GENEVA — Severely hampered by political and economic uncertainties, foreign direct investment in Indonesia’s textile sector deteriorated sharply in 2002, totaling only $62 million, down from $301 million in 2002 and $401 million in 2001, a report by a global agency said.

“Foreign direct investment has performed badly since the economic crisis….Direct and portfolio investments have suffered,” said a report on Indonesia’s trade regime by the World Trade Organization.

The agency said total FDI approvals in Indonesia have dropped by more than half since the Asian economic crisis of 1997, running at $6.5 billion last year.

The report concluded that “restoring investor confidence to attract foreign direct investment…is a major challenge.”

Since the Asian financial crisis, Indonesia — and other Southeast Asian nations such as Thailand and Malaysia — have seen levels of foreign investment decline, said Karl Sauvant, chief of investment, technology and enterprise development at the United Nations Conference for Trade and Development.

Sauvant, lead author of UNCTAD’s annual World Investment Report, said the drop in FDI in Indonesia has to do with the “uncertain political and economic climate.”

Asked if the decline of FDI in textiles has been influenced by the attractiveness of China as a preferred destination, Sauvant said it’s difficult to say to what extent the investments flowing into China would have gone to Indonesia or other Asian nations.

But he conceded, “China is like a magnet” drawing in FDI.

“China had a fair amount to do” with the decline in investment in the Indonesian textile sector, said a WTO diplomat, who spoke on condition of anonymity.

Indonesia is the U.S.’s eighth-ranked foreign source of supply for textiles and apparel, but along with much of the rest of the world, it has been losing ground to China in recent years. According to U.S. government data, Indonesia shipped $2.41 billion worth of apparel and textiles to the U.S. in the year ended May, off 0.5 percent from a year earlier.

An increase in wages on the archipelago nation also partly affected the lack of competitiveness of Indonesia, the diplomat said.

A new study of China’s investment policy by the Organization for Economic Cooperation and Development said that in 2002, China became “the world’s largest recipient of total foreign direct investment, attracting nearly $53 billion.”Meanwhile, both the Sauvant and the WTO reports noted that the Indonesian government is making a serious effort to alter the negative image and attract positive inflows.

The Asian country’s ad-hoc policy making?and lack of a sound legal structure also have been identified by?trade experts as adverse factors that Indonesia urgently needs to address and rectify.

The WTO report highlights that since March 2002, special import licenses have affected sensitive items such as textiles and footwear.

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