April 28, 2004
Unofficial Translation
THE PRESIDENTIAL DECREE
NUMBER 29 YEAR 2004
CONCERNING
INVESTMENT IMPLEMENTATION
IN THE FRAMEWORK OF FOREIGN AND DOMESTIC
INVESTMENT THROUGH ONE ROOF SERVICE SYSTEM
Article 1
General Rule
The Definition of:
1.Investment is an activity to run business in Indonesia with direct investment, in line with Act No.1 year 1967 concerning Foreign Investment, which has been revised by Act No.11 year 1970 and Act No.12 year 1970 concerning Domestic Investment, which has been revised by Act No. 6 year 1968.
2.Investment Coordinating Board is the government institution, handling investment activities in the framework of foreign and domestic investment.
3.Investment approval is an approval provided for investment activities including approval for fiscal facility and temporary business license until obtaining permanent business license.
4.The license for implementing investment approval is permissions needed to further implement investment letter of approval.
5.One roof service system is a system to provide approvals and licenses through 1 (one) Government Institution in charge of investment.
Article 2
Investment Implementation
Investment implementation is consist of:
a.Policy and investment development planning;
b.Promotion and investment cooperation;
c.Approval services, licenses and investment facilities;
d.Investment implementation control;
e.Management of investment information system
Article 3
Approval services, licenses and investment facilities as mentioned in article 2 point c in the form of foreign and domestic investment is implemented by the Coordinating Board, based on the delegation of authority from Ministry/Chairman of non-department government institution in charge of founded an investment business through one roof service system.
Article 4
The Governor/Regent/City Mayor may delegate the approval service authorities, licenses and investment facilities as stated in article 2 point c to the Investment Coordinating Board through one roof service system.
Article 5
In accordance with the Presidential Decree No. 33 year 1981 concerning The Investment Coordinating Board, which had been amended several times with the latest revision under the Act No. 28 year 2004, stated that the Investment Coordinating Board is in charge of the implementation of one roof service system as mentioned in article 2 and 4.
Article 6
In order to implement one roof service system, the Chairman of the Investment Coordinating Board shall cooperate with institutions in charge of investment business.
Article 7
The Investment Coordinating Board submits all the income from the approval services, licenses and investment facilities, to the institution that in charge of investment business.
Article 8
1.The application of new projects in the framework of foreign investment received by the Indonesian Embassy before the stipulation of this decree, remain in process and should be finished at maximum of 30 days since the stipulation of this decree.
2.After the period as mentioned in point 1 ended, all the application should be submitted to the Investment Coordinating Board.
Article 9
All approval and permission of the foreign and domestic investment activities, issued before the date of stipulation of this presidential decree, is still effective until the end of permission period.
Article 10
The presidential decree shall come into force as from the date of stipulation.
Stipulated in Jakarta
On April 12, 2004
THE PRESIDENT OF THE REPUBLIC OF INDONESIA63
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Source : Standard and Poor’s Rating below the pre-crisis level in 1997. 2003 marked 4.1% growth, which was largely led by the growth of household consumption. The rise in the consumption is expected to reflect the wage growth, mainly through the increase in the labor share, and the low interest rate environment.
With the restraint on the government expenditure in the mid-term, the expansion of private-sector investment is desirable for the sustainable growth, however, the domestic firms are still burdened with excess capacity and their investment (on approval basis) has been stagnant, except in limited sectors such as the real estate. Reflecting the slow investment, the manufacturing production rose only slowly.
The foreign direct investments have recovered slightly from the recent trough in 2002, mainly led by the investment in the industries including motorcycle. It is hoped that the investment relating to the restarting of electricity, chemical plant, and other infrastructure projects will expand in the near future. However, Indonesia’s competitiveness in attracting foreign direct investments is still weak, reflecting inflexible regulatory framework on the labor market and the legal system that is seen to be unfair to the foreign investors.
On the production side, the transportation, telecommunication, and construction sectors expanded rapidly, increasing the contribution to the growth, while the growth of the agriculture and fishery sector that have a 16% share of GDP, has been stagnant.
The current trend of the economic growth, largely led by the consumption, will continue and is expected to result in the growth rate ranging 4% to 5% in 2004. However, this level of growth is not sufficient for the country. To absorb the new labor force that enters the labor market, it is regarded that the economic growth above 6% is necessary. The government has set the reduction of unemployment as an important policy goal, but the unemployment rate rose to 9.5% in 2003 from 9.1% in the previous year. The declining competitiveness of the country’s labor intensive industries including textile and other light manufacturing industries may be a concern for the country in seeking the sustainable growth path in the mid to long-term.
The government has exited the IMF program at the end of 2003 and the relationship with the IMF has shifted to more moderate Post Program Monitoring scheme and the Article IV consultation. The possible change in the administration after the presidential election, including that in major economic posts, may affect the implementation of the reform policies that have already been established, however, the new government will be required to demonstrate even more stringent disciplines of fiscal and monetary policies as it will need to rely more on the market and the bilateral and the multilateral sources. R&I expects that the political consensus has been formed regarding the direction of economic policy seeking the reduction of debt through maintaining fiscal and external balance and that the consistency of the policy framework will be maintained in the future.
Fiscal policy:
The reduction of budget deficit has a prime importance for the country to reduce its structural weaknesses and the achievement of the fiscal rehabilitation targets largely affect the maintenance of confidence in the economy. The fiscal deficit target has been met during the three years under the Megawati government, though partially helped by the favorable external environment, resulting in the strengthening of the economic fundamentals. The government targets to contain the fiscal deficit for 2004 below 1.2% and to achieve the balanced budget in 2005 or 2006.
