Indonesia’s economic condition has shown marked improvement this year. Nevertheless, investment is still lagging because investors need new incentives other than the economic policy packages. To encourage investors to invest their money and expand their businesses in Indonesia, the incentive they most need is the legal certainty.
Director of Treasury and Market of DBS Bank Indonesia Wiwig Santoso confirmed that Indonesia’s economy has improved, in part thanks to the government’s efforts to implement structural reforms followed by the launch of economic policy packages. Since September last year, the government has launched 11 policy packages. As a result, Indonesia’s economy is now in a stronger position than other emerging markets.
Nevertheless, private sector investment activity is still restrained because private investors are unsure whether Indonesia’s economy will continue to improve. According to Wiwig, it will take more time for the policy package to have an impact on the economy.
He believes that the majority of investors were testing the market to assess the potential gain under current economic conditions and amid low consumer demand. Investors in other countries were taking similar steps to determine which country could offer the maximum return on their investment.
"To test the market, they need to look at the capacity of other countries. The global (economy) is slowing down. Instead of directly investing, I need to test the market,” he said during a DBS Group Interview in Jakarta, Monday (25/4). That is why we need further incentives to boost investment, such as providing legal certainty.
Head of Research of DBS Vickers Securities Indonesia Maynard Arief agreed that investors were taking a wait and see stance amid the current economic conditions because risks, such as economic slowdown and the volatility of the rupiah exchange rate, still exist. “It’s not a matter of whether there are incentives or not. Rather, we need investors to be confident that Indonesia’s economy is improving. Another prerequisite is the legal certainty,” he said.
Earlier, BI’s Executive Director of Monetary Economic Policy Juda Agung said that the impact of infrastructure development on private investment is usually evident after five quarters. Thus, he is optimistic that private sector investment will increase in the second semester of this year.
Juda predicts that with the support of private investment, economic growth in the first quarter this year could reach 5.1 - 5.2 percent. Growth in the next quarter is expected to reach 5.2 – 5.3 percent, until the end of 2016. “(Economic growth in the second quarter) could increase to 5.2 – 5.3 percent,” he said.
According to BI, government spending was the main driver of economic growth in the first quarter. Capital expenditure and expenditure on goods in the first quarter are predicted to increase by 161 percent and 56 percent, respectively, compared with the same period last year. There was also an increase in consumption, as indicated by the positive growth in retail and motor vehicle sales.
Meanwhile, consumer confidence continues to improve. Exports are predicted to rise as well this year, thanks to increased exports of several Indonesian commodities, particularly crude palm oil, rubber, and tin. “The export performance of a number of commodities has improved. This is especially true for textiles, electrical equipment, and passenger vehicles,” said Juda.