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Indonesia seeks China's help as foreign investment stagnates

Thursday, October 22, 2015 - 14:09
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"We need to tap more Chinese FDI," Finance Minister Bambang Brodjonegoro told an audience of diplomats, economists and business people at a World Bank briefing on Thursday.

[JAKARTA] Indonesia will seek more funds from China to help drive economic growth after foreign investment stagnated last quarter.

Foreign direct investment was US$7.4 billion in July through September, unchanged from the previous quarter and down from US$7.5 billion a year earlier, according to the Indonesia Investment Coordinating Board.

In rupiah, it rose 18 per cent from a year earlier. Total investment, including from domestic sources, climbed 17 per cent in rupiah terms from a year earlier, and the government expects to exceed its full-year target for 519.5 trillion rupiah (S$53 billion), it said.

Joko Widodo, known as Jokowi, reshuffled his cabinet and issued a series of policy measures in recent months to try to remove impediments to doing business, after Southeast Asia's largest economy grew in the second quarter at the slowest pace since 2009.

Budget spending has picked up in recent months after a slow start to the year, with the government kickstarting infrastructure projects such as a Chinese-built dam.

"We need to tap more Chinese FDI," Finance Minister Bambang Brodjonegoro told an audience of diplomats, economists and business people at a World Bank briefing on Thursday. "In the past the relationship was mostly trade. Not so much on FDI. Chinese FDI realisation is one of the lowest."

China has offered US$100 billion of total investments in various projects, the government has said. Yet the realisation rate of Chinese investment is only at 10 per cent, Mr Bambang said.

Singapore, Japan and the Netherlands were the biggest sources of investment in the last quarter, with China fifth, the investment board said, without giving details on companies.

SIGNS IMPROVING

Mr Joko has been more open to Chinese investment than his predecessor Susilo Bambang Yudhoyono. Indonesian state companies will join a Chinese counterpart to build a railway from the capital to Bandung on Java island, and the government in August started flooding a Chinese-built dam that was first proposed more than 30 years ago.

The rupiah extended gains after the investment data to rise 1.4 per cent, the most in Asia, as foreign funds add to their stock and bond holdings this month amid speculation Indonesia's economy is picking up and the Federal Reserve won't raise interest rates this year.

The investment figures in rupiah are based on an exchange rate of 12,500 a dollar for this year, and 10,500 for last year, versus a current rate of around 13,500.

The World Bank sees Indonesia's full year gross domestic product growth at 4.7 per cent, below a government target for about 5 per cent. Improvements will depend on the effective implementation of the recent reform measures, with a significant pick-up in capital spending seen since July, it said on Thursday.

The government plans to issue further measures later on Thursday to stimulate the economy, after announcing in recent months it will cut red tape, improve a process for setting annual worker wage gains, and lower fuel prices. That comes after a year in which investors have been confused by various policy u-turns.

"There is a real willingness and desire on the part of the new economic team to really address in a serious way a lot of the impediments that continue to exist for foreign investment," Robert Blake, the US ambassador to Indonesia, told reporters on Tuesday in Jakarta, ahead of a visit next week by Mr Joko to the US.

"My expectation is that they will soon begin to bear fruit and we will see growth to start to pick back up again sometime next year and we will see more investment."

BLOOMBERG