JAKARTA (TheInsiderStories)–Low investment in the second quarter of this year was caused by political cycle and rupiah depreciation against US dollar, Head of The Investment Coordinating Board Thomas Lembong said on Tuesday (7/8).
Indonesia recorded low investment growth in the second quarter this year at 5.87 percent, significantly lower than almost 8 percent in the previous quarter.
Indonesia held simultaneous regional elections in 17 provinces, 115 districts, and 39 cities on June 27, 2018, involving 518 candidates with 16 of them were single candidates. The country will conduct presidential and legislative election next year.
Lembong said in the last 20 years, investments have always slowed down during the election cycle. Investors tend to delay investment while waiting for the results of the election. It is because election results will affect government policy in the next 5 years including economic and business policy.
“So many investors delay [its investment],” he said, as quoted by Bisnis Indonesia.
In 2014, the last presidential election, investment only recorded 16.18 percent growth (year on year/yoy), the lowest since 2010, according to Investment Coordinating Board data.
Investment realisation also booked negative growth of 12.28 percent in 2009 election year compared to the previous year. In addition to the political cycle, weak investment in 2009 due to the external factor of the 2008 financial crisis.
Lembong said this year’s condition was worsened by the rupiah exchange rate which continues to weaken against the US dollar. He earlier said realised investment in 2009 that recorded negative growth may reoccur in 2019 due to political year exacerbated by global economic pressures.
A sign of slowdown already seen this year which direct investment only grew 11.76 percent (yoy) in the first quarter this year and weak investment record in the second quarter.
Therefore, he asked the government to stabilize the rupiah exchange rate in order to attract investors. The investment realisation will depend on the implementation of the government plan to stabilize rupiah.
One of them is biodiesel policy implementation aims to reduce oil and gas imports that contribute largely to capital outflow. “We [Indonesian government] are working on another effective solution that can be executed to increase foreign exchange earnings or reduce foreign exchange expenditure,” he added.
Rupiah exchange rate had surpassed the psychological level of Rp14,000 per US$1. Rupiah strengthened 0.21 percent to Rp14.435 per US$1 in the spot trading closing today (7/8) compared to yesterday trading. In the Jakarta Interbank Spot Dollar Rate (Jisdor), rupiah weakened 0.02 percent or 4 basis points to Rp14,485 per US$1 today from Rp14.481 on Monday (6/8).