[Marinir] Indonesia Digest No: 01.06 ; 07-01-'06

[Yap Hong Gie]

INDONESIA DIGEST

Indonesia's complex Issues in a Nutshell
By: Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 01.06 - Dated: 7 January 2006

In this issue:

MAIN FEATURE:
RECORD HIGH AT STOCK EXCHANGE, RUPIAH STRENGTHENS

NEWS AND BACKGROUND:

1.      Transportation and Tourism:
Foreign tourist arrivals in Bali down 22%, target 2006 downscaled
Government plans to bail out Garuda Indonesia
Safety at Bali's Ngurah Rai Airport strengthened

2.      Health, Culture and the Environment:
Scandal over Formalin used to preserve Fresh Food stuffs
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MAIN FEATURE:

RECORD HIGH AT STOCK EXCHANGE, RUPIAH STRENGTHENS

The first week of the new year has brought a lot of gloom to Indonesia, but
fortunately, here and there appeared a number of bright areas. So this week
we bring you plenty of bad news, but also some good news.

First the good news: the Jakarta Stock Exchange has been very bullish and
has reached the highest index of 1,222.249 on Friday, 6 January, boosted by
the strengthening of the Rupiah, that opened trading at Rp. 9,600 per US
Dollar, and closed at Rp. 9,570. This is the strongest position recorded
since mid June 2005, when the Rupiah stood equally at Rp. 9,570 to the
US Dollar.

On this phenomenon Bank Indonesia Governor, Burhanuddin Abdullah commented
that a positive inflow of capital in the first week of the year has boosted
the Rupiah, although, he cautioned that investments were still in short term
portfolios that may be retracted at any time. Nonetheless, these are
positive indications towards a recovery in 2006.  This situation was
confirmed by VP Jusuf Kalla, who added that the government is therefore
attracting longer term investments, such as in the manufacturing sector, in
plantations and infrastructure, in order to ascertain that investments will
not be easily retransferred overseas,  further stabilizing the Rupiah.

Earlier, Minister of Finance, Sri Mulyani Indrawati, told a press conference
on 3 January that in spite of the good news from the stock exchange,
Indonesia's high inflation rate that reached 17.3% during the entire year of
2005, may still persist and is expected to ease only in the second semester
of 2006.

 "We must be careful when talking about inflation as there are a number of
prices and tariffs that have as yet not been adjusted by the government,
these include a rise in electricity charges, raise in civil service
salaries, and increased production costs as a result of higher fuel prices."
The government has jacked up fuel prices by an average 126% in 2005 as a
result of soaring world oil prices and in an effort to limit direct fuel
subsidies domestically.

Another plus point for the country were the peaceful Christmas and New 
Year's
Eve celebrations that were held throughout the country, when churches were
filled to the brim. On New Year's Eve, happy capacity crowds filled resorts
and highways to welcome the dawn of 2006. Such celebrations were possible
thanks to the presence of optimum security personnel on duty to allow the
public to fully enjoy the festivities, since the Indonesian Police and
security personnel were kept at top alert. And, therefore, it is most
appropriate here to give the thumbs up and grateful thanks to the Police and
all those on duty.

Nonetheless, a bomb in the town of Palu marred an otherwise peaceful end to
2005. On the morning of 31 December, an explosion ripped through a pig
market in the restive province of Poso, Central Sulawesi, killing 8 people.
Although, one would immediately blame religious motivations and terrorism
behind the blast, the Police, however, warned, that in this case, its
perpetrators were using religion only as a cover-up to re-ignite
inter-religious conflicts in the region. The culprits, it seemed are, in
fact, politically motivated. Thus, in a follow-up action, to once and for
all clear the problem of Poso, the Government has created a special security
task force to probe into the real motivations behind the bombings, and to
arrest those responsible.

On the island of Java, on the first day of the year, heavy rains and flash
floods brought by the river Dinoyo, carried tons of mud down from mount
Argopuro destroying entire villages in the district of Jember, East Java.
Until today, rescue teams have unearthed 76 victims, while hundreds of
refugees are still housed in nearby mosques, schools or other makeshift
housing.

