RI ECONOMY TO PERFORM BETTER IN SECOND SEMESTER

By Andi Abdussalam

Jakarta, July 20 (ANTARA) - Economic observers have predicted that Indonesia's economic performance will be better in the second semester, driven by government expenditures, capital inflows, public consumption and foreign investment.          "The government is likely to spend more capital expenditures on infrastructure development while foreign investment in the domestic markets is increasing, it even has entered the real sector," Economic observer of PT First Asia Capital Ifan Kurniawan said.          So far, foreign business players only liked to put money in the portfolio investment such as in the stock and money markets, bonds and Bank Indonesia (BI/the central bank) instruments, yet they have now entered the real sector, he said.          Therefore, he said, Indonesia's economy will grow by 6.8 percent in the second semester, which is higher than that in the first semester which is recorded at 6.5 percent. After all, the government will disburse big capital expenditures because in the second semester it has to do many projects.          "We are optimistic that the country's economy will grow and record better performance," he said. Indonesia is seen by investors as a good place to relocate their business production relocation.           He said that the better economic performance would had convinced foreign investors that Indonesia's economic conditions were increasingly improving. Moreover, Indonesia's economic growth is seen as natural.          Faisal Basri, economist of the University of Indonesia (UI) said he believed Indonesia's current economic growth was not a bubble.  "Indonesia's economy has grown naturally and there is no indication it is a bubble.         He said investors who wished to put their money in a country certainly would be very careful and consider to what extent its economy would grow.  "Investors also are not stupid. What happens in Indonesia now is positive growth," he said.          He said the capital inflow so far was driven by domestic economic growth which was good as could be seen among others in the growth of the capital market.          "So if I have money I would rather put it all in shares. Investing in a country with positive growth, we may just sleep and see the price of shares rising by itself," he said.          According to Bank Indonesia spokesman Difi A Johansyah, the strong capital inflows were reflected by foreign holding of state debt securities which reached about Rp242 trillion or 33.8 percent of the overall state debt securities issued.          Meanwhile, foreign investment put in Bank Indonesia Certificates (SBI) at the central bank reached Rp60.3 trillion or 33 percent of the overall SBI amounting to Rp189 trillion.          Faisal Basri said that the in next four years, the country's economy would still continue to grow and it was predicted capital inflows could reach US$25 billion until the end of 2011 to increase the country's foreign exchange reserves.          "In the next four years Indonesia's economy will continue to expand. Total capital inflows could reach US$25 billion and this will only increase our foreign exchange reserves," he said.          Basri however expressed disappointment that the benefits of Indonesia's favorable economic conditions were only being enjoyed by foreign investors so far as 70 percent of market players were foreigners.          "The problem now is that those who enjoyed the increasing price of shares in Indonesia are 70 percent foreigners because domestic investors have been threatened with bubble issue," he said.          According to Ifan, the onslaught of foreign capital inflows is partly due to the fact they restrain from putting their money in the United States and Europe which are not yet fully recovered from the impact of recent global financial crisis.          Bank Indonesia's Deputy Governor Budi Mulia shared Ifan's view saying that the prospects of global economy are still overshadowed by some risks among others due to Greek debt crisis and the slowdown of the Chinese economy.          At the same time, the Asian region is offering favorable business climate for foreign investment. This condition gives advantage to Indonesia as investors  see it as a more promising place for investment than other Asian countries like China and India.          In China production cost is increasing while India is having high inflation and imposing high interest rates.          Apart from that Vietnam is even undergoing inflation up to 11 percent, Ifan said.          This is one of the reasons why Indonesia will likely serve as a basis for relocation of foreign investors' business production that will in the end generate the development of the real sector and boost the country's economic growth,  he said.          After all, the central bank's deputy governor, Budi Mulia, has earlier predicted that  foreign investment is projected to reach US$16.7 billion this year or bigger than US$13 billion in 2010. Foreign investment in portfolios meanwhile is estimated to reach US$11 billion.          The country's improving economic conditions prompted the central bank to revise upward its previous economic growth prediction.          Bank Indonesia has raised its earlier projection that Indonesia's economic growth in the second semester will be at a range between 6.3 percent and 6.8 percent from its previous projection of between 6.1 percent and 6.6 percent.***5*** (T.A014/A/H-NG/A/O001) 20-07-2011 13:32