[Marinir] Indonesia Digest ; No: 25.05 ; 17-07-'05

[Yap Hong Gie]

INDONESIA DIGEST

Indonesia's complex Issues in a Nutshell
By:  Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 25.05 - Dated: 17 July 2005
In this issue:

MAIN FEATURE:

Indonesia's Economy: Increased Growth amidst High Unemployment

NEWS AND BACKGROUND:

1.      Tourism and Transportation :
Travel and Leisure Magazine: Bali is World's Best Island

2.      Science, Culture and the Environment:
600 Years Admiral Zheng He set foot on Java, celebrated
The Save Energy Campaign reaps Protests

3.      The Economy, Trade and Industry:
Mining in Protected Forests passed Judicial Review
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MAIN FEATURE:

Indonesia's Economy: Increased Growth amidst High Unemployment

Amidst opposing opinions that we read in the news today on the real 
direction that the Indonesian economy is taking, it is most heartening to 
find economic analyst, Chatib Basri, shedding some light on the subject. 
For, can the public trust the government when it says that the economy, 
including investments, is moving beyond expectation? Has not the Statistics 
Board released figures that Indonesia's unemployment rate has grown to 
10.3%, up from last year's 9.9%? (See Indonesia Digest 24.05). If there is 
increased production, should there logically not be reduced unemployment?

In an article in Bisnis Indonesia on Friday, 15 July, Chatib Basri is of the 
opinion that "Indonesia today, is a dualistic economy. On the one hand we 
see that the economy has grown by 6.35%, which is far beyond expectation - 
even among the most optimistic. And, as we delve deeper, we even see that 
this growth has already been generated by investments and exports, and not 
merely by consumption alone. Furthermore, amongst the hail of criticisms and 
concern over the poor investment climate today, the reality, nonetheless, 
says that foreign investment in Indonesia has actually grown by 69,5%", says 
Basri.

For years we were also concerned that the lifting of the US textile quota 
will immediately kill the Indonesia textile industry and thus increase 
unemployment. Yet, actual data do not -
not yet, at least - support these concerns. Exports of garments, for example 
in April 2005 has increased by 25%, and May figures already show growth. Why 
then, Basri asks himself, are we so pessimistic - even when we have so often 
been proven wrong in our pessimistic predictions?  It may be because we 
underestimate the rational capacity of economic executives in adjusting  to 
circumstances at the corporate level.

It must be conceded, Basri continues that unemployment this year has grown 
by 600,000, but this is expected. A 6.35% increase in the first quarter of 
2005, and 6% before that, is far from sufficient to absorb all the new job 
seekers. Calculating an increase of 200,000 - 300,000 employment 
opportunities at every 1% of economic growth, this would mean that with a 
growth of 6% - 6.3%, the economy can absorb only an additional 1.2 million - 
1.8 million labour force. Whereas, new job seekers are estimated at 2.4 
million per year. Meaning that with a 6% economic growth, the problem of 
unemployment in the country will still remain unresolved.

What has happened today, is that economic growth has managed to reduce the 
number of the unemployed, but that growth has not been able to absorb all 
new job seekers, and even less eliminate the entire "stock" of job seekers.

In the midst of an improved economy, there are, however, two main economic 
risks that must be closely monitored, Basri continues. These are: Firstly, 
the issue of energy and fuel.
Secondly, is the exchange rate.

On the subject of fuel and the Fuel crisis, it was already expected that 
when prices are artificially controlled by the government (through 
subsidies ) and are not left to market forces, this will, in the long run, 
cause scarcity of fuel. As example was the case of electric power supply in 
California in 2001 and 2002. Economist Thomas Sowell from the Hoover 
Institution at Stanford University showed that the control of prices by the 
government had caused scarcity of electricity at the public utilities 
companies, while the public at large was unaware of any problems. As a 
result, blackouts became inevitable.

For years now Indonesia has lived in a "make believe" world as if there 
could be no problems with the availability of fuel. This was caused by 
artificially controlled prices domestically. Lately, the government has 
increased fuel prices for a number of types of fuel, however, others are 
still far below market rates. This is because any small increase in price 
will surely reap public protests. Experts are, nonetheless, aware that the 
steep rise in world oil price today will limit the capacity of Pertamina to 
import oil, because the funds available for subsidies are also limited.

Coordinating Minister for the Economy, Aburizal Bakrie, has warned that when 
fuel oil prices rise above US$60/barrel, fuel subsidies will exceed Rp. 150 
trillion, - or equal to a hefty 30% of total Budget - if the country does 
not succeed in reducing consumption by at least 10% from the present quota 
of 59.6 million kiloliters used. Should we, indeed, spend all this money for 
oil subsidy only, while other real needs are still looming, like the problem 
of education, or poverty and malnutrition?

