Embassy of the Republic of Indonesia in Berlin

Indonesia's chief investment agency said it expects foreign and domestic investment to hit a new record this year and in 2009, driven by demand for new infrastructure including power plants and toll roads. Writing By Muhammad Al Azhari and Harry Suhartono, editing by Sara Webb/Sugita Katyal/Rory Channing in Reuters.

Muhammad Lutfi, who heads the agency, said he is optimistic that total domestic and foreign direct investment would rise 15 percent to nearly $16 billion in 2008, from a record $13.8 billion in 2007, and surge to $20 billion next year.

Southeast Asia's biggest economy badly needs billions of dollars of investment, especially in infrastructure, to push economic growth and reduce high unemployment.

"We are certain that we will meet the 15.2 percent target of investment (growth)" for 2008, Lutfi told a gathering of foreign correspondents in Jakarta on Wednesday.

"We had a good number in the first quarter. Next year is a challenge because of the slowdown of the economy, that's what we feel."

A combination of political stability and an improving economic outlook helped to attract a record foreign direct investment last year, although the agency, known as BKPM, does not provide details of the investments.

Some analysts warn that political uncertainty ahead of next year's parliamentary and presidential elections, and a slowdown in economic growth could hurt investment.

The government's decision to hike subsidised fuel prices by an average of nearly 30 percent in May is expected to lead to weaker consumer spending. The government expects GDP growth of 6-6.4 percent this year, compared with 6.3 percent in 2007.

However, Indonesia still lags countries such as China in attracting foreign investment because of perceived legal uncertainties and graft, and a complicated bureaucracy.

The country ranks 123rd out of 178 countries in terms of ease of doing business, according to a World Bank survey last year.
KEY INFRASTRUCTURE

Despite such challenges, Lutfi said several infrastructure projects are likely to materialise next year and help boost investment. The agency will encourage investment in key infrastructure areas such as electricity, toll roads, ports and airports within the next two years, he said.

Only 64 percent of Indonesian households currently have access to electricity, he said, adding that the government has invited the private sector to finance its programme to build 10,000 MW of coal-fired power plants in Java, Sumatra and Bali.

The agency is promoting investment in resource-rich regions, including Sumatra, Java, Sulawesi, and Papua, where there are opportunities to invest in the crude palm oil, coal, nickel, and pulp and paper industries, Lutfi said.

Lutfi, who has been in charge of promoting investment in Indonesia since May 2005, was an economic adviser and spokesman for President Susilo Bambang Yudhoyono during the 2004 election campaign.

He previously headed the Mahaka Group, a conglomerate with interests including electricity, luxury apartment development, commodity trading, and media.

Source : Indonesia Investment Coordinating Board (BKPM)