Foreign direct investment: Indonesia set to change course on FDI
Loss for DBS and Danamon; Politics underlines acquisition failure
Although Singapore’s bank DBS’s bid for a majority stake in Bank Danamon, Indonesia’s sixth-largest bank by assets, fell through at the beginning of August, a deepening current account deficit and pressures on the currency will force Indonesia to become much more receptive to foreign direct investment. On July 15, the Indonesian rupiah breached the Rp10,000 to the dollar rate for the first time since September 2009. It has continued on a downward path since, adding to inflationary pressures. Over the course of August, the currency depreciated 10% against the dollar and reached a low of Rp11,424 on September 4. In addition, Indonesia reported a trade deficit of $2.3 billion in July as exports suffered on the back of a slowdown in China.
“In the current climate, foreign direct investment will be much more welcome in Indonesia,” says Wai Ho Leong, senior regional economist at Barclays in Singapore. “Indonesia will be looking for stickier forms of investments like FDI. But the view on equities in Indonesia remains bearish, and, as a result, foreign investors will remain wary during this volatile period. They will want to wait for underlying credit fundamentals to stabilize rather than rush in too soon.”