The Investment Coordinating Board, or BKPM, estimates Indonesia may see an additional $10 million in foreign direct investment over the next two years after the country secured investment-grade status. (Antara Photo/Andika Wahyu)

Indonesia Expects $10b FDI Boost From S&P Rating Upgrade


MAY 24, 2017

Jakarta. The Investment Coordinating Board, or BKPM, estimates Indonesia may see an additional $10 billion in foreign direct investment over the next two years after the country secured investment-grade status.

The outlook for Indonesia's sovereign bonds was lifted from junk status by global rating agency Standard & Poor's last week, allowing the country to secure the coveted investment grade status from all three major debt rating agencies for the first time since 1997.

"The investment grade potentially attract $5 billion to $10 billion, or Rp 65 trillion to Rp 130 trillion, in the next year or two. It certainly improves our investment climate," BKPM chairman Thomas Trikasih Lembong said on Tuesday (24/05).

Thomas said although the rating was for Indonesia bonds – and directly impacts appetite for the country's debt papers or stocks – it also reflects on the country's overall economic strength and how safe it is for investment.

"It usually takes 12 to 24 months for us to start to see the shift from portfolio investment to direct investment," he said.

The BKPM said it has tried to attract foreign investment in the tourism sector, as part of the countries plan to develop 10 new tourism destinations – similar to Bali – across the archipelago.

Investment in food and beverage manufacturing, pharmaceuticals, petrochemicals, metal processing and automotive components would be preferable as it lines up with government initiatives to create added value and jobs, said Haris Munandar, secretary general at the Ministry of Industry.

Indonesia attracted Rp 396 trillion in foreign direct investment last year, up 8.3 percent from a year earlier.

The BKPM reported earlier that Rp 97 trillion of foreign direct investment has come into Indonesia in the January-March period.

"We have to seize this delightful development to improve reforms that would result in more [credit rating] upgrades," Thomas said.

Moody's Investors Service and Fitch Ratings rate Indonesia's debt outlook as positive, which reflects a likelihood of an upgrade in near future.

Vice President Jusuf Kalla said separately that the government would try to make use of the momentum created by the rating upgrade to accelerate reforms of the country's bureaucracy.

"There is a concerted effort among ministries to improve business licensing systems, land clearance, and security," Kalla said.

"In a cabinet meeting, the president ordered ministers to improve procedures at the ministries and regions so that we can be assessed as a good place for investment," Kalla said.

Shinta Kamdani, deputy chairman for international cooperation at the Indonesia Chamber of Commerce and Industry (Kadin), said foreign investors recognize Indonesia's potential with its large population and financial stability.

"What is lacking now is infrastructure, which needs to be prioritized. Also, the licensing should be continuously improved, because foreign investors do not like a convoluted bureaucracy," Shinta said.