The government has issued domestic debt of 420 trillion Rupiah since 1988 in order to inject capital into the banking sector that was severely hit during the crisis. As a consequence, the public debt increased above 100% (including the external debt) at the end of 2000, but it has gradually reduced to 67.2% by the end of 2003. Domestic and external debt each constitutes about half of the total government debt. The government has committed to the target of reducing its debt to below 60% of GDP by the end of 2006, which is stipulated in the Public Finance Law of 2003.
The 2003 budget resulted in the deficit of 1.9% of GDP which is below the target estimated at the revised budget in September 2002, reflecting the fact that the shortage of tax revenue was offset by the lower expenditure growth. The revenue from the sale of state assets through privatization of state owned enterprises and the IBRA scheme is expected to achieve the target.
The 2004 budget approved by the parliament in November 2003 targets the deficit of 24.4 trillion Rupiah, or 1.2% of GDP. This is below the 2003 deficit of 1.9% of GDP and is in line with the government policy to achieve the balanced budget by 2006. (According to the government, the budget may be balanced in 2005.) The primary balance in fiscal 2003 recorded the surplus of 2% and is expected to be 2.1% in fiscal 2004.
The recent oil price hike has a neutral impact for the central government budget. The oil and gas revenues, i.e. the related income tax and non-tax revenues including loyalties, comprise about 20% of total revenues and this is expected to increase from originally budgeted 57 trillion Rupiah to 82 trillion Rupiah due to the oil price increase. On the other hand, the government is obliged to increase the subsidy to reduce the domestic prices of gasoline and other energy products from budgeted 14.5 trillion Rupiah to revised 36.6 trillion Rupiah, reflecting the same assumption of oil price increase. Furthermore, 15% and 30% of oil and gas revenues, respectively, will be transferred to local government coffers based on the schemes intended to equalize the local government finances and decentralize the fiscal authorities of the central government. Therefore, almost all of the impact of oil price increase on the revenue will be offset by the same on the expenditure.
The non-oil and gas tax revenue has performed on track until mid May and the 2004 budget target is likely to be met. There seems no major budget overrun on expenditure, excluding that on the price subsidies and the transfer to the local governments as above. Meantime, due to the decline in the domestic interest rate, the interest expense on the domestic debt, of which the variable interest debt comprises a substantial part, in fiscal 2004 is expected to decline from original 41.3 trillion Rupiah to 23.9 trillion Rupiah. (The government recently revised the assumption of interest rate from original 8.5% to 7.5%.)
The above developments support the optimistic view on the achievement of deficit target of 1.2% of GDP, but the recent drop of Rupiah has cast the shadow on it. The exchange rate has been assumed to be 8600 Rupiah/U.S. dollar, but the recent fall of the currency, to around 9400 in early June, and the potential increase in interest rate may reverse the trend if Rupiah continues to depreciate in the future.
Monetary policy:
The Bank Indonesia, the central bank, introduced the inflation targeting in 2001, and 2003 saw the first attainment of the target of the CPI growth, originally set at 9% and then revised down to 6% in September, as it resulted in 5.1%. The lowering of inflation reflects the facts including the restrained growth of the minimum wage, moderate increase in the energy prices, and the stabilization of the currency and the resulting low increase in the price of importing consumption goods and food stuff. The fall in inflation generated the room for interest rate reduction in 2003 and the yield of the SBIs, securities issued and auctioned by the central bank, dropped from around 10% in 2002 and has been moving between 7 to 8% since the beginning of 2004.
The foreign exchange rate has been stabilized since 2002. The events including the terrorist attacks in Bali in October 2002 and at Marriot Hotel in August 2003 caused temporally negative impact on the foreign exchange but the investors did not lose confidence, resulted in the recovery of the currency. The increased volume of sales of state assets by IBRA and the sale of two nationalized banks, the Bank Danamon and the Bank Mandiri, and the Indosat, the telecommunication company, have caused the inflow of investment capital from abroad and supported the Rupiah.
The volatility of the foreign exchange may increase for the time being. The Rupiah has recently dropped substantially reflecting the political uncertainty during the presidential election campaign. The further depreciation of the currency may produce the inflationary pressure and increase the interest rate, which may place negative impact on the economic recovery.
The ratio of the non-performing loans of the commercial banks has reached over 60% during 1998 to 1999, but thanks to the bail-out schemes by the government, i.e. the purchase of bad assets by IBRA and the capital injection, nationalization, and closure and the restructuring of problem banks, the banking sector has largely been restored. The non-performing loan ratio has reduced to 7.8% on gross basis and to 2.7% on net of allowance as of March 2004. The capital adequacy ratio has risen to 23.5% at the same time, far above the requirement.
Also, the characteristics of the banking operation have changed dramatically. The banks have reduced the credit to private sector firms after experiencing the substantial defaults during the crisis period, and maintained about half of its assets as government bonds and SBIs. Consequently, the financial intermediately function did not work properly, adding another source of weakness in the real sector economy.
However, the banks have recently actively expanded the consumer credit businesses, of which non-collateralized loans such as credit card loans form the majority. These loans exhibit high delinquency ratio but the stability of the banking operation will not be undermined as the credit risk is projected to be absorbed by the high margin.