And, even as rescue efforts were ongoing in East Java, other depressing news
comes from the district of Banjarnegara in Central Java, where huge
landslides caused by unstable soil on Wednesday evening buried entire
villages. Up to today, 47 villagers have been found dead and many more still
missing. Although, indeed, the weather has been inclement, environmental
experts say that the damage has been exacerbated by illegal logging, forest
degradation and failure to properly manage the environment.  Unstable soil,
abundant rainfall, extreme overcrowding on the island of Java and
mismanagement of the environment are major causes for the disasters. (more
details in next issue)

And, as if those disasters are not enough, the public was shocked by an
unexpected alert by the Food and Drugs Agency (Badan POM) informing that
formalin has been found used widely to preserve daily popular foodstuffs,
including in fresh (?!) noodles, tofu, fish, salted fish, chicken, and
meatballs. These were found in random samples made on foodstuffs sold in
traditional markets as well as in supermarkets in major cities and small
towns on all the Indonesian islands (on this, read story below).

( Sources: Jakarta Post, Bisinis Indonesia, Kompas)        (Tuti Sunario)
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NEWS AND BACKGROUND:

1.      Transportation and Tourism:

Foreign tourist arrivals in Bali down 22%, target 2006 downscaled

As a direct result of the suicide bombings in Bali on 1 October, foreign
tourist arrivals to the island has dropped 22% in November to 67,700 from a
month earlier, official Central Statistics Agency (BPS) said on Tuesday 3
January.  However, direct tourist arrivals to Bali during the first 11
months of 2005 dropped only by 1.5% to 1,310,572 visitors compared to the
same period a year earlier.

Indeed, in a most recent interview with the Kompas daily, Badung Regency
Head (Bupati) AA Gde Agung admitted that the effects of the October
explosions are still felt in the area, where hotels average occupancy have
hovered at  around 30% to 40% only  during November and December, barring a
few exceptions. This scene differs far from the usual end of the year
situation, where Bali hotels are normally fully booked months ahead.
Resulting from this decline, hotels have been forced to space out work
shifts to once every two days, as a measure to avoid large-scale
retrenchment. The drop in tourists to the regency means a shortfall of Rp.
100 billion in revenue for the development of the regency, way below its
original target of Rp. 280 billion for 2005, said AA Gde Agung.

Bali counts 117 star-rated hotels (75 of which are located in the regency of
Badung); 598 small hotels (232 are in the regencies of Badung and Denpasar);
while the industry provides 442,248 direct employment. Last year Bali
received 1,453,309 tourists, informs Kompas daily.

Meanwhile the number of foreign tourists visiting Indonesia through the
country's 13 main gateways dropped 8.8% to 3.76 million during the
January-November period compared to the same period in 2004. The government
had earlier targeted 5 million foreign tourists in 2005, but the 11-month
data suggest that goal might not be achieved. Culture and Tourism Minister,
Jero Wacik, in a press conference conceded that this year's target looks
unachievable, and, therefore, next year's target has been downscaled
commensurately to 5.5 million arrivals, down from the original 6 million
aimed for 2006.

Meantime, Tourism has been allocated a budget of Rp. 102 billion for
marketing and promotion, slightly up from Rp. 100 billion last year.  As a
first step the Department has launched an Indonesia Tourism Promotion
Campaign in Japan aimed at restoring confidence in the market especially on
security measures taken in Bali in particular, said Tahmrin Biwana Bachri,
Director General for Tourism Marketing and Promotion. The Department of
Culture and Tourism has appointed Indonesian company Karma Events to work
with a Japanese company to handle the campaign.  Indonesia's Tourism
industry contributes 5% to Indonesia's annual gross domestic product.

Over the past few years, the industry has been weakened by the impact of a
series of terrorist attacks, the outbreak of the Severe Acute Respiratory
Syndrome (SARS), and the concerns of the regional avian influenza pandemic.

Government plans to bail out Garuda

In the latest development, Sinar Harapan afternoon paper reports that the
Government has agreed to provide additional capital and bridging finances to
tide over Garuda's financial quandary. Transportation Minister, Hatta Rajasa
said on 5 January, that Garuda's CEO has presented the airline's grand
strategy to his Department, requesting for bridging loans from the
government to pay the airline's short term debts to a total of US$56
million, and an additional input of the same amount to shore up the 
company's
capital. However, this decision will have to await endorsement from
Parliament, which at present is still in recess.

