South Korea's LG Electronics and US equipment maker Caterpillar are considering making Indonesia their production base in Southeast Asia, Indonesia's investment chief said on Thursday.

Gita Wirjawan said surging domestic demand, competitive labour costs and growing confidence in the country's stability were attracting investment from foreign firms.

"LG is thrilled with the fact that they have become 40 per cent market share holders in Indonesia and the growth is just staggering. They are contemplating positioning Indonesia as a hub for Southeast Asia," Wirjawan told Reuters in an interview.

Wirjawan, head of the investment co-ordinating board, on Wednesday had said that foreign direct investment was forecast to reach 118.4 trillion rupiah ($13.1 billion) in 2010, an increase of 25 per cent from last year's realised investment of $10.5 billion. Previously, the government had expected FDI to rise 15 per cent.

He said he expected deals in the second half of the year with electronics, infrastructure and energy firms, but declined to give names because of confidentiality agreements.

"The credibility of Indonesia, though starting from a low base, has picked up, and I see that continuing," said Wirjawan, a former JPMorgan and Goldman Sachs banker.

He said Indonesia has shortlisted four firms -- a unit of Indian Hotels, the Qatar sovereign wealth fund's property arm Qatari Diar, the UAE emirate Ras Al Khaimah wealth fund's property arm Rakeen, and an unnamed Abu Dhabi firm -- for a $600 million resort project in Lombok.

This leaves out Dubai's Emaar Properties, the Arab world's largest listed developer, which was initially expected to develop the project on the island, which is next to Bali. – Reuters