[Marinir] Indonesia Digest No: 29.06 ; 21 - 08 - 2006

[Yap Hong Gie]

INDONESIA DIGEST
Indonesia's complex Issues in a Nutshell
By: Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 29.06 - Dated: 21 August 2006
In this issue:

MAIN FEATURE:

President's State Address: Creating Hope for a Better Future

NEWS AND BACKGROUND:

1.      Tourism and Transportation:
Domestic Tourism and the Bill on Tourism must be pushed

2.      Health, Culture and the Environment:
The nation celebrates Independence Day in peace

3.      The Economy, Trade and Industry:
Economists question Government data on Unemployment and Poverty
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MAIN FEATURE:

President's State Address: Creating Hope for a Better Future

All who heard, - both supporters and critics alike, - had to agree that 
President Yudhoyono gave an impressive State Address to the Plenary Session 
of Parliament on 16 August, on the eve of Indonesia's Independence Day. 
Delivered in a most convincing manner, the President's 94 minutes' speech 
was punctuated by almost incessant applause from the floor.

Earlier, members of the opposition PDIP party had threatened to interrupt 
the speech if the address given they considered "normative". But the 
president made sure that he gave no one a chance to interrupt as he read his 
speech in fast staccato as fired from a machine gun.

The Address contained highlights of achievements made in the past year as 
well as Budget Proposals for 2007 to implement government's policy forward.

First of all, the President reconfirmed that, having passed crisis after 
crisis, Indonesia is convinced that "the structure and form of the Unitary 
State of the Republic of Indonesia, based on Pancasila, the Five Principles 
of National Ideology, is an accurate and final choice". This statement 
received loud applause from Members of Parliament.

Conflicts and quarrels must be brought to an end, President Yudhoyono 
continued. "We must be grateful that in this past year, threats and security 
disturbances in various regions have abated. While, in former areas of 
conflict, such as in Poso, the Moluccas and North Moluccas, people today 
enjoy a life that is much safer and more peaceful." Similarly, a situation 
of security and peace in Aceh has been realized (more applause). "We have 
also recorded positive progress in bringing about a better (political) 
climate in Papua. Not so long ago, regional elections for district heads in 
Papua and in West Irian Jaya, were successfully conducted in a democratic, 
safe and peaceful manner.

Achievements in Combat against Terrorism, Corruption and Narcotics

Indonesia has also recorded considerable progress in the combat against 
terrorism. The Police have succeeded to dismantle the network of, thereby 
disabling terror activities by (Malaysian) Dr. Azhari. In spite of this 
success, security personnel continue to work hard to eradicate terrorism 
from the homeland. In the combat against terrorism, Indonesia continues to 
adhere to the principles of law and respect for human rights, the President 
affirmed. "The eradication of terrorism bears no relation to any particular 
religion or identity, since crime and terrorism are committed by groups who 
adhere to varying religions and identities."

As to developing Indonesia, these efforts may not be separated from actions 
to create a just and democratic society. Within this context, therefore, 
Indonesia is determined to develop and uphold the law, eradicate corruption 
and consolidate democracy. By accelerating the eradication of corruption, a 
culture of fear to commit corruption has emerged.  Meanwhile, Indonesia has 
ratified the UN Convention against Corruption, and will continue to increase 
regional and international cooperation.

The Prevention of Corruption is further contained in three Bills, namely the 
Bill on Public Services, the Bill on State Administration and the Bill on 
Ethics of State Officials, which are  before Parliament for deliberations in 
2007.

The address further elaborated on the Combat against Narcotics, Human 
Rights, on Regional Elections, Foreign Policy, Social Welfare, Poverty 
Alleviation, Education, Health and the Economy.

Outstanding Youths in Physics, Chemistry, the Arts and Sports

Underlining achievements made in Education, here the President departed from 
the norm, by mentioning names of two individual students. These are Jonathan 
Pradana Mailoa, who earned the accolade as The Absolute Winner in the 2006 
International Physics Olympiad held in Singapore, thereby breaking the 
dominance of Chinese students and defeating his competitors from the United 
States. Another student, Rudolf Surya Bonay, from Papua succeeded in winning 
the First Step to Nobel Prize in the field of Chemistry. In all, this year 
Indonesian students managed to win 28 gold medals in science, mathematics, 
the arts and sports. (These achievements defied the perception that 
education in Indonesia is far below standard. Ed)
Reduced Number of Poor (?)