External sector:
The current account had recorded the deficit prior to the crisis, but it has maintained the surplus since 1998. The surplus has expanded recently reflecting the oil price increase and the slow recovery of capital goods imports. However, the long-term outlook on the external flexibility is unclear due to the deteriorating competitiveness of some of major non-oil and gas exports, especially manufacturing goods including textile.
The oil and gas exports contributed 23.1% of total exports in 2003 and grew by 14% from the previous year. Combining copper, coal and others with oil and gas, the export of mineral products constitutes 33.2%. The rise in the oil and gas export reflects the price increase. Due to factors including the Iraqi War, the OPEC agreement on the production cut, and the increase in the oil imports by China, the oil price has soared and the WTI crude spot price that averaged 37 dollars per barrel in May 2004 has doubled since early 2002. Reflecting this move, the government recently revised the Indonesian oil price assumed in the budget from original 22 dollars to 29 dollars per barrel.
However, Indonesia is likely to become a net importer of oil in 2004. The country’s oil production, with relatively small deposit that is projected to last for about ten years, has been declining mainly due to the lack of new development investments, whereas imports of oil and oil products are increasing with the growing domestic demand. However, oil price rise has a positive impact on the trade balance as the export of natural gas, price of which links to the oil price, has expanded to the same level as oil exports. The natural gas deposits are significantly larger than that of oil and the expansion of the production is expected in the future.
The export of manufacturing goods that constitutes 58.8% of total exports in 2003 has recorded stagnant growth in recent years. Major exporting products including textile & apparel, wood products, and electric appliances are losing competitiveness over Chinese and other emerging market products due to the strengthening of Rupiah and wage increases. The growth of the manufacturing goods export marked only 1.2% in 2003.
The foreign direct investment had been an important source of financing the current account deficit and foreign debt prior to the crisis, but had declined since 1998 before exhibiting a slight increase in 2003. The portfolio investment has increased significantly reflecting the cross border inflow of short-term funds to the stock market and the resumption of short-term external borrowings by local firms. These funds have recently turned to flow out of the country, placing pressure on the foreign exchange and the interest rate, though external liquidity will be maintained considering the foreign reserves of 37.4 billion dollars, or 7.1 months of imports and public debt repayment, as of March 2004.
The burden of foreign debt is still large. The outstanding debt reached unsustainably high level of over 160% of GDP after the sharp depreciation of the currency. Consequently, the government has repeatedly requested the debt rescheduling arrangement under the Paris Club agreement for three times since 1998. The last debt rescheduling agreed in April 2002 allowed the country to defer the repayment of 5.4 billion dollars debt that matures by the end of 2003. The stringent economic policies and the appreciation of the Rupiah supported the country to reduce the external debt to 62.2% of GDP by the end of 2003. But as a consequence of exiting the IMF program and the avoidance of requesting the forth Paris Club rescheduling, the government faces significantly higher volume of debt repayment for several years in future.
The government’s debt repayment of the principal and the interest is expected to range between 9 to 10 billion dollars during 2004 to 2008. Assuming no access to another debt rescheduling and the IMF loans, the government will heavily rely on international capital markets and loans from the Consulting Group on Indonesia (CGI), on top of the current account surplus, to finance its external debt. (CGI is formed by the representatives from 30 multilateral agencies and bilateral donors including Japan and the U.S.)
At its mid-term meeting in June 2004, the CGI urged the need of accelerating the reform but welcomed the progress of policy implementation and achievement of some major targets, suggesting that the support from the group is likely to be maintained as long as the government maintains the current policy framework. The CGI is scheduled to provide 2.3 billion dollars in 2004, however, the future arrangement will be decided with the new government after the presidential election. The government has also succeeded in issuing the Global Bonds of one billion dollars in March 2004 and expects to obtain another 12 billion from non-CGI sources. Considering the foreign reserves of 3.7 billion dollars as the last resort, the government’s debt repayment plan looks feasible even if there is temporal outflow of short-term capital in the near future.
However, to alleviate the pressure of external debt repayment in the mid-term, the recovery of foreign direct investment will be important, but this depends on whether the new government can implement policies seeking to attract the FDI and necessary reform measures.
Politics and Society:
The general election in April 2004 resulted in the major retreat of the ruling party, PDI-P, which is led by the President Megawati, over the Golkar, the ruling party under the Suharto regime. The President Megawati has tamed the political confusion that was made under the previous Wahid government, implemented the direct presidential election, amendment of constitution that allowed the abolishment of the quota of military seats for the parliament, but the discontent against the government for rising unemployment and the corruption had increased in the country.
The first direct presidential election is scheduled in July and the former Coordinating Minister Yudhoyono, former Armed Forces Commander General Wiranto, Speaker of the National Assembly Amin Rais, and the President Megawati, are viewed as four major candidates. Mrs. Megawati has sought to appeal for Muslim votes by appointing Mr. Hasyim Muzadi, the head of Nahdlatul Ulama, the largest Islamic body in the country, as Vice Presidential candidate, but is expected to face the uphill battle. The campaign may last until the second ballot in September if no candidate can obtain the majority at the first ballot, which is highly likely.
The political uncertainty may not be wiped out during the campaign, which will generate fluctuations in the foreign exchange and the financial market. The political flurry, however, will not be significant enough to hurt the economic fundamentals. Despite the rising unemployment, the poverty rate has declined significantly from 27% in 1999 to 15% in 2003, suggesting the improved environment regarding the social stability. Also, as no major candidate challenges the current framework of economic policies, the new government will maintain the disciplines of fiscal and monetary policies regardless of the result of the election.
