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Business trends

Indonesia suffers double-digit decline in foreign investment

Businesses pause to gauge policy direction as presidential race looms

President Joko Widodo's effort to harness foreign capital to develop Indonesia's economy could be reaching a turning point. (Photo by Rie Ishii)

JAKARTA -- Foreign direct investment in Indonesia shrank 12.9% on the year in the April-June quarter as companies wary of policy shifts ahead of the April 2019 presidential election stayed on the sidelines.

Foreign direct investment totaled 95.7 trillion rupiah ($6.56 billion), the Indonesia Investment Coordinating Board said on Tuesday. This marked the first decline in comparable data going back to 2010, according to a board official.

Under President Joko Widodo, the government has promoted foreign-funded infrastructure development. But the ruling and opposition parties look increasingly likely to campaign on promises of a change in course to win public support. The threat of higher barriers to foreign capital has curbed companies' appetite for investment.

The softer rupiah is another source of concern. Foreign builders of power plants, for instance, normally sell the output in the Indonesian currency. A weaker rupiah means less revenue in their home currencies.

To shore up foreign investment, the government is considering further expanding the tax holiday system for businesses that make large investments, such as building factories. It is expected to extend the break to a maximum of 50 years from the current 20.

But with opposition forces accusing the current government of letting foreigners steal jobs from Indonesians, the Widodo administration may find it difficult to carry out policies that could be seen as giving overseas companies special treatment.

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