Indonesia is intent on opening up previously closed sectors of the economy to foreign capital, the trade minister said, as the government prepares to announce changes to its investment guidelines.
Greater foreign investment and increased government spending on infrastructure will compensate for weaker export performance and drive economic growth in Indonesia to as fast as 5.2 percent this year, Minister Tom Lembong said in an interview on Tuesday.
President Joko Widodo is holding a Cabinet meeting later on Wednesday to discuss revisions to the so-called negative investment list, a document that determines which sectors of Southeast Asia’s largest economy are open to foreign capital. The government plans to announce the final changes after the meeting, said Azhar Lubis, deputy chairman for investment supervision at the Indonesia Investment Coordinating Board.
“We are opening up and rationalizing our investment regime,” said Lembong, a Harvard graduate who joined the government as part of a cabinet reshuffle in August. “It’s a big push. We had fallen behind from where we should be.”
Since taking office in October 2014, the president, known as Jokowi, has sought to increase infrastructure spending and implement bureaucratic reforms to rejuvenate an economy hurt by sliding commodity prices. After a shaky start characterized by policy U-turns and protectionist policies, there are signs growth is starting to rebound. The rupiah outperformed its emerging-market peers in the four months through January, while economic growth beat analyst estimates in the final three months of 2015 to reach 5.04 percent.
Lembong said he expected expansion this year to be between 5.1 and 5.2 percent, up from 4.79 percent in 2015, which was the slowest annual rate of expansion since 2009. Foreign direct investment rose 7 percent in the final three months of 2015 from the previous quarter. Investment was up 3 percent the full year.
“We are seeing financial stabilization now,” Lembong said during the interview at his office in central Jakarta. “Our infrastructure program is now snowballing. That is the engine of growth.” The rupiah, meanwhile, rose the most since October on speculation Indonesia will lure more inflows as the economy picks up and after a central bank official said the currency is undervalued.
Bank Indonesia sees room for easing and growth can be higher in 2016 after expansion in the fourth quarter beat analysts’ expectations, Juda Agung, executive director of monetary policy, told reporters in Jakarta on Tuesday. The currency is benefiting from declining bets for more US interest-rate increases due to concern over global economic growth and has room to strengthen, Nanang Hendarsah, head assistant at the central bank governor’s office, said on Wednesday.
The rupiah rose 1.5 percent to 13,413 a dollar as of 12:55 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg, and has rallied 2.7 percent in a four-day streak. That was the strongest level since October 15 and the biggest daily advance since October 9.
“People have been bearish on Indonesia for some time and now they’re seeing it’s performing much better on a fundamental basis,” said Wai Ho Leong, a senior regional economist at Barclays Plc. in Singapore. The reopening of some Asian markets after the Chinese Lunar New Year holidays will see increased buying of Indonesian assets, he said.
The Bank of Japan’s adoption of negative interest rates on January 29 buoyed demand for local assets, Bank Indonesia’s Agung said. Overseas investors have pumped 9.5 trillion rupiah ($708 million) into Indonesian local-currency sovereign bonds so far this month, Finance Ministry data show, taking inflows this year to 29.3 trillion rupiah. The economy expanded 5.04 percent in the fourth quarter from a year earlier, compared with a revised 4.74 percent in the previous three months and the 4.8-percent median estimate in a Bloomberg survey. The monetary authority cut its benchmark rate for the first time in 11 months in January and will meet again on February 17 and 18.
The yield on the nation’s two-year government bonds fell 11 basis points to an eight-month low of 7.76 percent, Inter Dealer Market Association prices show. That on the 10-year notes declined three basis points to 8.01 percent.