On Tuesday (21/01), the Indonesia Investment Coordinating Board (BKPM) announced that investments in Indonesia grew 27 percent to IDR 398.6 trillion (USD $33 billion) in 2013, thus exceeding the target that was set at the start of the year (IDR 390 trillion). This result, which is a new record high for Southeast Asia's largest economy, was supported by a 39 percent increase in domestic direct investment (IDR 128.2 trillion) and a 22 percent increase in foreign direct investment (IDR 272.6 trillion).
In US dollar terms, however, the value of investments in 2013 has not improved markedly due to the sharp depreciation of the Indonesia rupiah exchange rate. The rupiah fell over 21 percent against the US dollar during the year 2013. But disregarding the weak performance of the currency, an eight straight quarterly record in terms of foreign direct investments indicated that there is solid and growing foreign interest in the economic potential of the country, particularly due to its large and growing middle class consumer force. As such, the foreign capital outflow that emerged in 2013 after international investors reacted to the looming end of the Federal Reserve's quantitative easing program was confined to Indonesia's capital markets (stock & bonds market and currency) and did not translate into slowing foreign direct investments.
Outlook Investments in 2014
The BKPM targets for a 15 percent growth rate (IDR 456 trillion) of direct investments in 2014. This is a slower growth target compared to previous years. Head of the BKPM Mahendra Siregar said that it is a normal trend that after several years of strong growth, growth will flatten. Mahendra also stated that in order to attract more investments Indonesia needs to focus more on infrastructure development as this is one of the country's major bottlenecks and brings enormous costs along (logistic costs).
Mahendra believes that the legislative and presidential elections that are scheduled for this year will not be influential regarding foreign investments. Several analysts, however, argue that foreign investors will be hesitant to invest in Indonesia and prefer to wait and see first for the outcome of the elections. As incumbent President Susilo Bambang Yudhoyono cannot participate in the elections (due to a two-term limit to the presidency), the political landscape is expected to experience some significant changes.