[Marinir] Indonesia Digest: No: 45.05 ; 29-12-2005

[Yap Hong Gie]

INDONESIA DIGEST
Indonesia's complex Issues in a Nutshell
By: Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 45.05 - Dated: 29 December 2005

We wish all our Readers: Peace and Happiness throughout 2006

In this issue:

MAIN FEATURE:

ECONOMIC OUTLOOK 2006: PRIVATE SECTOR RELIES ON GOVERNMENT SPENDING

NEWS AND BACKGROUND:

1.      Health, Culture and the Environment:
World Bank: Indonesia has real risk of Avian Flu Pandemic

2.      The Economy, Trade and Industry
·         Garuda to seek Strategic Partnership
·         Wanted: Female Role Models to develop Gender Equality in IT

3.      Politics and Security
·         Peace in Aceh Continues to Improve
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MAIN FEATURE:

ECONOMIC OUTLOOK 2006: PRIVATE SECTOR RELIES ON GOVERNMENT SPENDING

For the first semester of 2006 the Government must not expect that the
private sector can take the lead to be the growth engine of the Indonesian
economy said Sofyan Wanandi, Chairman of the Private Sector Association.
This is since this sector will be too preoccupied making adjustments to meet
escalating costs caused by increased minimum wages as required by the law
and other adjustments to inflation. This the private sector must do in order
to - as much as possible - avoid large-scale retrenchment. Instead, the
private sector expects that it is, in fact, the government sector that must
lead as the engine for growth.

The private sector hopes that the high costs to the economy and bureaucratic
red tape will be reduced to provide the much needed incentives for growth.
Supporting this assessment, Hidayat, Chairman of the Indonesian Chamber of
Commerce, KADIN, in his end of the year evaluation of the economy, alerted
that today there exists, unfortunately, mutual mistrust between the
government and the business sector that tends to grow into a dangerous
crisis of trust.  For, the lack of trust on both sides will hamper the
growth of synergy that is so much needed to meet the challenges of Indonesia
's high cost economy in 2006.

In this context Hidayat urges the government to revise the 30 government
regulations as submitted by KADIN, that the Chamber considers prevent the
healthy development of businesses. These include the reduction of local
bylaws that overlap one another and cause exceptionally high transportation
costs. Furthermore, the Bank Indonesia rate should also not be increased any
further. Any further increase will threaten the existence of the real sector
in 2006, and will result in large-scale retrenchment and unemployment.
Should BI rate be raised from 12.75% to 13%, then credit rate may go up as
high as 19%-20%, at which level the private sector will just not be able to
absorb.

KADIN is prepared to assist the government to develop an approximate 500,000
units of small scale industries in the country, since these need assistance
from the larger corporations in terms of market penetration and capital.
However, to reach the government's growth target of 6% in the 2006 economy,
this requires concerted efforts made by all. In this case, the private
sector urges the government to provide incentives to the private sector,
especially to cut down unnecessary high costs, undertake bureaucratic reform
and fight smuggling. The private sector hopes that the new Coordinating
Minister for the Economy, Mr. Boediono, well- known for a preference to
tight money policy, will be able to balance macro-economic stability with
the growth of the real sector.

In its editorial of 28 December, Bisnis Indonesia raised the question of the
seriousness should the crisis in trust between the government and the
business sector not be corrected soon.

KADIN had identified those problems faced by the business sector to include:
firstly, the rigidity of the economy, which occurs at the levels of
policies, labour and bureaucracy that prevents Indonesia from being able to
adjust quickly to fast international changes. Secondly, the financial sector
can not perform at optimum level; thirdly, there still exists the black
economy that is evident from the continuing illegal trade that is freed from
tax, as well as from those living from interest rates. Fourthly, there is a
serious lack of trust between the government and businessmen. Since
government still views the private sector more as a liability rather than an
asset, which was due to the sector's role in the collapse of the national
economy during the past Asian economic crisis. Fifth, bank loans do not
assist those businesses that promote large-scale employment. Sixth, the
surplus economy from low technology is declining, whilst a deficit of
activity utilizing medium-scaled technology becomes bloated. And seventhly,
the application of research and technology among Indonesian businesses is
still low.

The aspect of trust must be corrected soon, said the Bisnis Indonesia
editorial. A step in the right direction is for corporations to apply the
principles of good corporate governance and dutifully pay their taxes, while
the government is similarly required to adhere to the principles of good
governance that includes the transparent management of revenues aimed at
improving the nation's economy.

