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Thursday, February 09, 2006

Indonesia Expects Overseas Investment to Increase 12% This Year

(Bloomberg) -- Indonesia's government forecasts overseas investment will probably increase 12 percent this year and help spur growth in Southeast Asia's biggest economy.

The government expects to attract about $10 billion of overseas investment this year up from $8.9 billion in 2005, according to a document prepared by Indonesia's Investment Coordinating Board and obtained by Bloomberg News. The Board also expects to approve projects valued at about $16 billion this year, the document said.

President Susilo Bambang Yudhoyono's government plans to attract $426 billion of investment by 2009 in a bid to create jobs and lift 40 million people out of poverty. The $258 billion economy may have expanded at its slowest pace in almost four years in the fourth quarter as surging fuel prices and borrowing costs crimped consumption.

``You got 2.5 million people hitting the workforce every year, you haven't had any net job creation for eight years,'' Michael Chambers, head of research at CLSA Ltd. in Jakarta, said in an interview. ``You have to find jobs for 20 million people, I don't know how you do that with local investment. The math is pretty compelling. You have to have foreigners.''

The government is counting on an increase in investment to help meet its target of a 6.2 percent gross domestic product growth this year, from an estimated 5.5 percent in 2005.

Economic growth probably slowed to 4 percent to 4.5 percent in the three months to Dec. 31 from a year earlier, the central bank said on Feb. 3. An expansion of 4 percent would be the slowest since the first quarter of 2002.

Economy, Currency

The rupiah plunged to a four-year low against the U.S. dollar on Aug. 30 amid concern rising oil prices may lead to a surge in fuel subsidies and the government's budget deficit. The government's move to double fuel prices in October and six interest-rate increases by the central bank helped it recover.
The rupiah has gained 6 percent against the dollar this year and it the world's second-best performer after the Brazilian real.

Bank Indonesia has increased the rate used as a reference for bill sales to 12.75 from 8.5 percent in July, when it was introduced. That eroded purchasing power in a nation where 126 million people live on under $2 a day.
In January, overseas investment surged 11-fold to $1.31 billion led by investments in paper and pulp and food industries, the investment agency's document said.

Funds flowing into the nation may increase once the government enacts a law that will improve investment procedures. The government may enact the law in March, Muhammad Lutfi, chairman of the Investment Coordinating Board said in Feb. 8 interview in Jakarta.

Investor Conference

The government has delayed a conference meant to attract companies to invest in building roads, ports and power plants to as late as June from February because it wants to pass the law before meeting investors.

Indonesia offered about 91 projects valued at $22 billion at the first such conference held in January last year. Of the total just one project has been completed, while five are being constructed.

The government is completing plans to invite bids for six projects, while it may scrap 19 projects, Suyono Dikun a deputy at the Coordinating Ministry for Economic Affairs said on Dec. 29.

Indonesia needs to simplify its investment rules to compete against region rivals as well as China, which attracted $60 billion of investments in 2005.

Arijit Ghosh in Jakarta

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