FDI Expected to Drive Growth

KOMPAS/ALIF ICHWAN

Investment Coordinating Board (BKPM) chairman Thomas Lembong (left), accompanied by acting deputy for investment control and implementation Fara Ratna Indriani, hold a press briefing at the BKPM’s Jakarta office on Wednesday (01/30/2019). The briefing presented data on fourth-quarter and second-semester investment realizations in 2018.

JAKARTA, KOMPAS — The economy can no longer rely solely on fiscal and monetary policies to drive growth because of limited fiscal and monetary space.

The government has targeted 5.3 percent economic growth in this year\'s state budget. The limited fiscal space is partly due to a decline in global commodity prices, especially coal, which has significantly impacted non-tax state revenues (PNBP).

Meanwhile, in terms of the monetary limit, Bank Indonesia has not begun to lower its benchmark rate although the high interest rate cycle is to begin soon. The lending rate will remain high in this condition, so the contribution of foreign direct investment (FDI) to economic growth must be increased.

"The source of growth must come from [FDIs]. If fiscal expansion is difficult and the monetary limit is tight, [growth] must inevitably come from the real sector," M. Chatib Basri, an advisory board member at the Mandiri Institute, said at a panel discussion on Wednesday during the Mandiri Investment Forum (MIF) 2019 in Jakarta.

However, data from the Investment Coordinating Board (BKPM) shows that only 82.3 percent of the targeted FDI was realized in 2018, or Rp 392.7 trillion, a 8.8 percent year-on-year decline from Rp 430.5 trillion in 2017.

An overall FDI of Rp 721 trillion was targeted in 2018, or 94.3 percent of the initial target of Rp 765 trillion. According to Chatib, the private sector had an important role in promoting investment in the real sector, as this would attract investors to invest in the country. Among the sectors with investment potential are tourism and the creative industry. Bank Mandiri, for example, was encouraging its foreign customers to invest in Indonesia.

Separately, Bank Mandiri industry and regional research head Dendi Ramdani said there were three business sectors that could attract investment: domestic-oriented sectors such as food and beverage, pharmaceuticals and petrochemicals.

"Other sectors are those that utilize natural resources, such as plantations, as well as the mining industry, which processes minerals, nickel and copper. The final sector is manufacturing, especially textiles and automotive," he said.

Dendi said that several things must be done to attract foreign investors, such as providing adequate infrastructure facilities and further easing licensure.

"The problems arising from systemic differences between the central government and regional administrations must be gradually resolved," said Dendi.

Finance Minister Sri Mulyani Indrawati said at the same event that the government had issued a number of incentive policies to attract investment, including exemptions for corporate income tax (PPh), or tax

holiday, along with mini tax holidays and incentives for special economic zones. Incentives would be issued this year for businesses that offered vocational training and research programs.

West Java Governor Ridwan Kamil said that regional governments played an important and strategic role in attracting investment. In addition to facilitating incentive, regional heads must be proactive in approaching investors.

Convincing

ASEAN and India research head Reza Y. Siregar at the Institute of International Finance (IIF) said that developing countries must have a greater proportion of FDI than portfolio investment.

However, the two types of investment in Indonesia were almost equal in 2017-2018, which made economic fundamentals more vulnerable to global pressures. Reza said that foreign investor confidence and trust must be boosted.

Investment Coordinating Board (BKPM) chair Thomas Trikasih Lembong said that the government expected realize Rp 792.3 trillion in investments this year, comprising 55 percent of foreign investment and 45 percent of domestic investment.

Thomas said the US-China trade war was the main external factor that caused the FDI to decline in 2018, with global investors reducing their investments due to declining purchasing power. Meanwhile, the main internal factor was the transitioning of licensing to the electronically integrated business licensing system (OSS). (KRN/E05)