The potential terrorism by the Islamic extremists remains another source of concern for the domestic security. The bombing in Bali in October 2002 killed and injured more than 500 foreigners and local residents and dragged down the stocks and Rupiah. The government arrested the leader of the Jamia Islamia, a Muslim group suspected to commit the case, but the same group is suspected to repeat the bombing at Marriot Hotel in Jakarta in August 2003. The terrorist maneuver may be incited by the developments in Iraq or Palestine, but there is no sign that these groups are gaining support in the country and the social stability is affected. (end)>Present reforms are our fourth opportunity to create a democratic Indonesian State. Three times previously, we failed to build a sustainable democracy. The first opportunity arose in the midst of our revolutionary struggle in 1946. It began with Maklumat (decree) X of the KNIP when Vice President Hatta gave his support for the creation of numerous political parties in Indonesia. But the fight between the left and right wings reached its point of accumulation and ended that opportunity with the PKI (Indonesian Communist Party) insurrection in Madiun. The second opportunity came with parliamentary democratic system resulting in the 1955 and 1957 general elections. But the infighting within Constituent Assembly created a deadlock in Parliament resulting in parliamentary dissolution. The third opportunity was at the beginning of the New Order which should have been the occasion for political parties to compete in free elections. But further developments were in fact towards an anti democratic political set-up with concepts of
“floating mass” and “
depoliticization”, “the reduction of the number of political parties” resulting in authoritarian government.
- It is nearly impossible to face the pluralism of Indonesian society with a non democratic government – without civility, without the understanding of the consensual process of musyawarah and mufakat, without other methods except orders from above, and without conviction as to the on-going reform alternative since 1999. Since the 1999 elections, Indonesia has witnessed the metamorphosis of the People becoming citizens aware of their rights and obligations. As citizens we all have the desire for justice and solidarity which will be more natural in essence if established by effective democratic government. Only effective democracy can lead a prospering society based on Unity in Diversity (Bhineka Tunggal Ika) within the framework of the Unitary State of the Republic of Indonesia to which we have aspired since the proclamation of independence in 1945.
- The difference of this incumbent government is that it does not follow the trend of facing elections and making efforts at staying in power by inflating budgets, for attractive short term populist projects but prejudicial in the longer term. On the contrary the present government of the Republic of Indonesia is disciplined in reducing the budget deficit and reinforcing the basis of the macro economy in order to facilitate the task of the next government (irrespective of the winner of the election) in the interest of national economic recovery. This is in line with campaign promises to avoid an extended period of economic consolidation. Economic reform and the fundamental improvement of the macro economy have always been on course for the past three years. Among others, this fact can be seen from various short term economic indicators such as the level of inflation, the value of the Rupiah, foreign currency reserves, the Jakarta Stock Exchange index, as well as medium term indicators such as economic growth, government debt, and the continued improvement of the budget deficit.
- It also has to be understood that the macro economy is stable, political reform is on-going, governance reform is taking place (toward decentralization) as well as legal reform, and infrastructure and structural development are reinitiated as well as a number of big projects abandoned for five years are given great attention and care. Furthermore, nearly 30% of the State budget is still dedicated to interest payments and reimbursements of principal of domestic and foreign debts. Reimbursement of domestic debt is still facing the big task of assuring the guarantee of recapitalization of banks, State banks in particular, which has been necessary since 1998 as result of the financial and monetary crisis in 1997 – 1998. On the other hand the foreign debt settlement still faces the remaining debt in the post-Paris Club I-II-III and the accompanying London Club period, and this in addition to the reimbursement of debt to the IMF in line with agreed schedules. The punctuality of payment will very much influence Indonesia’s ranking – at CCC for a long period and only recently attaining B+ stable since 2003. And this will be reflected by the levels of the Rupiah, the Jakarta Stock Exchange, and the rate of interest – all determined by monetary stability.
- It has to be further understood that 30% of the State budget now represents direct transfers to regional governments in the forms of general allocation funds (DAU), special allocation funds (DAK) and income funds sharing (Dana Bagi Hasil) based on decentralization acts UU no. 22 and UU no. 25 1999. This transfer has taken place in full in 2003 and is in the process of execution in the 2004 State budget with the support of the Assembly of Representatives in line with the deliberations of the Budgetary Commission.
Besides the two principal allocations by the State budget it also seems that subsidies for energy are on the increase as a result of the rise of world oil prices during the months. Allocations for these three expenditures – domestic and foreign debt repayment, budgetary allocations for the regions, and energy subsidies – have restricted the maneuverability of the 2004 State budget and that of the national budgets for the years to come. For this reason the continued macro economic stability requires the coordination of fiscal and monetary policy. Evidently it is hoped that the monetary sector will be more active compared to past years in fulfilling its role in moving the economy and business as shown by Bank Indonesia. Indonesia’ balance of payments will depend on this policy of coordination.
- It is with the understanding of all above elements that Indonesia’s business is expected to be more active in building cooperation with the banking and financial sectors in general. Preferably this cooperation should also be practiced with regional governments as business and economic activities are at regency and city levels. To what point that effort will be made by Bank Indonesia, the ministries within the Coordinating Ministry for Economic Affairs, and regional governments, as has been practiced in tripartite meetings – between national and regional governments, business, and the banking sector on 7 occasions (KTI I to KTI VII) – is the question. What is needed is confidence building through cooperation and mutual benefit between business and the banking and financial sector, for the good use of the great amount of excess liquidities in the banks.
