[Marinir] Indonesia Digest No: 24.05 ; 10-07-'05

[Yap Hong Gie]

INDONESIA DIGEST

Indonesia's complex Issues in a Nutshell
By: Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 24.05 - Dated: 10 July 2005
In this issue:

MAIN FEATURE:
DOMESTIC FUEL SHORTAGE:
Breaking the Vicious Circle of Short Supply, Surging Demand,
High Oil Prices and Limited Funds

NEWS AND BACKGROUND:

1.      Tourism and Transportation :
Effective 1 August: Visa on Arrival for 14 more countries

2.      The Economy, Trade and Industry:
More Unemployed in Indonesia
The Government firm on Infrastructure Regulation
Investment Prospects Positive

3.      The Law and Good Governance:
Business Week names President SBY top Star of Asia
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MAIN FEATURE:

DOMESTIC FUEL SHORTAGE:
 Breaking the Vicious Circle of Short Supply, Surging Demand,
High Oil Prices and Limited Funds

Two weeks ago the Government assured the public that with the transfer of 
Rp. 9.3 trillion to Pertamina's account, the long queues to refuel cars and 
motorbikes across the country would be seen no more!. Not true. In the 
evening of 6 July a driver in Kupang, on the island of Flores, called into 
SCTV talkshow to say that he had already waited more than 12 hours at a 
closed pump to refuel his car, so that once the pump would be refilled the 
next day, he would, at least be one of the first to get petrol, - and he 
would even sleep overnight in the car, when needed.

Hearing this, Pertamina spokesman on the show assured that the pump should 
received its supply before 10 am the next day. At noon the next day, when 
SCTV called him on his cell phone, to check whether, indeed, fuel had 
arrived, he replied that he was still at the same spot - waiting. The queue 
had already grown to two kilometers long.

Now that cash-strapped Pertamina had received fresh funds, what is the 
problem then?
(see Indonesia Digest 23.05).


Distribution and Quota Limitations are the problem, says Pertamina

Distribution problems and Quota, said Pertamina. For, as promised, Pertamina 
had raised its stock from a meager 17 days supply to 18.7 days in the space 
of two weeks. So, Indonesia's national stock is now safe. However, in the 
distribution there are snags, especially distribution to the eastern-most 
islands of Indonesia, said its spokesman. High winds and high waves, for 
example, have slowed down tankers carrying supply. Then, the Dumai plant in 
Riau, developed trouble, slowing supply.

On the subject of quota, Parliament had assigned a distribution quota to 
Pertamina, which the company had already exceeded. For this reason, in 
efforts to restrict amounts expended, Pertamina unannounced cut short the 
supply to Jakarta pumps over the weekend, much to the surprise and ire of 
intending holiday travelers.

As a result, the public started to panic, and a rush to buy petrol created 
long lines at stations, while the unscrupulous have begun to hoard - 
creating more demand for fuel. Shops retailing kerosene and premium have 
jacked up prices. The price of premium which at the official price is Rp. 
2,400 a liter, is now retailed in some places for Rp. 10,000 or in some 
places even Rp. 12,000/liter. Kerosene is another scarce item.

Hereupon, President Yudhoyono instructed Pertamina to continue to fill 
distribution according to demand, even if this means exceeding quota. The 
problem of quota will be discussed between the government and Parliament.

Weakening Rupiah, Surging Demand and Higher Oil Rates all add up to inflated 
Subsidies

Meanwhile, the Indonesian Rupiah has been sliding. This is because, on the 
one hand domestic oil prices are kept unchanged with Budget subsidies, but, 
on the other hand world prices are soaring past US$61 per barrel, and, after 
the London explosions, this has even surpassed US$62/barrel, although it, 
thankfully,  fell back again. With wider disparities between the US dollar 
and the Rupiah, and a further rise in oil prices, the two have created a 
double whammy to the State Budget.

Fuel prices in Indonesia are among the cheapest in the world, says Vice 
President Jusuf Kalla. It is 10 times cheaper than in most countries, and 
even 12 times cheaper compared to India. Domestic rates have been kept 
artificially low as the policy is based on decisions made by Parliament 
together with the government not to raise fuel prices domestically, to avoid 
riots and maintain political and economic stability.  Therefore, to be able 
to meet surging demand, and allow Pertamina to buy the needed oil in foreign 
currency at daily world oil rates, subsidies may even exceed Rp. 150 
trillion (about US$ 15 billion) which the Budget is unable to carry.

