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Rebound expected in investment growth
Sluggish investment growth is expected to rebound in the near future following the recent announcement of the tickets for the 2019 presidential election
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Sluggish investment growth is expected to rebound in the near future following the recent announcement of the tickets for the 2019 presidential election.
For business players, political certainty is crucial when making investment plans.
“Besides the stability of our exchange rate, what matters most for the market is political stability,” Coordinating Investment Board (BKPM) head Thomas “Tom” Lembong said on Tuesday. “We can say that especially at this time, political aspects will lead to positive sentiment toward investment.”
Earlier, Coordinating Economic Minister Darmin Nasution said the market had reacted positively to the announcement of the presidential candidates and their running mates for the 2019 election as it had reduced the political uncertainty felt by the businesses.
Meanwhile, the BKPM recommended that the current administration not make any more “policy blunders” that might further discourage investors.
The suggestion came following a slump in investment results in the second quarter, the first decline since 2013, at Rp 176.3 trillion (US$12.05 billion), 4.9 percent lower than the previous quarter.
The second quarter’s year-on-year (yoy) growth at 3.1 percent was also slower than the corresponding period last year when it went up by 12 percent yoy.
Tom indicated the slow growth was because investors were in a wait-and-see mode, especially before the political parties announced their presidential candidates.
“The inherent wait-and-see attitude of investors in a political year has been amplified by the [depreciation of] the rupiah and worsening stock markets in emerging nations,” Tom said.
Businesspeople emphasized that they sought political certainty, above all things, to enable them to carry on with their projects in Indonesia.
Representing Indonesia’s business stakeholders, Indonesian Chamber of Commerce and Industry (Kadin) vice chairwoman Shinta Kamdani said President Joko “Jokowi” Widodo had compromised in choosing Ma’ruf Amin, a well-respected religious figure, as his running mate, to face rival Prabowo Subianto and his running mate Sandiaga Uno.
“What is certain for us is that this democratic process should not undermine security in doing business in Indonesia,” Shinta told The Jakarta Post recently. “We hope [economic] stability will remain good and will no longer be [affected] by religious feuds used as a political tool.”
Investment growth in the first half of 2018 was 7.4 percent yoy at Rp 361.6 trillion, compared with nearly 13 percent in the same period last year.
The BKPM has nevertheless reaffirmed that it will not change this year’s investment target, even though the current results barely met half of the annual goal of Rp 765 trillion, as it is pinning its hopes on more policy breakthroughs from the government with less than five months left on the calendar.
Tom mentioned several possible incentives to lure investors, such as an extended tax holiday for certain strategic sectors as well as more accommodating regulations for the digital economic sphere as its presence grows rapidly in Indonesia.
In line with all the volatility in Indonesia and other emerging markets, foreign investments had gone down by 12.1 percent quarter-on-quarter and 12.9 percent yoy to Rp 95.7 trillion, supporting Tom’s statement that foreign investors had chosen to postpone their business decisions in Indonesia for the time being.
BKPM deputy for investment-realization management Azhar Lubis said many of Indonesia’s major foreign investment sources held back on their investments in the second quarter, such as Singapore and Japan.
Chief economist at Samuel Asset Management Lana Soelistianingsih said as the political year could distract policy-makers from their focus, they should strive to reassure investors that the latter would always be accommodated. She said the government should provide solid guarantees to investors that policies would remain the same even if the administration changes.