It is only with this effort that business will be able to guarantee the pursuit of economic activity and many reforms. In the final analysis our collective hope is that it will support investments for the acceleration of economic growth for the creation of employment and the reduction of poverty.
Source : The Coordinating Ministry for Economic Affairs
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GOVERNMENT BUDGET SUMMARY
BUDGET 2004 AND PROPOSED BUDGET 2005 (in Rp trillion)
| | 2004 | 2005 |
| Budget | Share of GDP | Proposed Budget | Share of GDP |
| A. Total revenue and grants | 349.9 | 17.5 | 377.9 | 17.2 |
| I. Domestic Revenue | 349.3 | 17.5 | 377.1 | 17.2 |
| 1. Tax Revenue | 272.2 | 13.6 | 297.5 | 13.6 |
| 2. Non Tax Receipts | 77.1 | 3.9 | 79.6 | 3.6 |
| II. Grants | 0.6 | | 0.8 | |
| B. Total Expenditure | 374.4 | 18.7 | 394.8 | 18.0 |
| I. Central Government Expenditure | 255.3 | 12.8 | 264.9 | 12.1 |
| II. Regional Transfer (Balanced Funds for Local Governments and Special Autonomy) | 119.0 | 6.0 | 129.9 | 5.9 |
| C. Budget Deficit (A-B) | (24.4) | (1.2) | (16.9) | (0.8) |
| D. Deficit Financing | 24.4 | 1.2 | 16.9 | 0.8 |
| I. Domestic | 40.6 | 2.0 | 37.1 | 1.7 |
| II. Foreign, net | (16.1) | (0.8) | (20.2) | (0.9) |
Base Money Decreased while Forex Constant
Bank Indonesia in its press release on August 11 reported that the base money on August 6, 2004 was noted at Rp 173.00 trillions, or Rp 1.53 trillions lowers than the position on July 30, 2004. The decline was mainly caused by decreasing of banking accounts at Bank Indonesia.
Meanwhile, foreign exchange reserves in the first week of August 2004, was relatively constant at USD 34.8 billions.
Net Government Account decreased by Rp 1.54 trillions to reach Rp 198.42 trillions, which among others caused by tax and oil revenue. Bank Indonesia Liquidity Credit (KLBI) was relatively constant. Meanwhile, Open Market Operation (OPT) within this week gives a contraction effect of Rp 1.2 triillions. With this aforementioned developments, Net Domestic Asset (NDA) contracted by Rp 1.77 trillions, to reach Rp 7.34 trillions.
BUSINESS BRIEFS
STATE CONCERNS
Action on Tax Evaders
Tax office officials are planning to jail a business operator from Bali for non-cooperation in settling tax arrears as part of moves to step up pressure on evasion, The Jakarta Post reported.
Taxation officials said the office was seeking the approval of Minister of Finance Boediono to detain the Bali business operator, who was not named.
He added that the office had been cooperating with relevant institutions to prohibit some 40 alleged uncooperative taxpayers from traveling overseas.
The tax office is allowed to jail recalcitrant taxpayers for up to a year without trial. The office recently extended the detention order on British businessman Mark Greenwood for a second two months, but officials admit he appears to want to serve out the year without settling his tax bill.
During the first seven months of this year, the tax office collected around Rp7.2 trillion, or around 20% of the total Rp36 trillion in tax arrears.
Study on Palm Oil Mill Wastes
The Asian Development Bank (ADB) said Wednesday (11/8/04) it has approved a $500,000 technical assistance grant to study the potential for using waste from palm oil mills as a source of commercially viable renewable energy.
The grant, co-financed by the Canadian Government Fund, would establish a waste management framework for Indonesia's palm oil industry and study options available for energy recovery and conversion.
About 300 palm oil mills operating in the country produce more than four billion tons of palm oil annually and generate $1 billion in export earnings.
Bali Tourism ‘Back to Normal’
Bali’s tourism industry has returned to normal, with a rising number of arrivals to the island, I Gede Widiartha, head of the Ngurah Rai immigration office said Monday (9/8/04), Antara reported.
Tourist arrivals in Bali reached 796,240 in the first seven months of this year, around the same level as before the devastating bomb attack in Kuta on October 12, 2002.
"The average number of tourist arrivals in the period between January and July has already reached 113,748 per month, or about the same as the level before the bombings," Widiartha said. Japan, Australia and Taiwan were the main markets.
Water Projects in Yogyakarta, Malang
The Japanese government through the Japan International Cooperation Agency (JICA) has extended a 870 million yen (Rp65 billion or $7 million) grant to the Yogyakarta administration to overcome water shortages in the southern part of Gunung Kidul district, Antara reported.
The local representative office of JICA and the local administration office will conduct a feasibility study next month and the project is expected to start next year.
The United States Agency for International Development (USAID) meanwhile launched on Thursday (12/8/04) a potable water project in Malang district, East Java.
Hariyadi, a director of the Malang municipal waterworks, said Pondok Blimbing Indah (PBI) housing complex has been designed as a pilot project for launching the project. Initial investment was around Rp100 million ($10,700) for each zone, since water pipes had been installed in 22 municipal waterworks.
TRADE
Product List for US FTA
The government has prepared a list of 50 products and commodities as the initial focus of a possible future free trade agreement (FTA) with the United States, according to Sondang Aggraini, director of bilateral cooperation at the Ministry of Industry and Trade, The Jakarta Post reported.
