INDONESIA - INVESTMENT - Indonesian Corruption Is Hurting Foreign Investment: Standard & Poor’s

www.thejakartaglobe.com - Standard & Poor’s rating agency, the lone holdout among its peers in keeping Indonesia’s sovereign debt rating one notch below investment grade, says corruption is choking off foreign direct investment.

In a report on Thursday — titled “Indonesia’s Foreign Direct Investments Surge Despite Some Less Alluring Factors” — analysts Agost Benard and John Chambers said bureaucracy, corruption, legal uncertainty, infrastructure deficiencies and inflexible labor markets had long hampered foreign investment in Indonesia.

Benard said Indonesia’s large domestic market and rising income per capita makes the country a compelling investment destination for consumer goods manufacturers, “especially when viewed against the anemic growth outlook and saturated consumer markets of the EU and US.”  (source)


S&P left the status of Indonesia’s sovereign debt at junk, citing the nation’s failure to reduce the fuel subsidy among its concerns over government policy.

The rating agency on April 23 affirmed the country’s long-term credit rating at BB+ and short-term credit at B, it said in a statement released on Monday. The country’s outlook remained positive. Both credit ratings are one notch below investment grade.

“International comparisons of operating environments still rank Indonesia as a difficult place for foreign investors to work in,” the agency said.

“In the World Bank’s Doing Business survey [2012], Indonesia is ranked 129th out of 183 countries, with particularly high scores [implying greater difficulty] in the areas of starting a business, getting electricity, enforcing contracts and resolving insolvency.”

Indonesia’s FDI rose 18 percent toRp 175.3 trillion ($18.9 billion) in 2011, led by the transportation, storage and communication sector.

“However, FDI in Indonesia is still very low by international standards,” the S&P report said.

“Similarly rated peers such as Colombia, Turkey and India, or some regional peers, such as Malaysia and Thailand, have been able to attract much higher levels of FDI,” it said.

Both Fitch Ratings and Moody’s Investors Service have raised Indonesia’s debt to investment grade in the past year.

The administration of President Susilo Bambang Yudhoyono aims to spend $18 billion this year on infrastructure projects, such as toll roads, seaports and bridges, with the bulk expected to come from the private sector.

Standard & Poor’s is one of many organizations to note the impact of corruption on Indonesia’s economic prospects.

Jakarta Globe 

Source:http://www.thejakartaglobe.com/economy/indonesian-corruption-is-hurting-foreign-investment-standard-poors/518484   - May 18, 2012