Indonesia set to woo foreign investors
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Aims to grow 8%, inch closer to developed nation status
Indonesia needs to pull in investments amounting to as much as 40 per cent of gross domestic product (GDP) if the country wants to grow up to 8 per cent and inch closer to developed country status, new investment chief Muhammad Chatib Basri said.
He told The Straits Times that he wants Singapore, the top investor in Indonesia, to move away from investing mostly in commodities to pumping more money into the services and high-technology sectors to help move the country up the value chain.
Appointed about a month ago to head the Investment Coordinating Board (BKPM) of Asean’s biggest economy, Basri, 46, knows he faces a daunting task of wooing investors amid a tough economic climate. But he remains confident that the country can more than double the value of its foreign direct investment (FDI) to US$50 billion (Bt1.59 trillion) by 2015.
“If you want to reduce poverty and sustain job creation, the economy needs to grow by about 7 to 8 per cent,” he said in an interview at his office last Thursday. This meant that the economy needed between 35 per cent and 40 per cent of investment as a percentage of GDP, he said.
“It really means that Indonesia needs to be open to foreign investment,” added the former vice-chairman of think-tank National Economic Committee that advises the president.
The Indonesian economy has been the best performer in the region, growing at an average of 6 per cent in the last two years.
It is expected to maintain or push slightly past that figure this year. It netted a record $19 billion last year in FDI, or nearly 20 per cent over 2010. With first-quarter FDI growing 30 per cent over the same period last year, officials say that overall FDI is on target to reach $27 billion for this year.
Despite the strong growth, some government policies have been criticised as protectionist and creating uncertainty. These include recent announcements of regulations limiting foreign ownership in mines and banks.
Others note a rise in economic nationalism.
Officials contend policies are aimed at protecting natural resources and driving up state revenue, not to shut out foreigners.
Still, global surveys have been unflattering – the World Bank’s Ease of Doing Business index ranks Indonesia 129 out of 183 countries, three places lower than last year.
Recently, the World Bank cautioned the government against sending mixed signals.
Its managing director, former Indonesian finance minister Sri Mulyani Indrawati, said: “This is the time when the coordination between policymakers is even more important and you don’t have the luxury of giving conflicting signals when the economic environment is fragile... you have to show firm leadership.”
While admitting that Indonesia “still has a problem” with its investment climate, Basri refuted the claim that its policies were a result of economic nationalism.
He said one of the reasons for the policies is that Indonesia does not want to remain a producer of natural resources or a supplier of cheap labour.
Realistic about BKPM’s limited influence, he described the agency as a “clearing house”, facilitating investment requests while marketing Indonesia.
As for Singapore, he said it should not see Indonesia as a competitor but give its giant neighbour its support. He added that Singapore will gain from Indonesia’s growth, pointing out that its economy makes up 48 per cent of the 10-nation Asean economy.
“Singaporeans always worry that when Indonesia becomes a global player, we will leave Asean... that we play in the first league and we’re going to abandon you. I can assure you that’s not going to happen,” he said. “Asean should play a major role in the global context... and Indonesia has a large role in this.”