Today the Rupiah stands at Rp. 9,800 compared to yesterday's Rp. 9,700 to 
the US dollar.  The reason for the weakening Rupiah, says Bank Indonesia, is 
because the market has been drained by Pertamina who needs foreign currency 
in large amounts to buy oil supply, besides the needs for dollars for other 
state-owned companies. And thus, in order to stop the slide, Pertamina now 
obtains its subsidy in foreign currency direct from Bank Indonesia, and no 
longer buys from the open market. BI has also instructed state-owned 
companies to repatriate back to Indonesia, amounts paid out to them in 
overseas banks.

Save Energy!

Therefore, as things appear to reach a critical point, what, indeed, are 
Government's measures and solutions to the problem?

First, Save Energy! President Yudhoyono said that he will issue instructions 
that the public, and all government departments, the military and police, 
save on energy. This is through, among others, reducing the use of private 
cars and motorbikes, raise temperatures of air-conditioned rooms, and switch 
off unnecessary lights. Other actions suggested by Vice President Jusuf 
Kalla include switch off TV stations from midnight to 5 am, close malls and 
shopping centers one hour earlier. Stop the usage of having to wear suits to 
the office. Reduce use of cars for leisure activities. While another 
instruction says that cars above 3,000 cc. must fill up with higher octane 
fuel, Pertamax, and are not allowed to fill up with premium.

The President has also instructed incoming Chief of Police, General Sutanto 
to  immediately arrest oil smugglers and hoarders.

The public needs to cut down on consumption by at least 15%  to be 
effective, said economist and  Member of Parliament, Dradjad Wibowo. The 
problem is, however, how to educate a public that is exorbitant in 
consumption, where public transport system in Indonesia is poor.

Pertamina sources say that within one year, comparing February 2004 to 
February 2005, Indonesia's domestic consumption of oil has increased 15%, 
from a total of 165.1 kiloliter last year to 189.7 in February 2005. Highest 
increases are in the use of solar diesel (+24.4%) and premium (+12.5%).

The Government will raise the price of solar for mining industries oriented 
for exports in order to reduce the burden on the Budget, as well as raise 
the price of kerosene as incentive to boost the use of alternative energy, 
added VP Jusuf Kalla after a Cabinet Meeting. Although no specific rates 
were mentioned.  Alternative energy should be boosted to replace the use of 
oil, such as coal, gas, thermal and nuclear energy.

In the same vein, Minister for National Planning, Sri Mulyani, is of the 
opinion that raising the price of kerosene is the simplest action in this 
most difficult dilemma. But, both government and Parliament assure the 
public that prices at the pumps will for now not be raised.  The public 
waits with bated breath.

(Sources: Kompas, Bisnis Indonesia, SCTV)         (Tuti Sunario)
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NEWS AND BACKGROUND:

1.      Tourism and Transportation :

·         Effective 1 August: Visa on Arrival for 14 more countries

Finally it is official. In a press conference given by the Minister for Law 
and Human Rights, Hamid Awaluddin and the Director General of Immigration, 
Imam Santoso, the Minister said that in efforts to boost tourism to 
Indonesia, the government has decided to issue Visa on Arrival (VoA) for 
nationals of 14 more countries, effective 1 August 2005.

The countries are: Austria, Belgium, India, Ireland, Kuwait, Luxembourg, 
Maldives, Egypt, Portugal, Qatar, China, Russia, Saudi Arabia and Spain. 
This brings to 36 countries, to whose nationals Visa on Arrival are issued.

Visas are now issued for 7 days or 30 days. The 7 day visa costs US$ 10 and 
the 30 days US$ 25.  Moreover, to meet the expected additional burden at the 
airport of Bali, the Immigration Office will add 22 more counters at the 
airport, up from the present eight.
It must be noted that Visa on Arrival is not extendable.