In the latest development, Bank Indonesia Governor, Burhanuddin, confirms
that the Central Bank will continue its tight money policy into Q2 of 2006.
Burhanuddin expects the economy to continue a bumpy ride into the new year,
and that, therefore, the Bank will be able to consider reducing interest
rates only in the second semester. Such policy , is understood to
negatively affect investments and infrastructure. Nonetheless, the Bank
expect to maintain the BI rate at the present 12.75%. In 2006, Burhanuddin
expects inflation to slow down to between 7%-8%, and the economy to grow at
5.5%.

BI further expects the banking industry to remain solid, although there are
possibilities of non-performing loans.

On its side, the private sector urges the Bank to reduce interest rates
since the strengthening of the Indonesian Rupiah will not shore up this
sector if this is unaccompanied by reduced interest rates.

Meanwhile, at the end of 2005, President Yudhoyono issued four directives to
the economic team under Coordinating Minister, Boediono. These are: (1)
accelerate economic growth; (2) stabilize the economy; (3) create
employment; and (4) reduce poverty.

In its implementation, Minister Boediono said that the government will
provide fiscal stimuli in the first two quarters of 2006, among others
through implementation of projects funded through foreign loans. The
government will sit down with BI leadership to devise efforts to reduce
interest rates and inflation, so that the private sector may take the lead
in Q3. Furthermore, the investment climate will be improved, and the 91
infrastructure projects that were agreed upon to be implemented during the
last Infrastructure Summit will be implemented to stimulate the economy and
provide large-scale employment. Meanwhile, awaiting the approval of the new
Tax Law, the existing Law is still in force.

(Source: Bisnis Indonesia, Media Indonesia)         (Tuti Sunario)
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NEWS AND BACKGROUND:

1.      Health, Culture and the Environment:

World Bank: Indonesia has real risk of Flu Pandemic

As Indonesia confirmed its ninth fatality from avian influenza, World Bank
representative in Indonesia, Andrew Steer said that the country harbours a
"very real" possibility" of triggering a pandemic, reports Bloomberg from
Singapore on 14 December.
Of Indonesia's 1.3 billion chickens, as many as 400 million are in "very
informal settings, running around people's houses,'' Andrew Steer said. This
"is a huge problem,'' as Indonesia recovers from the tsunami disaster of
December 2004, Steer said.
Indonesia, the world's fourth-most populous nation, has confirmed 14 human
cases of avian flu. The spread of the disease, which has killed at least 70
people in Asia since 2004, is fueling fears of a pandemic that the World
Health Organization says may kill 7.4 million people.
The average life-span of a chicken in Indonesia is three months, equating to
a 5.2 billion annual population. Indonesia needs "an extremely good
surveillance plan,''  Steer said. Most of the human infections have been
caused by direct contact with diseased poultry. Scientists are monitoring
for any human- to-human transmission that may herald the start of a
pandemic.
Indonesia's latest confirmed fatality was likely caused by infected fowl,
the Indonesian health ministry said. In the past two years, infections have
been more common in December and January, Hitoshi Oshitani, leader of WHO's
avian influenza outbreak team in the Western Pacific, said last week.
Last November, Indonesia's President Susilo Bambang Yudhoyono said he
planned to order the nation's military to conduct house- to-house searches
to find birds infected with the avian influenza virus in Jakarta and
surrounding areas, reports Bloomberg.
2.      The Economy, Trade and Industry

Garuda to seek Strategic Partnership

The government plans to push Garuda Indonesia airline to invite strategic
investors in 2006 in order to be more competitive regionally and
internationally, said State Enterprise Minister, Sugiharto. This can be done
either through initial public offering placement or private placement in the
stock market, or by inviting investors into the company as strategic partner
direct.  However, such push must still receive the endorsement of
Parliament.

The strategic partner company in mind could be either a financial company or
another airline. Preferably an airline, so that Garuda can improve its
corporate culture as well as the airline's financial health.  Law No. 1 of
1967 stipulates that foreign investments may not exceed 49% shareholding in
any Indonesian airline, but this will be done gradually, said Minister
Sugiharto.

Media Indonesia notes that Garuda's debts at present stands at  US$800
million, of which US$ 150 million is owed to foreign rate notes (FRN)
holders in Singapore. The remainder is owed to a European Credit Agency, a
consortium comprising French, British and German lenders, as well as local
creditors. Garuda CEO, Emirsyah Satar  said earlier that the airline is
seeking rescheduling of its debts repayments, while the US$ 45 million
installment repayment owed to FRN holders in Singapore to be paid out this
year, can also not be paid by the airline.

