Indonesia's Q3 FDI Shows Slowdown in Dollar Terms as Economy Wobbles

Utility, mining, and property sectors were the biggest recipients of FDI in the third quarter. The biggest source of FDI was Singapore, with Japan and the Netherlands coming second and third. (ID Photo/David Gita Roza)

By : Nilufar Rizki and Gayatri Suroyo | on 1:13 PM October 22, 2015
Category : Business, Economy

Jakarta. Foreign direct investment (FDI) into Indonesia rose in the third quarter in rupiah terms, but the dollar-equivalent FDIs slowed as the economy struggled under the weight of slumping commodity prices, red tape and faltering investor confidence.

The Investment Coordinating Board (BKPM) on Thursday said Southeast Asia's largest economy attracted Rp 92.5 trillion ($6.85 billion) in investment over the July-September period, up 18.1 percent from a year ago.

Reporting the FDIs in local currency terms, however, has tended to mask the underlying picture of a cautious foreign investor.

The dollar equation provided by BKPM showed that FDI so far this year has been slowing in line with a cooling economy. In the September quarter, FDIs in dollar-terms were $7.40 billion, slightly smaller than last year's $7.46 billion.

"To really reflect how much money is coming into the country, FDI should be analysed in dollar terms. But it is problematic that when the exchange rate go up and down, the numbers can look distorting," said Akbar Suwardi, an economist with Bank Rakyat Indonesia in Jakarta.

"Our reading from the data is that investment growth is limited in the third quarter."

President Joko Widodo has stepped up efforts to boost investor confidence, and has announced a host of measures including offering tax incentives, and reforming the minimum wage formula aimed at coaxing investment. More measures are expected later on Thursday.

In a report released on Thursday, the World Bank described government efforts as "strong initiatives", but urged more reforms in manufacturing and tourism sectors.

Widodo wants investment to be Indonesia's new growth engine and has set a gross domestic product (GDP) growth target of 7 percent on average during its five-year term ending in 2019.

Hit by falling commodity prices, a weak rupiah and low domestic consumption, economic growth in the second quarter slowed to 4.67 percent - the weakest in six years.

While the government said economic growth would probably come in slightly below 5 percent for full-year 2015, the World Bank is forecasting 4.7 percent - any one of those annual figures would make growth the slowest since 2009.

The rupiah exchange rate for the third quarter FDI report was capped at 12,500 per dollar to reflect the rate in the 2015 State Budget. That compares with Thursday's rate of 13,500.

Utility, mining, and property sectors were the biggest recipients of FDI in the third quarter. The biggest source of FDI was Singapore, with Japan and the Netherlands coming second and third.

Reuters

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