Direct investment realization is expected to grow 16.7 percent next year as economic uncertainties in developed countries drive investors to emerging economies, a senior official claims.
Investment Coordinating Board (BKPM) chairman Gita Wirjawan said investment realization, excluding in the oil-and-gas and financial sectors, was expected to top Rp 280 trillion (US$32.76 billion) in 2012, compared with the targeted Rp 240 trillion for this year.
"Given global economic conditions and the situation in Europe and the US, we are certain of a 'flight to safety' or 'flight to quality'," he said at a news conference Tuesday.
Debt crises in Europe and the US could slow growth in the world's largest economies. This could lead to a shift in investment from these countries to developing economies such as Indonesia.
Despite fears of an global economic slowdown, the Indonesian government targets economic growth of at least 6.7 percent in 2012, higher than the 6.5 percent estimate for this year, thanks to strong domestic consumption and rapid growth of exports and investment.
"We are certain that the fiscal incentives, including tax holidays for certain industries, will keep investors coming to Indonesia," Gita said. The government recently announced new five- to 10-year tax breaks for investors pumping more than Rp 1 trillion into the base metals, oil refining, renewable energy and telecommunications equipment sectors.
"The impact of the regulation will be huge," Gita said. In the first half of this year, investment realization topped Rp 115 trillion, or 48 percent of the overall target.
Indonesia requires thousands of trillions of rupiah in investment through 2025 to achieve President Susilo Bambang Yudhoyono's ambitious master plan of driving the country to be among the world's ten largest economies.
Bank Indonesia Governor Darmin Nasution said the rapid growth in investment had a massive impact on the overall economy.
Investment, including in the oil-and-gas and financial sectors, was the second-largest contributor to the country's 6.5 percent economic growth after domestic consumption and ahead of exports.
"Next year will be more challenging. While there are indications of an economic slowdown in Europe and the US, it will be more challenging to attract as much investment," Danareksa Research Institute head of research Purbaya Yudhi Sadewa.
The government's top investment priority sector is infrastructure, as the abysmal network of poorly maintained roads, bridges, seaports and airports are hindering the country from reaching its full economic potential.
State-Owned Enterprises Minister Mustafa Abubakar said state firms were also ready to help support the country's development by raising funds through IPOs and rights issues to finance projects that could create a multiplier effect on the economy and broaden the country's financial market.
"We have plans to float two state firms on the local stock exchange: [cement producer] Semen Baturaja and [state pawnbroker] Perum Pegadaian. There may be two other units as well, Pertamina's Tugu Pratama and Krakatau Steel," he said.
By Esther Samboh in Jakarta/The Jakarta PostBusiness & Investment Opportunities
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