Long-term foreign investment grows in Indonesia: central bank

13:54, July 20, 2011      

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The influx of foreign funds to Indonesia has begun to move to long-term investment including foreign direct investment (FDI), easing the risk of a sudden reversal, the Jakarta Post quoted an official from Bank Indonesia (BI), the central bank.

"Although portfolio (investment) remains dominant, FDI continues to improve. Long-term capital inflows increase, so pressures of reversal lessen," BI spokesman Difi A. Johansyah told a press briefing on Tuesday.

According to BI data, FDI rose nearly 17 percent to 2.9 billion U.S. dollars in the first three months of this year, up from 2.48 billion dollars.

Separately, foreign portfolio investment (FPI) decreased to 3. 56 billion dollars from 6.1 billion dollars.

BI Deputy Governor Budi Mulya forecast this trend late last year when he announced the central bank's projection that capital inflows to the portfolio market would drop to 11 billion dollars this year, compared to 15.7 billion dollars last year, while foreign direct investment would be higher, at 16.7 billion dollars in 2011 compared with 13 billion dollars in 2010.

"There's a change in the characteristic of inflows to Indonesia. From 2008 to 2010, inflows were dominated by short-term investment. Now it's beginning to be seen that inflows are starting to enter the FDI, as indicated by surging investment loan growth," Johansyah said.

Investment loans increased 29 percent on a year-on-year basis as of May this year, while loan growth was down to 23.4 percent in June, BI data showed. Investment loan growth was faster than consumer loans' and working capital loans' growth of respective 17.8 percent and 24.8 percent.

"The increase in investment loans is expected to widen economic capacity so it could positively impact economic growth without resulting in overheating in the country's economy," BI' s second quarter monetary policy report said.

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