She said the list had been compiled on the basis of a University of Indonesia study that identified the products as having strong export potential.
"It is still a preliminary study. We need to find out more about the advantages and disadvantages of trading each of the commodities," Sondang said.
The products and commodities included textiles and apparel, furniture, sound recorders, natural rubber latex, telecommunications equipment, crustaceans, mollusks and aquatic invertebrates.
SOEs
Bio Farma Aims High on Polio
State-owned pharmaceutical company PT Bio Farma is set to supply up to 800 million doses of polio vaccines or 40% of the world's annual requirement, Antara reported.
Company president Marzuki Abdullah said the World Health Organization (WHO) plans to free the world from polio in 2008, and demand for polio vaccines is expected to increase accordingly.
WHO had also recognized the company’s hepatitis B vaccine, enabling exports of this product to increase.
Bank Jabar Plans Bond Issue
PT Bank Jabar will issue Rp1 trillion ($109 million) in five-year bonds to strengthen its capital, the chief of the country’s main bond exchange, said Tuesday (10/8/04), Reuters reported. The bank is owned by the West Java regional government.
"Bank Jabar will sign a preliminary contract with the Surabaya Stock Exchange soon to issue bonds with a five-year tenor," Hindarmojo Hinuri told reporters.
INFRASTRUCTURE
Chinese Interest in W. Java Dam
A Chinese state-owned firm is interested in investing in the Jatigede dam project in Sumedang, West Java, according to Minister for Resettlement and Regional Infrastructures Soenarno, Antara reported.
He said a team would visit China soon for a second round of talks on the project, as well as to complete the final stages of the negotiations to obtain loans for double-tracking of railway lines and the Suramadu bridge project between Surabaya and Madura.
Germany to Finance Rail Replacement
German financial institution KfW has agreed to provide a loan of 33.5 million euros ($40.45 million) to finance the replacement of 1,000 kilometers of old railway tracks in Java, Antara reported.
The national news agency quoted Harris Fabillah, director for railways at the Ministry of Communications, as saying that a total of 3,500 kilometers of track in Java and Sumatra needed replacement, but the work would have to be done in stages. Work on the first stage will start this year and completion is expected in 2007.
PRIVATE SECTOR
Footwear Export Value Down
The value of Indonesia's footwear exports fell around 5% to $575 million in the first half of the year compared to the same period last year, Antara reported.
Djimanto, the chairman of the advisory council of the Indonesian Footwear IndustryAssociation (Aprisindo) said Indonesian producers were losing their competitive edge.
He said the government was partly to blame because of stringent tax regimes on imported raw materials, which constituted around 60% of the total.
Indonesia footwear still sold well in its major markets of the US, Britain, Australia and the Middle East because of good quality and design, and this had to be developed to maintain market position, Djimanto said.
Indonesia Tops Asia Funds
Mutual funds investing in Indonesia handed investors the best returns in July, data from fund research firm Lipper showed. Indonesia-focused funds delivered 8.90% gains in July, outperforming a 3.4% rise in the Jakarta composite index during the same period.
Indonesian equities and the rupiah were mainly boosted by reduced political risk. Analysts said, however, that disappointing export performance was keeping the market neutral on Indonesia.
Sharia Bank Assets Up
Indonesia’s Islamic banks recorded a 50% increase in assets in the first half of this year, Bank Indonesia (BI) said, according to Antara.
Assets totaled Rp8,757 billion ($973 million) in January, 2004, according to the Sharia bank directorate of BI.
Bank deputy governor Maman H. Somantri said an increase of 71% annually has been recorded in the assets of sharia banks over the past three years.
Retail Sales to Rise
Members of the Association of Indonesian Retail Businessmen (Aprindo) expect sales to increase 10% in 2004, as compared to last year when the figure reached Rp33 trillion ($3.6 billion), Antara reported.
"The figure of Rp33 trillion is 11% of total national retail sales," Aprindo chairman Handaka Santosa said Thursday (12/8/04).
Semen Tonasa Output Rises
Sales of cement-producing company PT Semen Tonasa in Makassar, South Sulawesi, rose 20% year-on-year to 1.1 million tons in the first half of this year, marketing officer Wahab Candoko said, according to Antara. The increased sales reflecting strong demand in eastern Indonesia, he said.
Bottled Tea Boost
Net profit the first half of 2004 at bottled tea and soft drink maker PT Sinar Sosro jumped 377% to Rp52.5 billion ($5.7 million), up from Rp11 billion in the corresponding period last year, the company reported Monday (9/8/04).
Sales rose 23.8% to Rp590.1 billion from Rp476.4 billion. Cost of goods sold rose only 10% to Rp270.5 billion from Rp245.9 billion.
Auto Market Awaits New Model
Car sales in Indonesia fell by 10% month-on-month to 38,428 units in July, with stocks of Toyota Kijang vehicles sold out as production turned to the new model out next month. The figure for July took total sales in the first seven months to 264,660 units.
Toyota cars usually dominate sales, with a market share of 30% in June, but with the shortfall in Kijang supply, Mitsubishi took over the lead in July.
Sales by PT Astra International, whose products include Toyota vehicles, were down 18.2% in July compared to June, but were up 7.9% over the same month last year.
The Association of Motor Vehicle Industries (Gaikindo) predicted car sales in the country will reach 500,000 units in 2005, up from 354,000 units last year. This year Gaikindo predicts car sales to reach 420,000 units.