On the subject of Social Welfare, data presented by the President later 
elicited criticism (see article on the Economy below). "We are on the path 
towards achieving the objectives of the Millennium Development Goals (MDG's) 
in 2015", said the President. "We have succeeded to reduce the level of 
poverty from 23.4 percent in 1999 to 16 percent in 2005". But, this is still 
far from the objectives that Indonesia wishes to achieve, the President 
continued, since the economic growth that Indonesia strives for must 
guarantee the realization that poverty is in fact reduced. "Development will 
be in vain when we are not able to lift our people from the abyss of poverty 
and backwardness. Therefore, the Government accords high priority and 
provides a substantial budget for the poor that they have the opportunity to 
enjoy education, improve health and the quality of the environment", 
confirmed president Yudhoyono.

Macro-Economy Stable and Improving

Shifting to the subject of the Economy, Yudhoyono said that the stable 
Rupiah exchange rate has supported government's efforts to reduce inflation 
rate. Until July 2006, inflation rate was 3.3 percent, which was far lower 
compared to the same period last year that recorded 5.9 percent.

On the whole, the government's inflation target of 8.0 percent in 2006 is 
projected to be achievable. In line with this, and still monitoring 
development of international interest rates, Bank of Indonesia has begun to 
reduce interest rates prudently, which is expected to spur the growth of 
investments through improved banking intermediation, the restoration of 
market confidence, and decrease in loan costs.

Nevertheless, although Indonesia's macro economy demonstrated a meaningful 
improvement, the Government is yet fully aware that efforts to improve the 
welfare of the people have yet to reach the expected level, because of the 
immense and complex problems faced, concedes the Leader.

Economic growth in 2005 reached 5.6 percent, the President reported, 
although initially expected to reach 6 percent. The trend of the weakening 
economy was still apparent during the first trimester of this year, however, 
a positive recovery was made in the second trimester. In this context, the 
Government will continue to manage the weakening of the economy through 
measured fiscal expansion, monetary easing by the central bank, and the 
implementation of other structural policies, including the package policy 
for the improvement of the investment climate, acceleration of 
infrastructure development, and reform of the financial sector.

Further economic growth in the first trimester of 2006 was recorded at 4.7 
percent. In the second trimester, this figure improved to 5.2 percent, 
higher than anyone had projected. On the whole, economic growth in the first 
semester of 2006 reached almost 5 percent. The improvement of the economy in 
the second trimester augurs well for the consolidation and strengthening of 
economic activities to become more stable in the second semester of 2006, 
thereby building a more robust foundation for higher economic growth next 
year, said the President.

On the subject of Unemployment, this has started to decrease from 11.2 
percent in November 2005 to 10.4 percent at the beginning of 2006. This 
decrease in the level of unemployment occurred for the very first time, 
having the last few years experienced an increase.

The Proposed 2007 Budget, Policies and Priority Programmes

Hereupon, the President laid out to the House the 2007 Draft State Budget 
(RAPBN): next year's Budget is based on the assumption that the national 
economy will improve and Indonesia's macro-economy will remain stable, said 
the President. These are reflected in improved basic assumptions, which are 
as follows:

Indonesia's Economy in 2007 is expected to grow at 6.3 percent (from 5.8% in 
the 2006 Budget); Inflation rate declines to 6.5 percent (from 8% this 
year); the 3-month of SBI interest rate will be 8.5 percent (down from 12% 
this year); and the exchange rate of the Rupiah will remain  at  Rp 9,300 to 
the US Dollar; while world crude oil prices will hover around US$65 per 
barrel, and Indonesia's oil lift will reach 1 million barrels per day.

Furthermore, the programmes and budgeting of the 2007 Draft State Budget are 
based on the 2007 Government Work Plan (RKP) that aim to Increase Employment 
Opportunities and Alleviate Poverty within the context of the overall 
Improvement of the public's general  Welfare.

For this purpose, the 2007 Government Work Plan, comprises nine work 
programme priorities. These are : (1),the alleviation of poverty. (2), 
increased employment opportunities, investments, and exports. (3), the 
revitalization of agriculture, fisheries, forestry, and the rural sectors. 
(4), increase in accessibility to and the quality of education and health. 
(5), improved law enforcement and human rights, the eradication of 
corruption, and the reform of the bureaucracy; (6), the strengthening of 
defense capabilities, the strengthening of security and law and order, and 
the settlement of conflicts; (7), rehabilitation and reconstruction of 
stricken areas in Nanggroe Aceh Darussalam (NAD), Nias, the Yogyakarta 
Special Region and Central Java, and the mitigation of disasters. (8), the 
acceleration of infrastructures development, and (9), the development of 
border regions and isolated areas.