So far, Visa-on-arrival has been extended to nationals from 22 countries. 
These are: Australia, Argentina, Brazil, Denmark, Canada, Finland, France, 
Germany, Great Britain, Hungary, Italy, Japan, Norway, New Zealand, South 
Africa, South Korea, Spain, Switzerland, Taiwan, the United Arab Emirates, 
and the United States.
Visa-on-arrival are issued at 14 airports. These are the Soekarno-Hatta and 
Halim Perdana Kusumah Airports in Jakarta, Ngurah Rai airport in Bali, 
Polonia Airport in Medan, Sultan Syarif Kasim II airport in Pekanbaru, 
Tabing airport in Padang, the Adisumarmo Airport of Surakarta (Solo), 
Adisucipto Airport in Yogyakarta, Juanda Airport of Surabaya, Hasanuddin 
Airport of Makassar, the Sam Ratulangi airport in Manado, Selaparang Airport 
at Mataram, Lombok, Eltari airport in Kupang, and Sepinggan Airport of 
Balikpapan.
While authorized seaports are at Batam, the Bandar Intan Telani Lagoi and 
Bandar Sri Udana Loban at Tanjung Uban on Bintan island and main ports on 
Java, Sulawesi and Papua.

2.      The Economy, Trade and Industry:

·         More Unemployed in Indonesia

The National Statistics Board announced that open unemployment has reached 
10.3%, up from 9.9% registered in August 2004. In February 2005, the total 
workforce reached 105.8 million, an addition of 1.8 million compared to 
August 2004 when 104 million were reported. Whereas, the number of working 
population during the period of six months was down with 1.2 million, namely 
from 94.9 million to 93.7 million people. "This means that the newly 
unemployed have increased with 600,000 persons, said Head of the Board, 
Choiril Maksum.

Meanwhile, February figures for the underemployed reached 29.6 million, or 
31.2% of total working population. This figure is higher than in August 
2004, at 29.8%. This is the first time that Indonesia's employment rate is 
included in the official statistics announced.
 .
In other News Issued by the Office of the Coordinating Ministry for Economic 
Affairs:

·         The Government firm on Infrastructure Regulation

The government says it will not withdraw or revise a new regulation on land 
acquisition for public development purposes, despite protests from critics 
and the public who say it may be misused. The regulation is seen as vital to 
press forward with infrastructure projects, which in the past have been able 
to be blocked by a handful of property owners and speculators.

Public Works Minister Djoko Kirmanto said that because many infrastructure 
projects had run aground due to land-purchase problems, there was no other 
course of action open to the government.

"There are many cases in which the construction of infrastructure projects 
has been stalled because of the objections of a single landowner," Djoko 
told a press conference on Tuesday (21/6/05) after a meeting with Vice 
President Jusuf Kalla and other government officials to discuss the issue.

Issued last month, Presidential Regulation No. 36 of 2005 effectively allows 
the Government to acquire land for crucial infrastructure projects even if 
the landowners have not agreed on the amount of compensation offered to 
them.

Head of the National Land Agency (BPN), Muhammad Lutfi, said the Government 
is committed to provide competitive compensation to landowners whose land is 
affected by development projects.

·         Investments Positive

Investors clearly believe that the prospects for the economy are sound. 
Foreign direct investment (FDI) approvals during the five months to May 
surged 95% year-on-year to $5.47 billion, up from $2.81 billion a year 
earlier.

Projects approved were of higher net value than those in the same period 
last year, the National Investment Coordinating Board (BKPM) said.

BKPM said 568 of the approved investments in the five-month period were new 
FDI projects worth $3.05 billion, compared with 410 projects worth $1.02 
billion approved a year earlier.

Approved FDI expansion projects numbered 145, worth $1.13 billion, which 
were higher than the 107 projects worth $979.7 million approved a year 
earlier.

Domestic investment approvals rose 13% to Rp20.89 trillion from Rp18.47 
trillion a year earlier, with the rise in the value of expansion projects 
offsetting the decline in the value of new projects.

Pharmaceuticals and chemicals absorbed $2.24 billion of FDI, followed by 
mining at $510.6 million and transportation, storage and communication in 
third with $509.6 million.

In domestic investment, the food industry was highest with Rp4.23 trillion 
in proposed investments, followed by services at Rp3.07 trillion and food 
crops and plantations at Rp2.99 trillion.