Annual car sales (including exports):
2003 391,853
2002 360,081
2001 339,607
2000 345,653
1999 125,683
1998 68,413
1997 392,203
Good Mark for Banks
The country’s banking sector received praise last week, although the praise was mixed with a reminder from Moody’s rating agency that more work needed to be done.
Bank Indonesia spokesman Rizal Djaafara said the quality of credits extended by banks had improved, with non-performing loan (NPL) ratios at an average 7.6%.
In June banks issued new credits amounting to Rp11.8 trillion ($1.3 billion), with 44.4% going to small and medium enterprises. In the first six months of this year, bank credits totaled Rp31.9 trillion. Third parties' funds held by banks rose by Rp17.7 trillion.
Moody’s said in its annual report that the outlook for debt and deposit ratings of the country’s banks remained stable at an average B2 and B3, respectively, The Jakarta Post reported.
The average bank financial strength rating remained at E+, reflecting the system's still weak financial fundamentals.
"Consolidation and divestment have significantly altered the Indonesian banking landscape," said Beatrice Woo, the report's author. But, she said, despite a reduction of a third in the number of banks, excess capacity still remained.
The four top banks controlled 55% of assets, meaning the other 134 were unlikely to achieve economies of scale.
From a credit perspective, structural developments had been positive, and the report said Moody's expects eventual restoration of pricing discipline and market stability.
Indonesian banks continued to lag behind their regional peers in sophistication and standards, but Moody's expected greater foreign participation to accelerate reform, the report said.
POWER
Coal-Fired Power Plant
Babcock Hitachi K.K and PT Triaryani plan to build a coal-fired power plant in Musi Rawas, South Sumatra, with a capacity of 1200-MW. Triaryani president Teddy Setiawan said the project would cost around $4.2 billion.
The first phase of the construction will cost around $1.11 billion, Setiawan added. It will be built in the company's coal mining concession, which has an annual production capacity of 25 million tons of low calorie coal, he said.
Cheaper Electricity
PT Indonesia Power, the business unit of the Suralaya thermal power plant, is able to sell electricity to state electricity company PLN at a lower price than private or independent power producers although the company no longer enjoys fuel-oil price subsidies, a spokesman said.
"We now sell electricity at the price of Rp230 per KwH compared to Rp630 per KwH quoted by private producers," Hary Mugijanto, general manager of Suralaya's business unit, said in Merak, Banten. According to Hary, PT Indonesia Power's price includes return on capital, administration and maintenance costs, fuel oil cost, and irregular operations cost.
Alstom Consortium
State electricity firm PT PLN has signed a contract with a consortium comprising Japanese, Indonesian and American firms for the provision of boilers for the Tarahan power project in South Sumatra.
Under the contract signed on June 26, the consortium, comprising Alstom Power Inc. USA, Marubeni Corp., Japan and PT Alstom Power Energy System Indonesia, will provide PLN with two circulating fluidized bed (CFB) boilers for both the Tarahan 3 and Tarahan 4 power plants. Both boilers are valued at $118.264 million, according to Eko Sulianto, a director of PT Alstom Power Energy System Indonesia.
MINING
Antam Buy Back
Mining company PT Aneka Tambang (Antam) said Wednesday (11/8/04) it has bought back $5 million out of $200 million worth of bonds issued in September last year. The company's corporate secretary, Dohar Siregar, said the bonds, which carry an annual interest rate of 7.37%, would mature in September 2010.
Meanwhile on Thursday, Standard & Poor's Ratings Services affirmed its 'B' rating on the company and said the outlook is stable. "The rating is constrained by Antam's weak financial profile, material country risks, regulatory uncertainty and increasing cost profile. Offsetting these risks are the favorable outlook for nickel and gold prices over the medium term and Antam's vertically integrated operations," said Standard & Poor's credit analyst Erly Witoyo.
"The additional debt of $230 million during the past year to fund the construction of a third nickel smelting facility (FeNi 3) has weakened Antam's financial profile significantly. The company's debt-to-capital ratio has since increased to 50% from 10% at the end of 2002. More importantly, without additional cash flow expected from the new project until 2006, the company's cash flow protection measures are expected to weaken significantly in 2004 and 2005," said Witoyo.
Timah Lowers Forecast
Tin miner PT Timah said Friday (13/8/04) the company has lowered its production target for the current year because of difficulties in getting raw materials and stiffer competition from smaller companies.
"We will revise down our refined tin output target to below 42,000 tons for 2004," Timah's spokesman Prasetyo Saksono told Dow Jones Newswires. He declined to give a more specific target for production this year. Timah, the world's largest integrated tin miner, produced 45,906 tons of refined tin in 2003.
Stiffer competition and "difficulties in getting raw materials in our own site," are behind the fall of the company's tin output this year, Prasetyo said.
Timah's refined tin production fell 47% to 6,246 tons in the first quarter of this year, from 11,780 tons in the first quarter of last year. He said the company's refined tin output in the second quarter appears to have improved, but still was lower than production in the second half of last year. He didn't provide production figures for the second quarter, however.
Formosa Coal Seeks Imports
Taiwan petrochemical giant Formosa Plastics Group is seeking to import 10 million tons of coal each year from China, Indonesia and Australia, group chairman Wang Yung-ching said Friday (13/8/04). China, Indonesia and Australia are among the world's top coal exporters and are close to Taiwan, which does not produce any coal.
The privately-run Formosa Plastics Group is one of the largest petrochemical conglomerates in the world with petrochemical and other factories in many countries. The group’s Mailiao Industrial Zone needs 10 million tons of coal each year, Wang told reporters.