And, since economic development must go hand in hand with equitable 
distribution with the main purpose to reduce poverty, there are special 
programmes to expand and integrate poverty alleviation programmes based on 
community participation in rural and urban areas.

Boosting alternative energy, creating employment opportunities

On the supply of energy, the President said that the development of 
alternative energies has become an important option, not only to reduce 
dependence on oil-based energy (BBM) whose price continues to soar, but at 
the same time also to solve the twin problems of poverty and unemployment, 
as well as improve the environment. The over-dependence on BBM as the main 
source of energy, therefore, also puts at risk state finances, in no small 
measure, as government subsidies continues to swell.


As Indonesia possesses various sources of alternative energy in quite a 
large amount, such as gas, coal, hydropower, geothermal, solar power, and 
the like, investments in this field  need to be developed. Since the 
Government can not possibly, by itself, invest in this field, considering 
its quite high cost, the Government encourages the both the domestic and 
international private sector to actively invest in alternative energy.

The Government is also drawing up measures to develop vegetable-based 
alternative energy or biofuel. This National Programme was set in motion 
this year through the development of energy using as basic materials: palm 
oil, sugarcane, cassava, and castor oil plant. For a number of regions, 
especially those that are remote and underdeveloped, Indonesia plans to 
carry out a program of energy-independent villages, based on the use of 
castor oil. Therefore, those villages are expected to be able to meet their 
energy needs, without having to depend on diesel fuel and kerosene. In the 
medium term, this energy policy is anticipated to be able to create new 
employment opportunities for around 3 to 5 million people. In this manner, 
this measure will also reduce the figure of unemployment and poverty, as 
well as reducing BBM subsidy in a significant way.


Improving Business Climate through Tax Reform

The improvement of the investment climate was initiated with the issuance of 
the investment policy package in February 2006. The package is intended to 
reduce business costs and improve business certainty through improvement of 
the regulation, services, and simplification of procedures and bureaucracy. 
The taxation reform plays a key role in the improvement of the investment 
climate. The effort to perfect the system of taxation administration, among 
others, are the improvement of the services functions, including improvement 
of the management at tax offices, simplification of the Annual Notification 
Letter, intensification of compliance and supervision, and also the 
modernization of the supporting function. In order to carry out a more 
comprehensive taxation reform, I hope that we can immediately conclude 
deliberations over three Bills on Taxation, namely the General Rules for 
Taxation and Procedures for Taxation, Income Tax, and Value Added Tax for 
Goods and Services, and Sales Tax on Luxury Items. Within these three Bills 
are stipulated provisions on reducing tax burden, improving compliance and 
more equitable treatment between taxpayers and tax officers.

Therefore, through Budget allocations that are more focused, and through a 
number of structural policy changes to improve the business climate and 
fiscal stimuli the Government hopes to expand employment opportunities that 
will in the end reduce the large number of open unemployment by the end of 
2007.


Improving the Quality of Education and Health

In this context, also Education and Health will receive increased allocation 
in the medium as well as in the long term program. In 2007, education will 
be allocated 10.3% of total government spending.


Infrastructure spending will increase by 31% compared to the 2006 Budget; 
while Government's commitment to improve Good governance through 
Bureaucratic Reform and Law Enforcement will require additional outlay, 
especially to improve public sector salaries.

Whereas, through Regional Autonomy, Budget spent for Regions will be 
increased to
Rp. 250 trillion, or 33.6% of total government spending, up from Rp. 219.4 
trillion in 2006 or 33% of government spending. This policy is aimed to cut 
down on the many levies made by regions that today burden the private sector 
and the public, which add to the high-cost economy as well as to business 
uncertainties.  Additionally, this fiscal stimulus is aimed to increase 
investments and exports to boost the production sector.

While, Reform in the micro-economy relies on its two main pillars, namely 
(1) improved investment and business climate, and (2) the acceleration of 
infrastructure development throughout the country. However, these can be 
achieved only when the macro-economy remains stable.