For this reason, said Basri, the Save Energy! Campaign recently announced by 
the President must still go hand in hand with gradual increases in fuel 
prices at the pumps to equal market rates. For at the present artificially 
held prices, the same problem will recur over and over again, threatening 
the sustainability of the Budget and putting at risk the economy as a whole.

The second problem is that of the exchange rate. While Indonesia's Rupiah 
has declined over the past months, this has also been the case with other 
currencies such as the yen and the Thai Baht, which was caused by the 
strengthening of the US Dollar. However, it must be admitted that compared 
to other currencies, the drop of the Rupiah is worse, caused by Indonesia's 
internal problems.

As Indonesia's Rupiah was sliding, people moved their deposits to US 
dollars. This fact, plus the additional extra request for dollars by 
Pertamina to buy oil in huge amounts, has put pressure on the Rupiah 
currency.

Thus, a cautious fiscal policy paired with adjustments in the interest rate 
are policies that need to be undertaken carefully by the Government, which, 
indeed, Bank Indonesia  has done.

In conclusion, therefore, it can be stated that while Indonesia's macro 
economy indicators are positive, however, the two concerns above, namely 
fuel rates and subsidies, and the exchange rate of the Rupiah, must be 
handled most seriously and with the utmost caution.

(Source: M. Chatib Basri article, Bisnis Indonesia 15/7)        (Tuti 
Sunario)
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NEWS AND BACKGROUND:

1.      Tourism and Transportation :

Travel and Leisure Magazine: Bali is World's Best Island

The prestigious travel magazine, Travel and Leisure, has again named Bali as 
" World's Best Island", and has similarly awarded the Ritz-Carlton Bali 
Resort & Spa the "World's Best Hotel for US$250 or less"

Other awards were given to Sydney, for " World's Best City", Crystal Cruises 
for "World's Best Large-Ship Cruise Line", and" World's Best Hotel" to 
Singita Private Game Reserve, Sabi Sands in South Africa. While "World's 
Best International Airline" went to Singapore Airlines.


2.      Science, Culture and the Environment:

600 Years Admiral Zheng He set foot on Java celebrated

The city of Semarang on the northern coast of Central Java will celebrate in 
style, the commemoration of 600 years that Chinese Admiral Zhen He of the 
Ming Dynasty first set foot on the island of Java, reports the Jakarta Post. 
Sam Poo Thay Jien meaning the "Big Guy of Sam Poo", the alias for the famous 
Chinese Admiral Zheng He (known as Cheng Ho here), led his crew ashore on 
Java, on what is now called Gedung Batu, at Semarang. Having sailed from 
China in 1405, he landed here eight years later in 1413 with an entourage of 
62 ships and 27,800 crew members.

A geologist said that the present Sam Poo Kong temple built by Cheng Ho was 
built on the site that was once the estuary of the Garang River, which at 
the time was 1,000 meters wide and some 50 meters deep, so that Cheng Ho and 
his fleet were able to sail up to the mouth of the river.  During his stay 
in Semarang, Cheng Ho, a devout Muslim, built the Sam Poo Kong, which was 
originally a mosque, but later in 1434, was turned into a temple, after his 
death in Nanking, China in 1431. The building consists of a main building, 
the Hok Tik  Tjin Sien Temple (the Earth God), the Ship Captain Temple, the 
Anchor Temple and a number of smaller temples.

According to a book by Indonesian historian Slamet Muljana, Cheng Ho came 
ashore in Semarang in order to repair his ships. Flanked by his trusted 
aides, Ma Huan and Fe Tsin, Cheng Ho prayed at Sam Poo Kong daily.

Inside the temple is a well that is believed to have the power to bring good 
luck and prosperity to suppliants. For years, people from different 
religions have prayed at Sam Poo Kong for prosperity and health."The number 
of people praying here can reach dozens on Thursday night or Monday night," 
said Sajiran, a caretaker at the Anchor Temple.

While most people who come to pray at the Sam Poo Thay Jien altar are ethnic 
Chinese, most of those frequenting the Anchor Temple are ethnic Javanese.

Cheng Ho reportedly sailed to what is now Indonesia, having been sent by 
emperor Yung Lo of the Ming Dynasty (1368-1643) to promote friendship and 
trade between China and South Asia and Southeast Asia. In what is now 
Indonesia, Cheng Ho visited Aceh, Palembang, Cirebon, Semarang and Gresik.

The 600th anniversary of Cheng Ho's arrival in Semarang will be grandly 
celebrated this year, thanks to the reform era that has swept across the 
country in 1998. During the New Order era, Chinese cultural celebrations 
were banned, including any celebrations related to Cheng Ho.