The Consultative Group on Indonesia (CGI), a grouping of major foreign 
donors, was also satisfied with Indonesia's economic progress. World Bank 
vice president Jemal-ud-din Kessum said Friday (24/6/05) the economic reform 
was progressing well, especially on efforts to improve the investment 
climate. The World Bank chairs the CGI.

"The government is very committed to improving the business climate, we have 
seen strong anti-corruption efforts recently," Kessum told reporters ahead 
of the CGI mid-year meeting in Jakarta, The Jakarta Post reported. A World 
Bank survey noted that corruption has dropped sharply.

Citigroup also raised its forecast for Indonesia's growth this year to 5.63% 
from its earlier estimate of 5.30%, saying investment was improving. The 
government's budget, due to be approved by a plenary session of parliament, 
aims for 6%.

The Citigroup upgrade followed a week after another upward revision from 
Morgan Stanley, which pushed its prediction to 5.4% from 4.5%.

3. Law and Good Governance:

Business Week names President SBY top Star of Asia

Last week, BusinessWeek's Stars of Asia singled out two individuals for 
commendation, wrote the magazine. They are: Indonesian President Susilo 
Bambang Yudhoyono, who led a relief effort that fed and cared for tens of 
thousands of survivors, and Dr. Porntip Rojanasunan of Thailand, who spent 
40 days working to identify the dead so that family members would have some 
closure.

In part because of the tsunami, Business Week's eighth annual Stars of Asia 
list covers a broad territory, honoring individuals for their crisis 
leadership, managerial smart, guiding role in innovation, and social 
activism. Even as he deals with the tsunami's devastation, Indonesia's 
Yudhoyono is overseeing what could be the beginning of an economic 
turnaround for the archipelago after years of drift. He's cracking down on 
corruption, attracting foreign investment, and hunting down terrorists, 
while nudging Islamic leaders and clerics down a more moderate path.

 "The 55-year-old Yudhoyono deserves a special place on this year's Stars of 
Asia list for the crisis management skills he displayed in marshaling the 
Indonesian military, police, and other agencies in the weeks after the 
disaster. He resisted calls from nationalist leaders and conservative 
religious clerics to keep foreign aid operations and media out of Aceh, a 
politically sensitive region where the government and separatist groups have 
clashed for decades. Quick response times and decisive leadership saved 
lives by keeping survivors fed and roads open and by getting medical teams 
in place to prevent the post-tsunami epidemics of cholera and dysentery many 
had feared would kill thousands. Some $1.2 billion has been distributed to 
victims and spent on new infrastructure in Aceh".

"Yudhoyono is cracking down on corruption and on al Qaeda-inspired terrorist 
cells lurking on the archipelago -- factors that scared off crucial foreign 
investment. On top of that, the $225 billion-plus economy is showing signs 
of life. After averaging subpar 4.5% annual growth between 2000 and 2004, 
gross domestic product grew at a 6.4% annual rate in the first quarter. 
Foreign investment doubled, to more than $5 billion, through April."

"Susilo Bambang Yudhoyono knew he faced awesome challenges when he became 
Indonesia's first directly elected President last October. About 40 million 
are unemployed or labor in insecure temporary jobs. Then, just two months 
into his term, the Dec. 26 tsunami slammed into Aceh Province and other 
sections of Northern Sumatra island, killing 128,000 and leaving half a 
million homeless. "The tsunami for Indonesia was kind of a wake-up call and 
also a test -- a test for our solidarity," Yudhoyono
recalled in a recent interview with BusinessWeek

"As Minister for Security & Political Affairs under Megawati, he hunted and 
arrested terrorists connected to the 2002 terrorist bombing of a popular 
nightclub in Bali that left nearly 200 dead, many of them Australian 
tourists. Yudhoyono's government has jailed local politicians, including 
mayors and a provincial governor, on corruption charges. Even his harshest 
critics concede this is no political shadow play.

Instead of a feared enforcer, however, Yudhoyono makes it clear that he 
would much rather be remembered as the leader who had the right stuff to 
lead Indonesia to prosperity." wrote Brian Bremner and Assif Shameen for 
Business Week.

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