Jakarta. Growth in foreign direct investment (FDI) commitments to Indonesia accelerated in the first quarter, a welcome sign for President Joko Widodo as he seeks to cut red tape and restore investors’ confidence in Southeast Asia’s biggest economy.

The Investment Coordinating Board (BKPM) said on Tuesday that Indonesia attracted 82.1 trillion rupiah ($6.32 billion) in FDI in the January-March period, excluding banking and the oil and gas sector, up 14 percent from the same period last year.

That compared with a 10.5 percent increase in the fourth quarter of last year.

Indonesia has seen a dip in investment appetite from abroad during the 2014 election year. Widodo, who took office in October, pledged to make life easier for investors.

In January, Widodo reformed the bureaucracy to get investment licenses, making BKPM to serve as a one-stop shop for obtaining all required licenses.

The one-stop service and a new package of tax incentives offered in April should help boost investment in coming quarters, the head of BKPM, Franky Sibarani, told reporters on Tuesday.

“We’re going to simulate things, including the process at the one-stop service and getting tax incentives for each sector. That should help grow investment from both home and abroad,” Sibarani said.

But there are growing headwinds to boosting FDI, said Chief economist of Bank Mandiri Destry Damayanti, citing a recent judicial review for the 2007 investment law by Muhammadiyah, a Muslim organisation of 30 million members.

In 2012, Muhammadiyah succeeded in crimping the government’s ability to contract with private companies in the oil and gas sector. While the government has said that it will prepare a legal team to fight the latest moves by the organisation, the issue is already causing anxiety in the foreign investment community.

“Jokowi has been making welcome speeches for investors but they will look at the ground situation. And investment hinges on how the government handles this (Muhammadiyah) problem,” Damayanti said, referring to the president by his nickname.

Widodo’s administration wants to reshape Indonesia’s economic growth model to make it more reliant on investment rather than just domestic consumption. It set a gross domestic product (GDP) growth target of 7 percent on average during its five-year term.

In the first three months of the year, mining, food, and utilities industries were the biggest beneficiaries of FDI commitments. By country of origin, the biggest source of FDI was Singapore, followed by Japan and South Korea.

GlobeAsia

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Source: The Jakarta Globe