JAKARTA, KOMPAS -- Foreign investment is among the foundations of Indonesia’s targeted economic growth of 5.3 percent in 2019. However, the government should target foreign direct investment that is oriented toward exporting finished or intermediate products.
The government can provide incentives for investors aiming to create export products. On the contrary, investors oriented toward the domestic market should not be prioritized.
Investment Coordinating Board (BKPM) data shows that direct investment from January to September in 2018 reached Rp 535.4 trillion (US$37.79 billion), comprising Rp 293.7 trillion in foreign investment and Rp 241.7 trillion in domestic investment.
Despite its close link to exports and imports, Indonesia currently faces a trade balance deficit. Statistics Indonesia (BPS) data shows that the country had a trade deficit of US$8.57 billion in 2018.
The deficit was due to the oil and gas trade balance deficit of US$12.4 billion, which could not be compensated with the non-oil-and-gas balance surplus of US$3.84 billion.
“The point is that investment should be able to counterbalance Indonesia’s weakness in imports of raw materials and capital goods. The goal is to fix the current account deficit, including the trade balance deficit,” University of Indonesia School of Economics and Business dean Ari Kuncoro told Kompas on Thursday (24/1/2019).
Bank Indonesia’s data on the country’s balance of payments shows that the country had a current account deficit of US$8.85 billion in the third quarter of 2018. This was equal to 3.37 percent of gross domestic product.
Ari cited spare part factories in the automotive industry as examples of industries oriented toward intermediate or finished products that should be supported.
National Development Planning Minister Bambang Brodjonegoro said in his opening speech at the Standard Chartered Bank’s Global Research Briefing in Jakarta on Thursday that Indonesia’s economic growth should be able to reach an average of 5.3 percent in 2017-2019. However, thus far, the potential remains unreachable due to various internal and external factors.
“Household spending and government spending should not be the only drivers of economic growth. We also need plenty of foreign direct investment,” Bambang said.
He said that this year’s economic growth target would be achievable with direct investment of 7 percent. Investment should come not only from the government and domestic entities but also from foreigners.
Foreign investors are hoped to invest in the real sector, which has a direct impact on economic growth.
Incentives
Standard Chartered economist Aldian Taloputra said Indonesia’s economic growth in 2019 was projected to be 5.1 percent, with relatively stable support from household spending. “Competitiveness must be improved consistently and sustainably as other countries are also racing to collect investment,” Aldian said.
The Finance Ministry’s fiscal policy agency head, Suahasil Nazara, said fiscal incentives were among the strategies to drive economic growth. The newest incentives are provided to domestic companies that create joint subsidiaries with foreign entities.
Indonesian Employers Association (Apindo) deputy chair Shinta Widjaja Kamdani said business players would not have any issue with the incentives’ amount. They would instead highlight the importance of stability and policy implementation. Of no less importance is coordination between central and local governments in providing incentives. (KRN)