Meanwhile, aside from the six previously mentioned expenditures, the 
National Government must also pay interests on debts, both domestic and 
foreign debts, to a total of
Rp. 85.1  trillion. Therefore total Central Government expenditures in 2007 
will amount to Rp. 296 tirllion or up 16% compared to 2006.

In conclusion, the President called on the entire nation to look ahead, and, 
with concerted efforts, build a brighter future together. "Long was the road 
that we have tread, there is much that we have achieved, yet, there remains 
much more that we must undertake to reach those ideals and purpose of our 
Independence. The years that we are navigating today are by no means easy, 
and replete with challenges. Be that as it may, by the grace of Allah SWT, I 
am confident, that all of us, the Indonesian nation together and united will 
be able to transform our fate towards a better future".

 (If readers are interested to receive the complete English translation of 
the President's State Address, please write in to Indonesia Digest at 
tbsc-strategy at indo.net.id)

(Source: English version issued by the Coordinating Ministry for Economic 
affairs)

(Tuti Sunario)
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NEWS AND BACKGROUND:

1.      Tourism and Transportation:

Domestic Tourism and the Bill on Tourism must be pushed

The much toted rumour that Tourism would become one of the government's 
priority areas for development in 2007, in tandem with agriculture and 
marine production development, did not materialize. In his National Day 
address, the President did not even mention once the word "Tourism".

Nevertheless, not taken aback, on the eve of National day, groups of tourism 
industry components held separate dialogues, to highlight problems facing 
Indonesia's tourism industry.

On Wednesday, 16 August, the afternoon daily "Sinar Harapan" hosted a number 
of industry stalwarts to discuss the issue. And, indeed, the need to 
brainstorm among the many tourism industry components must have been felt by 
many since the gathering was well attended despite it being held on the eve 
of National Day and a long-long weekend. Present were Garuda and other 
senior airline staff, airline associations, INACA and PAUKI, tourism 
associations and non-governmental organizations, such as Care Tourism, and 
also Members of Parliament in charge of Tourism.

Initiated by Senior Journalist, Adi Winarta, and moderated by Purwono of 
Care Tourism, main speakers were former Garuda President Director, Soeparno, 
and Peter Suhardjo of the Sahid Hotels Group.

Purwono told Indonesia Digest that discussions were lively. Main conclusions 
made were firstly, that Indonesia's tourism can not rely solely on 
international tourism, especially since there are such large potentials to 
tap among domestic travelers. Therefore, boosting Domestic tourism must 
become first priority. Secondly, there was an urgent need to enact a new Law 
on Tourism. The Bill on Tourism, which apparently will be initiated by 
Parliament will soon be socialized to receive input from the industry and 
the public.

Furthermore, in the absence of government initiatives to gather all 
stakeholders of Tourism to come to a national consensus on how to build our 
nation's tourism, participants agreed to hold regular meetings, be it at the 
premises of Sinar Harapan, in Parliament, at Care Tourism or other venues.

The day before, Garuda President Director, Emirsyah Satar, hosted a dinner 
with tourism stakeholders, requesting for input from the various components, 
and how best Garuda can work closer together with Indonesia's hotels and 
travel agencies, which apparently the airline finds slack.

 Meanwhile, the Dialogue Forum led by Ponco Sutowo, came to similar 
conclusions, that Tourism must be revitalized, as reported in Bisnis 
Indonesia.

But now that Budget proposals are out and government's priorities for 2007 
seemingly does not include tourism, the Indonesia Digest believes that it is 
now up to Tourism industry leaders to insert tourism programs into the 
priorities mentioned, such as in infrastructure development, investment 
opportunities, development of rural areas, etc. - which of course is a much 
more difficult task to do, - and fight for - rather than if Tourism was a 
priority sector on its own.

2.      Health, Culture and the Environment:

The nation celebrates Independence Day in peace

Indonesia's 61st year of Independence was celebrated throughout the country 
with widespread public participation and enthusiasm. As required, the 
official commemoration of the Declaration of Independence was held at the 
Merdeka Palace in Indonesia's capital of Jakarta with the hoisting of the 
copy-original of the first Indonesian red-and-white flag (the original being 
already too fragile to handle), which was attended by President Yudhoyono, 
and similar ceremonies were held at the same moment throughout this 
far-flung archipelago at all Government ministries, governor's offices, to 
schools in large cities to remote villages.

