Bloomberg News

Indonesia Investment Rises at Slower Pace on Growth Concerns

July 23, 2013

Indonesia’s investment growth slowed last quarter and foreign firms are expected to turn more cautious this year, the country’s investment chief said.

Total investment climbed 29.8 percent to 99.8 trillion rupiah ($9.8 billion) in the three months ended June 30 from a year earlier, the Investment Coordinating Board said in a statement in Jakarta today. In the first six months of 2013, investment rose 30.2 percent to 192.8 trillion rupiah from a year earlier.

The World Bank cut its 2013 forecast for Indonesian growth to 5.9 percent this month. Policymakers in Southeast Asia’s largest economy are also struggling to contain inflation and a current-account deficit that has weakened the currency to a four-year low.

“Foreign direct investment may slow in the second half due to global conditions,” Chatib Basri, chairman of the investment board and also the finance minister, told reporters in Jakarta today. “Domestic demand may slow down on higher interest rates to curb inflation expectations,” he said.

Foreign investment rose 18.9 percent to 66.7 trillion rupiah last quarter from a year earlier, versus 27.2 percent growth in the first quarter. Domestic investment quickened to grow 59.1 percent to 33.1 trillion rupiah.

Investment and domestic demand from the world’s fourth largest population have helped keep economic growth above 6 percent in the past three years. Gross domestic product is expected to increase 6.05 percent this year, the slowest pace since 2009, according to a Bloomberg survey of economists.

The central bank has raised benchmark interest rates by a total 75 basis points in June and July to check inflation that it expects to accelerate to above 7 percent this year after the government lifted subsidized fuel prices in June.

The rupiah is among the worst performers in Asia in the past year, and plunged the most in 13 months today, as the central bank allows a more rapid slide toward levels quoted in the offshore market. Fund investor outflows have picked up since the U.S. Federal Reserve said in May it would taper stimulus.

“Investors remain unconvinced of the rupiah outlook and the nation’s current-account-deficit fundamentals,” Greg Gibbs, a Singapore-based foreign-exchange strategist at Royal Bank of Scotland Plc, said before the data.

To contact the reporter on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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