Reliance on Chinese Capital Can Hurt Indonesian Economy, Says Minister

JAKARTA, KOMPAS.com – The Indonesian body in charge of attracting foreign direct investments (FDI) has warned against Jakarta's dependence on Chinese capital, saying this can have adverse effects on the national economy.

If the Chinese economy slows down, so will Indonesia’s national economy, said Bahlil Lahadalia, chief of the Indonesia Investment Coordinating Board (BKPM).

“If China’s economic growth decreases by 1 percent, then it would have a 0.3 percent impact on Indonesia’s economic growth,” Dahlil said.

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Dahlil said the Covid-19 pandemic has given Indonesia the impetus to evaluate itself in the hope of ensuring it is not reliant on other countries.

Indonesia's high level of investment from China is believed to have contributed to the low rate of FDI projects that have materialized in comparison to domestic captial actually invested in projects in the first quarter of 2020.

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BKPM’s data shows that the rate of FDI projects that have materialized stood at 46.5 percent or equivalent to Rp 98 trillion in March 2020.

On the other hand, out of contracted domestic direct investment, the rate of projects that materialized stood at 53.5 percent or around Rp 112.7 trillion in the same period.

Dahlil attributed the low rate of realized FDI in part to restricted product shipments from China.

Based on his evaluation, Indonesia must focus on attracting investments from other big economies, such as the United States and Japan.

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“Indonesia’s position typically leans towards Chinese dependency though maintaining positive relations with the United States and Japan is equally important,” Dahlil said.

Moreover, BKPM reported that it accomplished Rp 410 trillion of realized investment in June.

The figure is 58 percent of Indonesia’s total investment of Rp 708 trillion.