BRITISH INVESTORS LOSE CONFIDENCE IN INDONESIA

JAKARTA, Indonesia—For months, investors in Indonesia have been nervous about signs of flagging economic growth, the declining value of the rupiah and stalled policy reform.
Now, a survey of foreign investors confirms that sense of uncertainty, showing that just 60% of surveyed British firms are confident of their business in Southeast Asia’s largest economy – a stark fall from the 83% who reported feeling confident last year.
The report by the British Chamber of Commerce tapped mostly senior executives at 100 British companies in early October.

Haslam Preeston, chairman of the chamber, said the results partly reflect the timing of the survey, which was conducted just after a stark fall in the local currency and amid early signs that Indonesian growth was falling below 6% for the first time in more than three years.
But “it’s a reality check,” and exposes “some of the hubris” seen in the chamber’s rankings last year, Mr. Preeston said at a presentation of the report’s findings on Thursday.
The decline in confidence reflects greater uncertainty in Indonesia following a tumultuous few months in the trillion-dollar economy.
Over the last six months foreign investors pulled huge amounts of money out of the emerging market amid signs of quantitative easing in the United States. Growth took a hit on weak exports amid robust domestic demand, leaving the country saddled with persistent trade and current account deficits, and a rupiah that has lost 20% of its value against the dollar this year.
Add to that the months of regulatory wrangling in the all-important mining industry—Indonesia’s greatest source of foreign investment—and labor demands that have already pushed up the minimum wage by an average of 30%, and the picture gives reason for subdued sentiment.
In the British chamber report, mining and manufacturing sectors showed the greatest decline in business outlook, slipping more than 30 percentage points each.
“I’m not surprised in the general sense,” said Mahendra Siregar, the head of Indonesia’s investment coordinating body, in response to the report. “More or less it’s reflecting the feeling of businesses overall, not only businesses from Britain.”
However, he attributed the decline in confidence less to Indonesian policies in the past year than to the global economic slowdown – and suggested that investors have historically come to Indonesia despite the policy environment.
Total foreign direct investment, or FDI, into Indonesia last year hit a record $23 billion. Britain was the sixth greatest source of foreign funds, with British companies injecting more than $930 million into almost 100 projects across various sectors, according to data from the investment board.
“I don’t think they came in [last year] because of an improvement in the investment climate – they came for the opportunities,” said Mr. Mahendra.

By Wall Street Journal