Radicalism Hampers Investment

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  • TEMPO.CO, Canberra - Creco Research Institute co-founder Raden Pardede said that radicalism that continues to grow since Jakarta election has hampered investment. The issue has made investors suspend their capital expenditure, he said. “It has resulted in a sluggish investment growth this year,” he said at the Indonesia Update Conference 2017 held last week at Australia National University, Canberra, Australia.

    Data from the Investment Coordinating Board (BKPM) said that Indonesia saw Rp336.7 trillion investment in Q1, representing a 12.9 growth. The capital inflow rate was lower compared to the same period in the last five years at 14 percent. The investment value has only reached 49.6 percent of the full-year target of Rp678.8 trillion.

    Raden said another factor that hampers investment namely overly aggressive tax revenue target. He said that the government is pursuing higher revenue target to drive the economy. “But at the same time, the target has triggered negative effects. Tax and customs officials are aggressively pursuing taxpayers, hampering investment,” he said.

    As for capital inflow in the highly attractive mining sector, Raden said that the issue is uncertainty in energy and mining contracts. In the food commodity sector, he highlighted the government’s intervention in determining the ceiling price of rice. In the infrastructure sector, the factor that hampers investment is the domination of state-owned enterprises in major projects. “Contractors are complaining about it.”

    Therefore, Raden added, it is not surprising that the short-term trend shows that the pattern of investment and consumption growth has changed. He said that investment growth used to be higher than consumption, whereas now consumption growth is larger than investment. The average consumption growth from 2013 to 2016 stood at 5.16 percent, whereas the average investment growth in the same period was only 4.74 percent.

    As such, Raden has questioned the government’s effort to achieve the economic growth target of above 5 percent. “Is it possible for Indonesia to reach 7 percent economic growth?” he said. In the long run, he said, all supporting components of Indonesia’s gross domestic product growth will show a negative trend. “Consumption, government spending, export-import, even investment will drop deeper,” he said.

    Dody Budi Waluyo, head of economic and monetary policy of Bank Indonesia (BI), predicts 5.1-5.6 percent economic growth in 2018. BI says that the factors that will boost growth are government spending, consumption and investment. “The economy will get better next year and corporate consolidation is underway.”