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Foreign investors pumped a record $19.3 billion (‪Rp 176 trillion‬) into Indonesia last year, up 20 percent from the previous year, the government said on Thursday.

Despite the global downturn, officials expect that to rise another 25 percent this year.

Singapore was by far the top investor last year with $5.1 billion, followed by Japan and the United States with $1.5 billion each.

Indonesia pulled in about as much investment as India, and just under a fifth of the amount that went into China.

By contrast, Asean economies like Malaysia and Vietnam each attracted only around $10 billion in pledged and actual foreign investments last year.

The capital influx into South-east Asia's largest economy comes at a time when multinationals are seeking cheaper manufacturing hubs as China moves up the value chain. Indonesia's comparatively low wage base and relatively untapped natural resources make it particularly appealing as an investment destination.

It also comes amid a rapidly rising middle class and expanding consumer market - factors that recently helped propel the country's gross domestic product (GDP) to above $1 trillion.

Economists note that the economy's growth in the past few years has been propelled by domestic consumption. To continue to attract foreign investors, they say, Indonesia will need to remove obstacles to doing business, such as poor physical and legal infrastructure and red tape.

The country has been helped by upgrades to its sovereign debt. Last month, Fitch Ratings raised Indonesia's credit status to investment grade. Moody's followed suit on Wednesday and Standard and Poor's is expected to do the same in the coming months.

In announcing the rosy figures yesterday, the country's Investment Coordinating Board (BKPM) chief Gita Wirjawan, who is also Trade Minister, attributed the rise in investments to 'a series of improvements in the investment climate' at both central and local government levels, including better marketing efforts.

Just over half the foreign investments were in Jakarta and nearby West Java and Banten provinces, with the remainder spread out across the archipelago.

A fifth of the foreign investments went into the transport, storage and communications sector. Another fifth went into mining.

Gita stressed that more had to be done, saying: "The key to raising investments in the future will be regulatory reform." He said labour laws, which employers have criticized for being too rigid, would be amended.

Jakarta's regulatory reform key to boosting investments

Separately, National Economic Committee chairman Chairul Tanjung noted that the recent credit upgrades should bring in even more investments, particularly in the infrastructure sector.

Road, rail, airport and seaport links are high on the agenda for economic planners. Motorcycle and car manufacturers including Honda, Toyota and General Motors in recent months announced plans to rev up manufacturing operations here, where vehicle ownership lags far behind the rest of the region.

In the coming months, economists like Standard Chartered's Fauzi Ichsan expect other consumer sectors like retail banking and pharmaceuticals to pick up as the middle class grows.

Fauzi said Indonesia - whose GDP grew 6.5 percent last year and could hit 6 percent this year - can achieve growth of between 8 and 9 percent if infrastructure development is sped up.

Others see a more urgent reason for the economy to grow even faster: Half the 240 million Indonesians are under the age of 30.

"We need growth above 8 percent through 2030," wrote University of Indonesia economist Muhammad Chatib Basri in this month's issue of policy journal Strategic Review. "If we fail, we will leave our grandchildren only serious poverty and unemployment in 2050."

Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 021 2553 5055.