JAKARTA: Indonesia's foreign investment surged in the first quarter of this year, boosted by an investment-grade credit rating from Moody's, and the investment board expected further capital inflows to help spur growth in Southeast Asia's largest economy.
Foreign direct investment in Indonesia rose 30.3 percent year-on-year to 51.5 trillion rupiah ($5.61 billion) in the January to March period, the board said, exceeding the 25.2 percent rate posted in the last quarter of 2011.
The increase defied recent Indonesian mining regulations and proposals aimed at boosting government revenue that have scared off some investors. The mining sector, which accounted for about 12 percent of Indonesia's GDP last year, took in nearly one-fifth of foreign direct investment in the first quarter of this year.
Other sectors drawing investment included transportation, storage, telecommunications, food, plantations, machinery and autos, from firms including South Korean steelmaker POSCO and Hankook Tire.
New investment is key to achieving the country's ambitious target of becoming a top 10 global economy by 2025 by selling more finished products rather than simply exporting raw materials, while improving its creaky infrastructure to achieve the president's 7 percent annual economic growth target.
DRIVING GROWTH
"Although the economies are slowing in many countries such as the United States and the euro zone, investment activity is still growing well. This shows that policies taken so far have been on the right track and the investment climate in Indonesia is getting more conducive," said Indonesia investment chief Gita Wirjawan.
The stronger pace of foreign investment so far this year, in a quarter that is usually slow, signals that investment will help to drive robust economic growth this year, said Wirjawan, a former JPMorgan banker who was also promoted to trade minister last year after helping to attract record levels of investment.
Indonesia's economy has benefited since it was awarded investment grade status by Fitch in December and Moody's Investors Service in January. Global bonds it issued last week drew strong demand, with yields lower than those of some of its emerging peers and troubled euro zone nations.
The government is targeting 206.8 trillion rupiah in foreign direct investment this year, which would be an 18 percent rise on last year's record 175.3 trillion rupiah. Global investors are betting on a booming consumer sector and growing demand for resources from the world's top exporter of thermal coal and tin.
Indonesia expects investment to make up for slowing exports this year caused by weaker demand from China and European nations. The G20 economy last month revised down its 2012 growth target to 6.5 percent from 6.7 percent, while a Reuters quarterly poll in April gave a lower estimate at 6.1 percent.
The finance ministry has said it should take advantage of the country's investment status to attract more foreign investment. It is relying on private investors to finance two-thirds of its nearly $200 billion infrastructure needs until 2014.
"Improvement and realisation of infrastructure projects could attract more investment," said Andry Asmoro, an economist at Bank Mandiri in Jakarta.
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