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Elections 'will not affect investments in Indonesia'

Thai investors see bright opportunities in the country regardless of who wins

THE CHAIRMAN of the Thai-Indonesia Business Council has stated that a trend for Thai investment in Indonesia is likely to continue no matter what happens in the presidential election in the latter country.

"Both candidates should have pro-investment policies," said Nipit Isarankura.

"Many Thai investors foresee bright opportunities in Indonesia due to its strong economic growth and stable politics."

Despite his general optimism, Nipat remains wary of some problem areas. These include a tendency on the part of Indonesian local authorities to procrastinate over decisions despite prior approval for projects by central government.

He pointed out that Thai small and medium-sized enterprises as well as large companies were currently investing in Indonesia.

Sectors that have great potential for growth in Indonesia include coal, petroleum, cement, commodities, goods manufacturing, foods, processed seafood, oil palm, rubber plantation, and auto parts.

Thanavath Phonvichai, director of the University of the Thai Chamber of Commerce Economic and Business Forecasting Centre, said many investors ranked Indonesia's potential as only marginally lower than boom economies such as China and India.

With a huge population of more than 250 million, economic growth of 5-6 per cent a year and rich natural resources, it is expected that Indonesia will continue to attract investment.

Indonesia's status as the most populous Muslim country in the world also makes it attractive to Thai investors.

Indonesia is becoming a hub for production of halal food and Thailand has the technology to help expand this market.

However, Thanavath said the future of investment depended on who wins the election. If Joko Widodo becomes president, more facilitation of investment would be seen. However, if the more conservative Subiato Prabowo wins, it is expected that he may introduce more protectionism.

According to the business council, Thailand's investment in Indonesia is worth around US$200 million to $300 million (Bt6.4 billion to Bt9.7 billion) a year.

Indonesia's largest foreign investors are Singapore, Japan, South Korea, the Netherlands, Malaysia and Thailand.

Neutral rating

Meanwhile, ratings agency Standard and Poor's yesterday released a report saying that the Indonesian election was neutral for the country's sovereign credit rating.

"We expect the progress to be slow no matter who is elected. Any boost to policy-making and growth prospects is likely to be insufficient to strengthen the sovereign credit rating on Indonesia," said S&P credit analyst Agost Benard.

Nevertheless, the agency expects some benefits to sovereign credit quality under the next administration from continued improvements in fiscal and debt metrics, and possibly from stronger external indicators.

"Basic macroeconomic policies are likely to prevail, supporting credit fundamentals.

"We expect both presidential candidates, Joko Widodo and Prabowo Subianto, to adhere to conservative fiscal and debt management if elected," Benard said.

S&P says sovereign credit quality improved steadily under the 10-year presidency of Susilo Bambang Yudhoyono, thanks to political and macroeconomic stability. But his administration has had less microeconomic success.

Reforms are still needed to boost the country's growth prospects, diversify its overwhelmingly commodity-driven export profile, and reduce dependence on external funding.


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