Indonesia aims to get 15 pct more FDI in 2014 (updated)

Hankook Tire & Technology

21/01/2014 08:50

* 2013 investment +22.4 pct from 2012 in rupiah terms * Presidential election coming in July * Mining industry in turmoil following rule-changes By Rieka Rahadiana JAKARTA, Jan 21 (Reuters) - Indonesia on Tuesday set an ambitious target of attracting 15 percent more foreign investment this year than in 2013, a challenging goal as its economy slows and investors grapple with an uncertain policy outlook in an election year. Over the past five years, Indonesia revelled in demand by foreign investors for its vast natural resources and a consumer boom that propelled robust growth in Southeast Asia's biggest economy. In 2013, though, investors' ardour declined as the rupiah IDR=  weakened more than 20 percent against the dollar, commodity prices fell and the government imposed nationalistic policies, particularly in the vital mining industry. Foreign investment trends are tough to unravel in Indonesia, which reports commitment figures in rupiah and excludes some sectors - notably oil and gas - from investment board data.  The investment board said on Tuesday that in 2013, the total of foreign direct investment (FDI) was 270.4 trillion rupiah, an increase of 22.4 percent compared with the previous year's 26 percent gain. That includes 71.2 trillion rupiah in the fourth quarter. But last year's performance was little improved from 2012 in dollar terms. The 2013 total was equivalent to about $22 billion. This year, the investment board said it was targeting FDI of 311 trillion rupiah, or US$25.7 billion based on current exchange rates. "Investors will 'wait and see' in the first half of the year because political factors will be very crucial for them to make decisions," said David Sumual, an economist at PT Bank Central Asia in Jakarta. "Also, they will need to see economic programmes ahead." After expanding by more than 6 percent in four of the past six years, Indonesia's economy has begun to flag, hurt by declining export proceeds amid weak commodity prices and volatility in consumer spending in the wake of rising fuel costs and higher interest rates. The government has estimated that the economy grew 5.7 percent in 2013, compared with 6.2 percent in 2012. The International Monetary Fund sees growth slowing to between 5 percent and 5.5 percent in 2013 and 2014. Indonesia needs solid economic growth to generate jobs and it needs to raise its exports to contain a worryingly-high current-account deficit, which has weighed on the rupiah. This year, Indonesia holds its first national elections in five years, with the first round of a presidential vote in July. Susilo Bambang Yudhoyono, president since 2004, cannot seek another five-year term. EXPANDING AUTO INVESTMENTS The mining industry, a key source of foreign investment in Indonesia and a major job creator, is in turmoil after Jakarta last week banned most mineral ore exports in a bid to force companies to build processing plants at home.  ID:nL3N0KR1XF  Indonesia's top copper producer, Freeport McMoRan Copper & Gold  FCX.N , faces the prospect of paying billions of dollars more in taxes if it fails to convince the government to back down from a new export tax. But many multinationals see opportunities in the country of 250 million people, the world's fourth most populous. In October, petrochemical firm PT Chandra Asri  TPIA.JK  and France's Compagnie Financiere Du Groupe Michelin  MICP.Pa  announced they would develop a rubber plant worth $1 billion in Banten province. Construction started in November. Suzuki Motor Corp  7269.T , Japan's fourth-biggest carmaker by sales volume, announced in July plans for a 60 billion yen ($576.7 million) new passenger car plant, among a wave of investments that could turn Indonesia into Southeast Asia's biggest auto production centre. Among other auto-makers, Honda Motor Co Ltd  7267.T  plans to launch a second Indonesian plant this year worth 3 trillion rupiah and Nissan Motor Co Ltd plans  7201.T  to increase Indonesian production capacity. Japanese investors in December pledged a total of $3.5 billion over the next year and a half in a range of industries, from automotive to electronics, mining, finance and food production, said Mahendra Siregar, chief of Indonesia's Investment Coordinating Board. Indonesia, like many other emerging economies, has been hurt by a sell-off of Asian shares and currencies prompted by fears that the U.S. Federal Reserve will soon end its policy of ultra-cheap money and start raising interest rates. ($1 = 12,100 rupiah) (Additional reporting by Adriana Nina Kusuma and Nilufar Rizki; Editing by Richard Borsuk) ((rieka.rahadiana@thomsonreuters.com)(+6221 3199 7170)(Reuters Messaging: rieka.rahadiana.thomsonreuters.com@reuters.net)) Keywords: INDONESIA ECONOMY/FDI