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INTERVIEW: Indonesia Min: Invest Stimulus Steps Imminent February 17, 2006

Posted by ekon in investasi, makroekonomi.
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By Phelim Kyne and Fitri Wulandari of Dow Jones Ne – 2006-02-17 09:36:25

February 16, 2006

JAKARTA (Dow Jones)–Indonesia’s government will unveil by next week a long-awaited policy package aimed at immediately boosting investment, Minister of Trade Mari Elka Pangestu said Thursday.

Coordinating Minister for the Economy Boediono is currently finalizing the policy measures, Pangestu told Dow Jones Newswires.

“(The package) will contain a lot of immediate short-term deregulation and streamlining (of investment stimulus) measures,” Pangestu said.

There will also be “clear indications of changes in the law and regulations which people are hoping for in investment, tax, customs, labor and decentralization,” she said.

Pangestu said her ministry and the Ministry of Transportation have also drawn up a list of urgent, short-term measures to assist Indonesia’s export production sector.

Those measures prioritize transportation infrastructure improvements, including linking of toll roads and the extension of rail links between industrial estates and Jakarta’s Tanjung Priok harbor.

“Following complaints from producers…we have prioritized (reducing) infrastructure bottlenecks which are affecting major export production areas,” Pangestu said.

Boediono’s stimulus package reflects the government’s efforts to lure back investor dollars at a time when analysts say the official target for 6.2% economic growth this year is overly optimistic. Analysts are predicting an economic expansion between 5.40% and 5.50% this year.

Indonesia’s economy expanded 5.60% in 2005, below an official target of 6.0%, but outpacing growth of 5.40% in 2005. The economy contracted in quarter-on-quarter in the October to December period.

The investment stimulus package will also mark Boediono’s long-awaited policy debut since he re-entered the government in December in a shuffle of President Susilo Bambang Yudhoyono’s economic cabinet.

Investors have snapped up Indonesian assets in anticipation of the widely-respected Boediono’s policy initiatives. The rupiah has risen on speculative inflows to IDR9,223 to the dollar Thursday from a four-year low against the dollar of IDR11,900 in August and IDR9,835/dollar at the end of last year.

Boediono served as finance minister under Yudhoyono’s predecessor, Megawati Sukarnoputri, and is credited with weaning Indonesia off an International Monetary Fund emergency borrowing program at the end of 2003.

Investment Stimulus Needed As Economy Slows

The challenge facing Pangestu and Boediono is to boost investment to sustain the official target of 6.6% average annual growth in gross domestic product from 2004 to 2009.

Analysts say the government’s failure to address investor concerns about Indonesia’s regulatory environment and the effective abandonment of an ambitious infrastructure investment program launched in early 2005 have held back potential investment inflows.

Indonesia will likely record a 21% rise in actual foreign and domestic investment to IDR139 trillion ($15.1 billion) for 2006, the head of the official Investment Coordinating Board said Tuesday.

“We’ve got to see increased investment coming back in, including expansion of existing (production) capacity,” Pangestu said.

“For that to happen, a number of things have to begin to be felt this year with regard to improving the invest climate and infrastructure,” she said.

Indonesia’s economic growth has been decelerating under the weight of high interest rates and lingering inflationary pressure.

The central bank has raised its benchmark Bank Indonesia rate several times since August to 12.75% to cope with the combination of a sliding currency and surging inflation. An effective doubling of fuel prices on Oct. 1 spurred year-on-year inflation to a peak of 18.38% in November, before it eased to 17.03% in January.

The government plans to further reduce subsidies by increasing electricity tariffs in 2006, potentially causing inflation to spike again.

Pangestu projected that exports will rise at least 13.0% this year from last year. That would mark an easing from 19.5% year-on-year growth to $85.57 billion in 2005.

“(Exporters) are being affected by higher inflation and fuel costs,” she said.

“That’s why we are working hard to come up with a package that will address some of these high-cost economy issues.”

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