Meanwhile, Communication Minsiter Hatta Rajasa is of the opinion that Garuda
Indonesia's 28 domestic routes should, in fact, be profitable, since Garuda'
s fares are higher than the other airlines, however, he understands that
Garuda still has huge debts to repay carried over from many years before.

The Minister underlined that Garuda should strive to change its corporate
culture to be able to face global competition and be an airline to be
reckoned with. Especially since, Minister Hatta Rajasa said, between 2007 to
2010 there will be the integration of travel and tourism, and the
liberalization of air traffic among ASEAN countries.

On its side, however, Parliament's Commission V Chairman, Ahmad Muqowwan
questions the "strange" wisdom expressed by the Minister Sugiharto to open
up Garuda to strategic investment. "Minister Sugiharto and Garuda management
need first to explain to Parliament the airline's financial position and its
plan for restructuring in its entirety, including the financial position of
its sister companies. It seems that its plan to invite foreign investments
is related more to the airline's debts rather than to the liberalization of
the aviation industry in 2007", said Members of Parliament.

Wanted: Female Role Models to develop Gender Equality in IT

IBM and the Bina Nusantara University have for two years now launched a
program called "Exploring Interest in Technology and Engineering" (or
EXITE), which is specifically aimed at secondary school female students to
expand the interest of Indonesia's female population to be more familiar
with Information Technology. The program aims to increase female interest in
computers and IT, and in so doing create gender equality in the field of IT,
which at the moment is still very dominated by men, said President Director
of PT IBM Indonesia, Betti Alisjahbana. While, with a program called Women
Advancement Forum in Indonesia, IBM seeks to gather female role models, in
order that more women will join in the use of computers and the Internet.

Women account for 49.8% of Indonesia's total population. However, the
Ministry for the Empowerment of Women has found that less than 25% of
Internet users in Indonesia are female. A survey done by Bubu Internet
Indonesia also discovered that of these female users, 42% use the Internet
for e-mailing, 39% to read the news, 29% to search for information and
services, 23% for chatting, and 10% for e-commerce.

Mocrosoft is another company that targets women. Working with an NGO ,
Microsoft has developed the program called Unlimited Potential, especially
to train women in computer knowledge and skills.

3.      Politics and Security

Peace in Aceh Continues to Improve

Among the dark clouds that mark the end of 2005, there is at least one
silver lining that brightens up the Indonesian skies. On 24 December, in
strict accordance to the Helsinki Peace Agreement, GAM, the Free Aceh
secessionist group submitted the final batch of agreed arms in its
possession to be surrendered and destroyed. The delivery was made to the
international monitoring group called the Aceh Monitoring Mission, who
subsequently destroyed the arms. Correspondingly, the Indonesian Army and
Police recalled the last batch of non-organic troops in Aceh, which
operation will be finalized by 2 February 2006, said President Yudhoyono
during his visit to the former restive province to commemorate the tsunami
disaster exactly one year ago.

Further, former GAM spokesman, Sofyan Dawood, confirmed that the military
arm of GAM has also been officially disbanded. In a rare appearance before
the press, former military GAM Commander, Muzakkir Manaf appeared on 28
December, confirming that Aceh has now officially entered peace time, and
that he himself will now change his leadership from the military arm to head
the Aceh Transition Committee, which is the organization of former GAM
military personnel.

Before visiting Aceh, President Yudhoyono visited Nias on 25 December to
join in Christmas mass prayers for victims of the Nias earthquake. He was
accompanied by Timor Leste President, Xanana Gusmao. The president and group
then continued their journey to Aceh, to join mass prayers for the 26
December 2005 tsunami disaster, by strewing flowers at the mass graveyard,
where thousands of unidentified victims are buried.

In a further positive note, Timor Leste President, Xanana Gusmao is reported
to have continued his journey in Indonesia to West Timor, where he met with
East Timorese refugees who had fought on the Indonesian side, urging them to
return to their home land in East Timor. Gusmao urged for reconciliation and
asked those still remaining as refugees in Indonesian Timor to join in the
rebuilding of their country, now called Timor Leste. Among those present was
former East Timor Deputy Commander of the armed resistance movement, Eurico
Guterres.


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