Nonetheless, in exchange for this deal, Garuda Indonesia must radically
change its corporate culture. The government is fully aware of the problems
that the airline faces,  said the Minister, however, "the government is
tired" of always having to assist the airline's ailing finances. Further
steps relating to the financial aspect are the purview of the Minister of
Finance, the Minister for State Enterprises and Parliament, concluded
Minister Rajasa.

  Safety at Bali's Ngurah Rai Airport strengthened

Balidiscovery.com reports that on 23 December 2005, U.S. Transportation
Safety Administration (TSA) announced that security standards at Bali's
Ngurah Rai International Airport have been assessed to fall below minimum
standards set by the International Civil Aviation Organization (ICAO).
Responding urgently to the report, Bali's Airport Authorities have been
working closely with TSA representatives to remedy the situation while extra
security personnel have been deployed during the remedial period.

Unfortunately, pursuant to the announcement and as immediate reaction, the
governments of America and Australia have again stepped up their travel
warnings to Indonesia, including to Bali, which has further hampered the
recovery of tourism to Bali.

Until a formal re-review by TSA auditors can be carried out determining that
the airport is in compliance with ICAO standards, U.S. laws mandates that
individuals purchasing tickets from the United States to Bali must receive a
formal notification of the airports non-compliance.
Safe Air Service to Bali Still Possible

In issuing the announcement the TSA said that it "believes that it is
possible to safely conduct air service operations to and from Bandara Ngurah
Rai International Airport" if proper precautions are carefully observed by
both the air carriers and the airport.

Many of the international air carriers to operating to Bali have
long-standing supplemental security personnel, equipment and protocols in
place to complement those provided by the Airport Authority.

Main Areas of Concern

balidiscovery.com has learned that the main areas of concern to the TSA
auditors addressed fencing around the airport boundaries, the close
proximity of access roads to apron areas of the airport, and deficiencies in
the delivery of services by security personnel on duty at Ngurah Rai.

In the days immediately following the issuance of the TSA announcement
Bali's airport was visited by the Indonesian Minister of Transportation M.
Hatta Rajasa, and the Minister for State-Owned Enterprises Sugiharto who
convened urgent meetings with the Airport Authority's Management in order to
rapidly bring facilities into complete compliance with ICAO standards and
provide any additional bridging security support, as required, during the
interim period.

Senior sources at the airport report that:

. Prior to the issuance of the TAS warning, the majority of the perimeter
fencing concerns have been addressed with barbed-wire topped fences of up to
4 meters in height now in place in selected areas. Any remaining areas with
fencing deficiencies will be addressed within the coming weeks.

. A new road that will shift traffic away from the cargo-catering aprons is
nearing completion and will be opened shortly.

. A "Crisis Center" coordinated by the Airport Authority Administrator and
under the command of the Denpasar Chief of Police was formally launched on
November 28, 2005, and has already conducted two separate emergency
simulations drills as part of an overall program of enhanced preparedness.

. All passenger, baggage and cargo screening equipment now undergo daily
operational reviews with a staff now specially dedicated to maintenance and
repair.

. In response to the ICAO audit, a 190% increase in security personnel is
underway and expected to be completed by February 2006. To provide
additional security coverage during the interim period while additional
staff are recruited and trained, supplementary support in security areas is
being provided at the airport by the Indonesian military.

Safe to Fly to Bali

As stated by the TSA in their report, it is still possible to "safely
conduct air service operations to and from Bandara Ngurah Rai" if proper
precautions are carefully observed by carriers and the airport. The
intensive and well-coordinated response on both a national and local level
to the TSA report including the imminent completion of the several physical
modifications recommended in the TSA audit; the introduction of an active
crisis management team conducting regular drills; the massive hiring and
training program now underway for additional security personnel; and
bridging support from a sizeable contingent from the Indonesian Armed
Forces - all suggest that the follow-up review expected to be carried out by
the TSA in the coming months will once again see Bali's airport certified in
compliance with ICAO standards.

