[Marinir] Indonesia Digest; No: 09.05 ; 07-03-'05

[YapHongGie]

INDONESIA DIGEST

Indonesia's complex Issues in a Nutshell
By : Ms. Wurastuti Sunario
Published by: TBSC-Strategic Communication
No.: 09.05 - Dated: 7 March 2005

In this issue:

MAIN FEATURE:

INDONESIA REJECTS MALAYSIA'S CLAIM OVER SULAWESI SEA OILFIELD

News and Background:

1.      Tourism and Transportation:
To boost Domestic tourism, Exit Tax Retained

2.      The Economy, Trade and Industry:
February Deflation, January Exports and Imports Up

3.      Politics and Security:
Oil Price Hike: Political Impact Survey and Public Opinion

---------------------------------------------------------------------------


MAIN FEATURE:

INDONESIA REJECTS MALAYSIA'S CLAIM OVER SULAWESI SEA OIL FIELD

Relations between Malaysia and Indonesia appeared to have been mellowing
after President's Yudhoyono's visit to KL, when an understanding was reached
to settle the issue of the more than 300,000 Indonesian illegal workers in
Malaysia. But again out of the blue a new issue emerged that has both
countries now display its naval prowess in near confrontation in the
Sulawesi Sea.

On Feb. 16, 2005, Malaysia's state oil and gas company Petronas and Shell's
local subsidiary Shell Malaysia signed two production sharing contracts
(PSCs) for deepwater blocks ND6 and ND7, within the XYZ block, some
150 km. east of Tawau in Sabah on the island of Borneo ( the Indonesian
side of Borneo is now called "Kalimantan").

This area lies south-east of the once disputed islands of Sipadan and
Ligitan, that Indonesia claimed as its own, but which in December 2002 the
International Court of Justice in The Hague granted to Malaysia. On that
account Malaysia now claims its sea area to extend further as measured from
the base line of the islands, thus encroaching into what Indonesia claims as
Indonesian archipelagic waters.

In fact, the area Malaysia awarded to Shell is what Indonesia calls the
Ambalat block which in 1999 Indonesia awarded to Italian oil company ENI,
and the East Ambalat block, awarded in 2004 to American Unocal to explore.
In this zone lies the island of Karang Unarang, where Indonesians started to
build a lighthouse. Construction workers here, however, were violently
lashed by the Malaysian Navy.

"The location of the concessions are in Indonesian territorial waters, said
Indonesian Foreign Ministry spokesman Marty Natalegawa, "and this
(concession) is a violation of our sovereignty. We will protect our
territorial sovereignty," Marty asserted. This was not the first time that
Malaysia committed violations of Indonesian territory, he continued,
referring to Malaysia's seismic test in 2003 at two oil and gas blocks,
which Malaysia refers to as Y and Z, east of the coast of East Kalimantan
province.

On orders of the President, the Indonesian Navy immediately sent a fleet of
warships to patrol these borders.  Three ships are already in the area,
these are KRI Nuku, the Rencong, dan the Wiratno. While KRI KS Tubun,
KRI Tongkol, and KRI Singa will follow suit. The KRI KS Tubun frigate is
the command ship.
Soon, the Air Force will also deploy its planes from Sepinggan airport in
Balikpapan, to support Navy planes, mobilized to prepare for eventual
fire contact with Malaysian forces, said Lieut. Col. Marsetio, Chief of
Staff of the East Command Fleet.

Lieut. Col. Marsetio further added that the KRI Rencong is equipped with
missiles, measuring 57 mm, 40 mm and 20 mm, whereas Malaysia's Kerambit
is armed with 2 missiles only of 40 mm.

Near Confrontation of Warships

And, indeed, on Friday at 10.15 Central Indonesian Time, the two warships
confronted one another at a distance of some 9.5 nautical miles. "There was
increased tension as the two ships made contact", Lieut. Col. Marsetio said
to reporters at Tarakan.
At the time, KRI Rencong was patrolling the waters surrounding Karang
Unarang island, guarding the construction of the lighthouse there.
There Malaysia's ship, the KD Kerambit appeared, saying that the Rencong
had encroached into Malaysian territory.
At this point, the Rencong reacted that, in fact, it was the Kerambit that
had entered Indonesian waters, and an argument ensued over whose territorial
waters these actually were.
After repeated warnings by the Rencong that the Kerambit had encroached
into Indonesian territorial waters and that it should leave these waters
instantly, the Kerambit turned around, closely tailed by the Rencong at a
distance of 900m. In the ensuing radio contact, the Kerambit invited the
Rencong to jointly patrol these waters, as an amicable win-win solution,
said Lieut Col. Marsetio, but the Rencong was adamant that this was
Indonesian waters.
Nonetheless, the Kerambit still urged that the construction of the
lighthouse be halted, until the issue was settled through diplomatic
negotiations.

In a meeting with Parliament, Commander of the Armed Forces, General
Endriartono Sutarto explained that Malaysia has claimed the area as part of
its territory, but Indonesia says that the Malaysian claim is based on a map
from 1979 that is not recognized by the Indonesian government or by most
other Southeast Asian countries. Indonesia backed its claim to the area with
the construction of a lighthouse on the disputed territory. "Aside from the
lighthouse, we also base our claim on the international law stipulating that
Malaysia is not an archipelagic country. That means Malaysia does not have
a 12-mile extended area from its coastline," General Endriartono said.

Parliament and the public fully support government's stance

General Endriartono, however, added that Indonesia hopes to avoid an open
confrontation with the Malaysian military with the deployment of the
"patrolling warships". "The deployment of the warships is part of our job to
secure our territory," he said.  In this matter Parliament has given its
full endorsement to the government.
On its side, Malaysia's deputy prime minister said Saturday his country will
use diplomatic channels to resolve brewing tensions with Indonesia over an
offshore oil field they both claim. "We have our stand and Indonesia also
has its stand but we will use
diplomatic channels to resolve this problem," Deputy Prime Minister Najib
Razak was quoted as saying by the national news agency, Bernama.