Malaysian Needs
Indonesia has the ability to meet Malaysia's demand for coal, expected to reach 20 million tons annually in 2010, a Malaysian energy official said. "Indonesia has the potential ability of meeting Malaysia's need for coal, especially its need in Sabah state," the head of the Malaysian Energy Commission, Datuk Mohammad Annas bin Mohammad Nur, said on the sidelines of a business meeting on coal and power plants Monday (9/8/04).
Businessmen in the energy sector from the two neighboring countries attended the meeting, organized by the Indonesian Coal Society (ICS), the Agency for the Application and Assessment of Technoloy (BPPT), and the Malaysian Energy Commission. Annas said demand for coal in Malaysia now stood at 10 million tons annually and was expected to reach 20 million tons in 2010.
OIL & GAS
PGN Signs Contract
PT Perusahaan Gas Negara (PGN) on Monday (9/8/04) signed a 17-year natural gas purchase contract worth $4.3 billion contract with Conoco Phillips.
A spokesman for the state Oil and Gas Supervision Agency said that the contract covered the supply of up to 400 million cubic feet of gas per day from ConocoPhillips' Suban gas field on the island of Sumatra. The gas is expected to begin flowing in 2007, the spokesman, Sishandoko, said.
PGN has already signed a contract with ConocoPhillips to build a pipeline to connect ConocoPhillips' gas field with power plants owned by state electricity company PT Perusahaan Listrik Negara (PLN) in Jakarta and other parts of the country.
ConocoPhillips’ Asia-Pacific president R.M. Lance said that as the domestic gas market was growing, infrastructure needed to be improved.
"We think the market really has a good future here. I mean, there's a lot of gas in Indonesia. It's just a matter of how quickly the market develops ...how quickly can the industrial users and the infrastructure get in place in West Java and East Java to support more gas coming in. That's the balance that'll have to be struck over time," Lance told The Jakarta Post.
Shares of Talisman Energy, a Canadian oil and natural-gas producer, had their biggest gain in almost eight weeks when the gas-supply contract was announced that would allow the company to book more of its fuel reserves in Indonesia. Talisman is a partner in the project together with ConocoPhillips. Talisman said it can add as much as 810 billion cubic feet of gas, its share of sales under the contract, to reserves now that the supply agreement proves the fuel is marketable, as required by securities regulations.
The contract can be seen as an indication the Indonesian economy is recovering, State Enterprises Minister Laksamana Sukardi said Monday. "Such a huge contract is a sign that the country is recovering from the crisis," Laksamana said after the signing of the deal.
PGN’s earnings were up by 15% in the first semester this year, its president director W.M.P. Simanjuntak said after signing the contract. He declined to mention the exact amount of the company's earnings in the period saying only that they had increased by 15% compared to last year's earnings that reached Rp1.7 trillion
Meanwhile, the World Bank will provide state-owned gas company PT PGN (Perusahaan Gas Negara) with $80 million in loans to finance a pipeline project in West Java. A contract will be signed next October, Joko Pramono, PGN's finance director, said Wednesday.
The pipeline project would begin early next year at an estimated total cost of $125 million. Joko added that the company was also planning to build pipelines from the Duri gas field to Dumai and Medan in Sumatra at a total cost of $280 million.
Amerada Hess Find
Amerada Hess, US-based operator of a joint operation contract, has found an additional oil and gas reserve in the Pangkah Block off East Java. Tests showed that the North Ujung Pangka well in the block turned out 2,300 barrels of crude oil and 14.4 million standard cubic feet of gas per day (MMSCFD), the Oil and Gas Executive Body (BP Migas) said.
The West Unjung Pangkah well produced 2,100 barrels of crude oil per day and 31.4 MMSCFD of gas, it said in a statement. The wells are located three and five kilometers from other Amerada Hess wells already in operation.
ConocoPhillips Resumes Output
US-based ConocoPhillips (COP) resumed full production 6 August at a 17,000-barrel-a-day offshore oil platform in Indonesian waters, a government official said Monday (9/8/04). Production reached 17,000 barrels/day Friday evening," said Trijana Kartoatmodjo, deputy chief of BPMigas, Indonesia's official upstream oil and gas watchdog.
ConocoPhillips started production Friday morning, with output ramped up to full production around 12 hours later, Trijana said. The company late last month shut down production at the Belida wellhead platform-B in the Natuna Sea as a precaution after a nearby rig tilted toward the platform. The rig was moved for repairs, Trijana said.
Natural Fuel
PT Energi Alternatif Indonesia started distributing its bio-diesel fuel, Naturfuel, to the public on Tuesday (10/8/04) via four major gas stations at: Soekarno-Hatta International airport, Tangerang; Sentul, Bogor; Daan Mogot, West Jakarta; and Mal Lippo Karawaci, Tangerang.
Energi Alternatif director Bambang Tribudiman said the firm had invested Rp500million over the past year in a factory located in Tanjung Priok, which had a production capacity of 500 kilograms of fuel per day. The company is also assembling a new processor with a daily production capacity of two tons of bio-diesel fuel. It costs Rp17,000 per two-litre package. Bambang said the price was high because of the high cost of raw materials as well as packaging, labeling and marketing.
"But starting next year, we're going to use castor beans, which are far cheaper," he said, which would lower the price to Rp2,500 per litre. Subsidized diesel fuel for the public costs Rp1,650, while non-subsidized diesel for industries costs around Rp2,500.
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