our economy,” said Gita.