"We don't use military means to settle any conflict between two neighboring
countries which have such good and close ties," added Najib, who is also
the defense minister.

 The International Court of Justice handed Malaysia sovereignty over the
islands in 2002. But Indonesia claims Malaysia's water territory only
extends 19 kilometers from the islands.

Meanwhile, Indonesian public opinion has become heated over the issue,
almost overshadowing public protests over the oil price hike. In Makassar,
South Sulawesi, a sizeable group of volunteers have publicly vowed to defend
Indonesia's sovereignty at all cost, and to take up arms against Malaysia,
if necessary. Indonesia must never again lose other islands, as we have lost
claims over Sipadan and Ligitan to Malaysia, they said.

Foreign Minister, Hassan Wirayuda, in a press statement warned both
governments to be sensitive to the fact that legal disputes over territory
could spill over to confrontation between the peoples of both countries,
which must be avoided, as Indonesians are known to be very nationalistic
when it comes to the nation's sovereignty.

Hidayat Nur Wahid, Chairman of the People's Consultative Assembly, has
warned the government that Indonesia should not fail again in its diplomatic
talks, as experienced in the negotiations on the islands of Sipadan and
Ligitan. The government must protect the sovereignty of the Republic of
Indonesia, said Nur Wahid.

In a Cabinet meeting on Sunday, President Yudhoyono instructed the Air Force
to send its warplanes to the border, since Malaysian Air Force planes were
observed Sunday holding maneuvers within Indonesia's air space using
Beechcraft B 200 T Super King. The Indonesian Air Force, meanwhile, has
deployed 4 warplanes to the disputed area between Kalimantan and Sulawesi
in the northern section of the Sulawesi Sea.
The aircraft in position are three F16's and one Hercules.

In the latest development on the situation, this morning, Monday, 7 March,
before departing for East Kalimantan, President Yudhoyono held direct
telephone contact with Malaysian PM Abdullah Badawi. It was reported that,
with the aim to reduce the present tension, both heads of government agreed
that the two countries should sit down to discuss the disputed area of the
Ambalat block. Both delegations to be led by their respective Foreign
Ministers.  In East Kalimantan the president is scheduled to visit the
island of Sebatik to receive first hand reports from the Navy and Air Force
on the recent border situation, and inspect Indonesia's oil explorations in
Kalimantan.

(Sources: Media Indonesia, Kompas, Bisnis Indonesia, SCTV)
(Tuti Sunario)
----------------------------------------------------------------------------


News and Background:

1.      Tourism and Transportation:

To Increase Domestic tourism, Exit Tax Policy Retained

At a press conference after a top cabinet meeting on tourism held on 26
February in Tampaksiring, Bali, Culture and Tourism Minister, Jero Wacik,
informed that the exit tax policy, - known here as "fiskal" - is to be
retained.

This is in spite of strong pressure exercised by the tourism industry and
other ASEAN countries, that the government eliminate the tax.
This policy is necessary to increase domestic tourism in the country,
continued Minister Wacik. In 2005 Indonesia targets 218 million trips
domestically, spending a total of Rp. 106 trillion, up from 204 million
trips giving a total spending of Rp. 78 trillion or up 36% distributed
through the national economy.
Whereas, if the Rp. 1 million exit tax for departing international travelers
is eliminated, then most Indonesians will choose to travel overseas instead
of within the country. Already an approximate 2 million Indonesians travel
overseas annually, spending a minimum US$ 1,500 per trip, per person.

An agreement among ASEAN countries stipulates that member countries
eliminate impediments to travel in the region, where the Indonesian exit tax
is seen as a major drawback to the free flow of travel among ASEAN
countries. ASEAN also plans to create the region into one single integrated
destination.

Another decision from the Bali Meeting is that Indonesia increases arrivals
from China four fold, up from the present 80,000. To reach this target, two
more consulates will be opened in China to facilitate visa services.
Furthermore, Indonesia is to offer joint packages with Singapore, that
tourists from China holidaying in Singapore extend their holidays to
Indonesia.  Other markets sought are India and the Middle East.

January 2005 arrivals down

Meanwhile, the National Statistics Bureau informed that foreign arrivals to
Indonesia in January dropped 16.8% to 348,646 visitors compared to 416,460
in December 2004, an effect of the strong worldwide publicity on the
December tsunami. Arrivals to Bali also decreased from a high 131,000 in
December to 101,000 visitors in January, but down only 2% compared to the
same month in 2004.

Balidiscovery.com reports that, perhaps frightened off by tsunami fears,
both the Taiwanese and South Korean travelers were down dramatically in
January. Taiwanese business dropped 52.8 % at 8,116 visitors as opposed to
17,206 in the same month one year before. South Korean visitors declined
21.7% at 5,007, having recorded 6,396 visitors in January 2004.

ASEAN arrivals to Bali (total 7,189) dropped 11.95% in January 2005.
Singaporean arrivals to Bali in January were down 49.3% totaling in at 1,690
visitors. One year before in January 2004 some 3,333 Singaporean residents
called on Bali. Thai arrivals to Bali dropped 49.7 percent in January 2005
from the same month a year before.

European travelers increased 17.22% (total 25,916) month-to-month 2005
versus 2004, with strong performances turned in by Russia, the U.K.,
Switzerland, and Sweden. European arrivals, however, have failed to regain
lost momentum still lagging 15% behind January figures achieved in 2001
(30,487).