Official ceremonies over, local communities gathered in the traditional 17 
August fun. These include all kinds of parades, traditional dances, and the 
traditional national day games, like sack races, eating without touching 
crackers hung on a rope, tug-of-war; and favourite game of all: communal 
greased pole climbing to reach awards hung on the top.

Although ceremonies, and flags, buntings and other decorations this year 
were more modest, yet the sense of celebrating national day together, of 
communal belonging and of peace and fun reigned throughout the country.
Overseas, in San Francisco, Approximately 5,000 people crowded Union Square 
in San Francisco last Saturday to celebrate Indonesian Day. Visitors were 
presented Indonesian traditional music, dance, food and culture in the 
one-day festival themed "Islands, Cultures and Spices of Indonesia."
The annual event is held as part of the Indonesian Independence Day 
celebration that falls on August 17.
"We started in 1994 and have been doing it since then, except in 1998 and 
1999 when there were a lot of demonstrations on social unrest and political 
problems in Indonesia," said Tony Lolong, Chairman of the Indonesian Day 
Committee. "The event has grown tremendously since we first started and now 
we have people coming from Los Angeles, Seattle and Oregon just for this," 
reported the San Francisco Chronicle.
"We wanted to present Indonesia to San Francisco, and at the same time [this 
festival] has become like a family reunion for Indonesian people in Northern 
California and beyond," he added.
Traditional dances included those from West Java, from classical masked 
dances and dramas that enact the great Hindu epics of the Mahabharata and 
the Ramayana to contemporary folk dance forms that incorporate martial arts 
movements. Also presented was the most dynamic and intricate "Saman," dance 
from Aceh and the Gayo Highlands the northern-most province on Sumatra. 
Performed by the Seattle Samaners, the dance was originally meant to 
celebrate noble occasions and the birth of the Prophet Mohammad, explained 
organizers.
"This is the third time for me coming to the event and I think this year's 
celebration is the best. I liked the dances, especially the one from Aceh," 
said a visitor from Sacramento.
3.      The Economy, Trade and Industry:

Economists question Government data on Employment and Poverty

Days after President Yudhoyono gave his State Address and Financial Note for 
2007 before Parliament, a number of economists questioned data used by the 
President in his Address. These economists are among others, Fadhil Hassan, 
Iman Sugema, Aviliani, Dradjad wibowo, Hendre Saparini and Ichsanuddin 
Noorsy.

While they underlined that their criticism on data presented was not because 
they questioned the sincerity of the President, nonetheless, they felt that 
the President was being too optimistic when he presented outdated or 
out-of-place data.

On the subject of poverty, which the President mentioned was down from 23.4% 
in 1999 to 16% in 2005, this had to be further explained. Since February 
2005, when poverty was down to 16%, this number, however increased to 18.7% 
in July 2005 and further mounted to 22% in March 2006.

Whereas, data on unemployment presented, which was down from 11.2% in 
November 2005 to 10.4% in February 2006, this was like comparing apples to 
pears. Comparing February 2005 to the same month in 2006, the number of 
unemployed actually increased from 10.2% to 10.4%. In November there is 
usually an increase in employment since this is the month for the grand rice 
harvest in the country, which employs many more people.

Furthermore, since the government assumed that 2.1 million people will be 
further employed in 2007, this seems impossible, said the economists, since 
with expected economic growth of 5.8% in 2006 and 6.3% in 2007, and 
elasticity of employment of 265,000 persons, therefore 2007 economic growth 
can produce only around 500,000 new jobs, so the economists claim, as 
reported by Bisnis Indonesia.

Again, on the subject of economic growth in 2007, which the President 
predicted could expand to 6.3% at an inflation rate of 6.5%,they contested 
that this assumption is impossible, since if the economy could grow by 6.3% 
(which they question) then inflation must be more than 6.5%, since growth is 
expected to originate from government spending and public consumption only.

On these "accusations", Minister for National Development, Paskah Suzetta, 
explained that data revealed by the President in his National Day address 
were cited from the social-economic survey made in February 2005. Whereas, 
surveys undertaken by the National Statistics Bureau in July 2005 and March 
2006 will be published only in September 2006. To contentions that the 
number of poor has increased after the hefty increase in domestic oil prices 
in October of last year, Suzetta remarked that he would prefer to wait until 
September when results of the independent survey are out.

For your comments or further inquiries, please e-mail to: 
tbsc-strategy at indo.net.id