BKPM Remains Optimistic as Economy Weakens

JUNE 16, 2015

Jakarta. Investment in Indonesia could surpass this year’s expectations, bolstering economic growth for the remainder of the year despite looming pressures on export and household consumption in Southeast Asia’s largest economy, a top official says.

“We think that we could go over this year’s target [for investment] by the end of the year,” Franky Sibarani, the chief of investment coordinating board (BKPM), said in Jakarta on Monday.

“We’ve visited projects in Medan, Central Sulawesi and everyone is still doing business as usual. So, investment in the country is still moving, although we won’t be able to really conclude on this year’s growth until the end of July,” he added.

The BKPM hopes to see as much as Rp 519.5 trillion ($39 billion) in total investment this year, up 12 percent from 2014 realization at Rp 463.1 trillion, with over 60 percent coming from foreign investors.

Total investment into Indonesia — outside the banking, oil and gas sectors — climbed 17 percent to Rp 125 trillion between January and March this year. Figures on investment growth in the March-June period are scheduled for release in July.

Working to further boost investment growth in the country, the BKPM chief said he visited eight sites between June 9 and June 12 to meet with several investors and their projects, including publicly-listed Chandra Asri Petrochemical’s $400 million joint venture with French tire maker Michelin and Asahimas Chemicals' $400 million chemical plant.

“Based on what we’ve seen from this visit, we see that the work is still ongoing. No one was in a wait-and-see position and no one was complaining because of the depreciated rupiah,” Franky said.

“Investors were worried about things that we’ve known already, such as land acquisition,” he added, alluding to the notion that land disputes, tangled bureaucracy and government red tape have often deterred local and foreign investors to expand their business in the country.

The only hope

Still, the consistent growth of investment — which accounts for one-third of the economy — contrasts with that of exports and household consumption in Indonesia, which makes up the remaining 24 percent and 56 percent of the economy, respectively.

Exports from Indonesia fell by 15 percent to $12.56 billion in May from $14.8 billion in the same period last year, according to data from the Central Statistics Agency (BPS). In the cumulative January -May period, export fell 12 percent to about $65 billion compared to the same period in 2014.

Concurrently, automotive and cement sales — which are typically the lead indicators for consumption — also plunged in the first five months, adding to signs that the economic slowdown is here to stay.

Car sales and motorcycle sales in Indonesia fell by 17 percent and 35 percent to 443,328 units and 2.66 million units respectively in the first five months, according to data from the Indonesia Automotive Manufacturers Association (Gaikindo) and the Indonesia Motorcycle Manufacturers Association (AISI).

Meanwhile, cement sales declined by 2.3 percent to 23 million metric tons during the same period, data from the Indonesian Cement Association (ASI) reported.

“The key [for growth] is definitely from government spending and investment. Export and consumption are still looking weak,” David Sumual, chief economist at Bank Central Asia, told GlobeAsia over the phone on Monday.

Backed by these sentiments, the economist estimated that the economy would grow by a range of 5 percent to 5.3 percent by the end of the year — a less optimistic forecast compared to the government’s target of 5.7 percent.

David, who also forecast the economy to grow between 4.5 percent and 5 percent in the second quarter, pointed out that once government spending would started to flow, there could be more investment coming into the country.

“The signs have been quite well. We’ve heard news of the new toll road inaugurated recently, however it needs to be accelerated,” he said, referring to the toll road from Cikopo to Palimanan in West Java. “We need to see new projects coming in.”