3.      Health, Culture and the Environment:

Scandal over Formalin used to preserve Fresh Food stuffs

One fine day at the end of December, Head of the Food and Drug Agency, or
Badan POM, Sampoerno, dropped a bombshell. Casually he announced that over
50 percent of food samples taken at random in the country have been found
preserved with formalin. These include fresh (?) fish, salted fish, fresh
(?) noodles, meatballs and tofu. However, Sampoerno neglected to mention the
markets where the samples were taken, brands and declined to give any other
particulars.

As expected, this casual remark brought an immediate storm of reactions in
particular from the media. The following days, TV crews combed markets and
producers to see whether this was indeed true. And, in full view for all to
see and hear, fishermen were seen casually sprinkling their new catch with
formalin, and tofu and noodle makers strew formalin over their products.
Their casual explanation given was: it is the consumers that demand too much
from these products. When not preserved with formalin, then tofu and
meatballs will be soft and will not last many days, whereas consumers want
their tofu and meatballs to be springy and able to be kept for days. When
fish is preserved with salt, fishermen say, it will take at least one week
to dry, while with formalin the process takes only a few days. Similarly,
freshly caught fish, will keep its "fresh" look a lot longer.

Although not all producers are guilty of this crime, however, the damage has
been done. Most consumers, knowing that formalin is prohibited in
foodstuffs, as it is used to preserve corpses or for use in the furniture
industry, have suddenly stopped eating their favourite daily food. In the
weeks following, small-scale and home industries, including those that have
never used formalin in their products have been forced to close down as
demand dropped by 30%-40%.

Meanwhile, regional POM officials have scoured all markets and supermarkets
to pick up and test samples from markets and producers from Jakarta to
Bandung, Surabaya, Makassar, Bali, Medan and Riau, and all invariably
confirmed that today, formalin is used very widely throughout the country to
keep the "fresh" look of these most popular foodstuffs.

So, who is to blame for this catastrophe? It is a well known fact that
formalin can be easily bought at any chemical shop in Indonesia without
buyer or seller having to explain its use. And this situation, apparently
has been ongoing for at least 5 years, others say for decades. In the latest
news on Metro TV, it was announced that 50% of fish sold in Jakarta and 55%
in Manado, North Sulawesi use formalin.

The Department for Industry explains that the import of formalin is very
much regulated, and that, therefore, the problem lies with formalin
producers domestically, who produce the chemical into the hundred thousand
tons. These sell to industries, hospitals, to retail outlets as well as to
individuals, regardless. In this context, the Department plans to regulate
production and sales with sanctions. Meanwhile, Police in East Java have
arrested foodstuff producers whose products are found to contain formalin
and/or the other prohibited chemical, borax.

Next comes the open controversy between the Minister of Health, Siti Fadilah
Supari and the Head of POM, Sampoerno. It seems that since four years ago
POM has become an independent body, and is thus no longer under the auspices
of the Department of Health.
Minister Supari accuses POM for gross neglect of its duties, since it has
been known for years that formalin is used in these foodstuffs, and it is
only now that POM has come out in the open with this fact. Instead, the
Minister continued, POM has been too busy registering pharmaceutical
companies. Sampoerno, on his side, denies neglect by his agency, since a US
study has shown that Indonesia's POM ranks among the top five best in the
world (!), said Sampoerno.

Therefore, a proposal by POM that, a measure to overcome the widespread
problem of formalin misuse POM issue Formalin-Free certification, this
suggestion was immediately rejected by the Health Minister. She commented
that such certification would in no way guarantee the continued absence of
the use of formalin in foodstuffs, since although producers may comply for a
day or two, it would not guarantee persistent compliance.  What is needed,
instead, is a continuous and thorough system of supervision with proper
sanctions to protect the public from the misuse of chemicals in food that
endanger public health.

Civil societies alert that Badan POM seems to have taken up the function of
regulator, which is by right the authority of the Health Department.
Therefore, they urge that the Food and Drug Agency be returned under the
auspices of the Department of Health, and meanwhile prepare to sue in class
action, Badan POM for gross neglect.

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