In preparation for this year's celebrations, to take place on the 3rd, and 
the 4th. August, the Sam Poo Kong Temple has been renovated and enlarged. 
"There is also a statue of Cheng Ho donated by the Shanghai University 18 
months ago," said Priambudi, who oversaw the temple's renovation. The 
committee in charge of the celebrations has brought 2,900 small Chinese 
paper lanterns and 400 bigger lanterns to be sold to the public. It is also 
building a smaller replica of Cheng Ho's ship for display during the 
celebrations.



 The Save Energy Campaign reaps protests

True to promise, President Yudhoyono through Presidential Instruction No. 10 
of 2005 has ordered all government agencies and officials, from the national 
government down to district heads and mayors, to take measures instantly to 
save energy in the country. They are to start with government offices and 
buildings and follow up with urging the private sector and the community to: 
switch off unneeded lights and air-conditioning. Raise level of 
air-conditioning to 25 degrees, and reduce the use of cars to official needs 
only. As regional heads they should give a prime example to the public. The 
official Instruction was issued immediately after a meeting with all 
provincial governments, where the President outlined problems faced by the 
country due to rising world oil prices and increasing domestic demand and 
the urgent need to save energy today.
Presidential spokesman, Andi Mallarangeng, admitted that Inpres 19/2005 is a 
short term solution, however, it is aimed to trigger the building of a 
national culture of economy, discarding extravagance. This will be followed 
by medium and long term measures to find solutions to the problem of oil 
supply and distribution as well as the country's finances.

In Yogyakarta, Sultan Hamengku Buwono X has cut to half, fuel subsidies to 
all regional officials, while in Bali, nightclubs are instructed to close at 
01.00 a.m. instead of the usual 04.00 a.m nightly, which was strongly 
protested by nightclub owners. They contend that tourists visit clubs only 
after midnight, and the closure of nightclubs will, therefore, reduce their 
income.
As a follow up action to the President's Instruction, Minister for 
Communication and Information has instructed all Television stations to 
close broadcasting from 01.00 - 05.00 a.m. Although duly obeyed by the 
stations starting Monday, 11 July, yet it was not without much protest. As a 
matter of fact, a move is underway to file for a judicial review of the 
Ministerial Decree, stating that such measure violates the Constitution that 
protects human rights.
Even Bank Indonesia's Governor, Burhanuddin stated last Wednesday that the 
Save Energy campaign is feared to delay targets set for national economic 
growth this year. For, without sufficient energy, the economy may not be 
able to reach the 6% growth target stipulated in the 2005 Amended Budget.
The new balance between demand and fuel supply as a result of the save 
energy campaign will confront demand needs to boost the economy. "The first 
quarter economic growth in 2005 has nearly reached 6%, which requires 
energy." The campaign may result in hampering growth in production, said 
Burhanuddin.

This opinion, however, was vehemently rejected by Vice President Jusuf Kalla 
and Finance Minister, Jusuf Anwar. Minister Jusuf Anwar stated that the 
excessive pressure on the Budget, - if constant rising demand is not 
curtailed - , will result in problems to the economy. Therefore, the 
immediate top priority today is to safeguard the Budget .


3.      The Economy, Trade and Industry:

Seven Mining projects in Protected Forests passed Judicial Review

In a verdict overthrowing a request for "judicial review" submitted by a 
number of non-governmental agencies, the Constitutional Court has passed a 
Government decree approving open-pit mining in protected forests.

The Constitutional Court on Thursday (7/7/05) rejected a request from NGOs 
and a number of individuals to ban all open-pit mining in protected forests, 
said a release from the Coordinating Ministry for the Economy, allowing 
seven firms that had begun work to continue.

In the complex 420-page judgment, the Constitutional Court judges ruled that
"the six companies which are still at the stage of exploration or 
feasibility studies, at such time as they enter the exploitation stage must 
comply with the requirements in Clause 38(4) of the Forestry Law (which 
prohibits open-pit mining in protected forests) as long as their licenses 
for exploration and exploitation are not combined licenses."

The ruling honored the contracts of companies that already received mining 
licenses and have begun operations.  These include Newcrest, with its mine 
in northern Sulawesi, and the giant Freeport operation in Papua.

Chief Judge Jimly Asshiddiqie said overturning the law permitting 13 firms 
to operate could have created legal uncertainty in Indonesia. The seven 
companies allowed to engage in open pit mining in protected forests are PT 
Freeport Indonesia, PT Karimun Granite, PT INCO, PT Indominco Mandiri, PT 
Aneka Tambang (Buli), PT Natarang Mining, and PT Nusa Halmahera Mineral.

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