A Dow Jones Newswires Column
By Benjamin Pedley
SINGAPORE, April 20 (Dow Jones)–Foreign investment in Indonesia, a key source of demand for the rupiah, slowed last year after a terrorist attack on the resort island of Bali. But that trend is reversing – if Adrian Borriello’s residential property business on the iconic island is any guide.
When two bombs ripped through the Kuta nightclub district in October 2002, killing 202, the entire Indonesian economy shuddered. Borriello’s agency, The Property Shop, didn’t make a sale for eight months.
But since then, his property and boat-building businesses have boomed, boding well for the nation’s economy.
“Bali property is hot,” said Borriello, who estimates that prices in Bali now are already 20% above pre-bomb levels.
Since mid-2003, The Property Shop has racked up sales of $10 million, including $1.4 million in orders for villas near the Four Seasons Resort at Jimbaran Bay – on the southern tip of the island – booked after the business exhibited at the Boat Asia show in Singapore last weekend. Borriello’s boat business took orders over the four days of the show for 28 “Nusa 22” speedboats at $29,990 each, with construction to take place at the company’s marina in Bali, which employs 40 locals.
Although Borriello’s prices are in U.S. dollars, the 48-year-old Brit converts the proceeds into rupiah. “My business is in Bali, I am married to a Balinese, so we hold our money in rupiah,” he said.
Even so, he – like many other investors – was spooked initially over what the bombs might mean for the local currency. “I went out and bought dollars the week after the attacks at the top of the market,” Borriello said. “I was kicking myself as I exchanged back into rupiah a few weeks later when it had recovered all of its lost ground.”
To be sure, capital flowing in to buy one of Borriello’s speedboats or Bali properties – or to make purchases at the two or three other similar big developers on the island – is just a small chunk of the Indonesian economy.
But investors’ interest in Bali, which accounts for around 2% of Indonesia’s gross domestic product, is symptomatic of renewed investor confidence in the island, and to some extent the country, 18 months after tourist arrivals plunged due to the attacks.
Most recent nationwide data don’t yet reflect this apparent optimism with foreign direct investment in January and February down 66% from the same period last year to $805.4 million. Figures in coming months will be key.
Some investors remain put off by security concerns arising from the Bali blasts, but Borriello believes the launch of several budget airlines in the region means foreigners’ demand for property there will remain robust.
Moreover, unlike overheated property markets in Australia, the U.K. and Spain that have been fueled by historically low interest rates, all of Borriello’s customers pay in cold, hard cash and are therefore not affected by the prospect of rising global interest rates.
Indonesian Economy Looking Up
While foreigners’ interest in Indonesian leisure properties doesn’t extend much further than the neighboring island of Lombok, analysts are cautiously upbeat on the nation’s economic prospects, based on more traditional fundamentals including strong exports to the improving economies of Japan and the U.S., and high oil prices.
The World Bank, upgrading its GDP forecast by half a percentage point, predicted Tuesday that Indonesia’s growth will accelerate to 4.5% this year from 4.1% in 2003.
“Assuming there are no major disturbances during the election and gradual improvements in the investment climate (and actual investment), this projection should stand,” the bank said in its semiannual report on East Asian economies.
Vote counting in parliamentary polls ended Tuesday, and presidential elections are slated for July.
The World Bank said market sentiment toward Indonesia is strong this year, which should further support the rupiah. The Washington-based lender noted that the Jakarta Composite Index of stock prices has broken its a pre-1997 Asian crisis high, aided by foreign investors. They purchased 4.5 trillion rupiah worth of shares in net terms from January through mid-March, compared with just IDR0.2 trillion in the year-earlier period.
The index rose 63% in 2003 while local interest rates fell. An Indonesian sovereign bond issue in early March was increased to US$1 billion from US$400 million after it was four times oversubscribed.
This all suggests that mild weakness in the rupiah during the past few weeks arising from jitters associated with the parliamentary poll might soon pass, a view shared by the Indonesian central bank.
Bank Indonesia Deputy Governor Aslim Tadjudin last week brushed off the currency’s decline, saying it was partly due to a weakening in other Asian currencies. “The rupiah’s weakness is temporary and not worrying,” Tadjudin said.
The rupiah, down about 0.7% since the start of this month, was at IDR8,618 to the dollar around 0905 GMT Tuesday.
Analysts expect the Southeast Asian unit will remain between IDR8,300 and IDR8,700 to the dollar – a range it has hewed for most of the past year, but far stronger than levels of IDR12,000 during the turmoil that preceded President Megawati Sukarnoputri’s rise to the presidency.
Such a stable outlook will be good news for Borriello and his clients.
