[Marinir] Indonesia Digest ; No: 02.06 ; 16-01-'06

[Yap Hong Gie]

INDONESIA DIGEST

Indonesia's complex Issues in a Nutshell
By: Ms. Wuryastuti Sunario.
Published by: TBSC-Strategic Communication
No.: 02.06 - Dated: 16 January 2006
In this issue:

MAIN FEATURE:

 INTEGRATED AIR MAP, INDONESIA'S ROADMAP TO ASEAN AIR LIBERALIZATION

NEWS AND BACKGROUND:

1.      Transportation and Tourism:
Bali Tourism down 5% year-on-year; now employs only 40% of hotel staff

2.      Health, Culture and the Environment:
·         Food and Drugs Agency: Use of Formalin in Food Nationwide 95% down

3.      The Law and Good Governance:
Immigration to be Revamped
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MAIN FEATURE:

INTEGRATED AIR MAP, INDONESIA'S ROADMAP TO ASEAN AIR LIBERALIZATION

Minister for Transportation, Hatta Rajasa, finally decided recently to
reveal discussions held on the subject of liberalization in the air sector
as agreed among the ten ASEAN countries. "ASEAN Air Liberalization has in
principle been agreed upon by all ASEAN countries, including Indonesia, and
thus consequently, Indonesia's airspace must be opened up in phases
accordingly", said Minister Rajasa as reported in Bisnis Indonesia of 13
January.

The explanations are in direct response to vocal protests made by 
Indonesia's
airlines and civil societies on the change in name and violations on
cabotage  allegedly committed by Air Asia in joint venture with former
Awair, (see Indonesia Digest 44.05). So far, details on negotiations and
agreements among ASEAN countries have remained a mystery to the public
except those officials privy to the ASEAN negotiations, although as events,
these have been faithfully reported in the mass media.

Minister Rajasa explained further to Bisnis Indonesia, that, after a series
of meetings among the ten ASEAN Transport ministers, the Ministers decided
at the 11th. ASEAN Senior Officials Meeting on Air Transportation in
Vientiane, Laos, on 14-16 November, to accelerate the liberalization of air
transportation and tourism among ASEAN countries, from the earlier decision
to start in 2010, now pulled forward to the year 2008.

"The decision was to accelerate unhampered integration of air travel,
including tourism, among ASEAN countries from the earlier 2010 to the year
2008", said Rajasa. The Vientiane meeting also agreed on the framework of a
multi-mode integration of transportation among ASEAN member countries.

In this regard, Minister Rajasa continued, it was Singapore that has
aggressively proposed an even faster acceleration to start ASEAN air
integration, to begin with the integration of air cargo to start towards end
2006 rather than 2008. This is since Singapore already possesses a road map
on unlimited air access between ASEAN capital cities in 2006, and thus
further proposes complete integration with all freedom rights among all
cities in ASEAN in 2007.

Indonesia disagrees with the Singapore proposal to start liberation of
flights among capital-to-capital (based on multilateral agreement). This is
because Indonesia's airspace is very large, much larger than any of the
other ASEAN countries. Therefore, Indonesia prefers that such negotiations
be held bilaterally rather than regionally. This point has been included in
the Agreement, this is so that passenger transportation among ASEAN
countries be made more measurable, and, will not be enforced suddenly,
without the proper preparations. Whereas, "through bilateral negotiations,
seat capacity among countries can be measured in accordance to each market
strength", said the Minister.

Therefore, affirmed Hatta Rajasa, the Government is now in the process to
prepare a road map to firstly integrate the air sector among Indonesian
cities itself, following the ASEAN agreement to start air passengers
transport liberalization in the region in 2008. Additionally, Indonesia is
also preparing an agenda for bilateral negotiations in order that the
integration of the air sector in ASEAN will proceed fairly, and in
accordance to air space held by each member country.

Responding to the above, Secretary General of the Indonesia National Air
Carriers Association (INACA), Tengku Burhanuddin, said that his association
is concerned that foreign airlines will dominate national airspace when
ASEAN air liberalization is accelerated. This is mainly because no
explanations had so far been forthcoming from the government on the subject,
whilst competition among airlines, especially between foreign and domestic
airlines have become very acute. The business associations have rarely been
consulted on the subject of the "open sky policy", and can therefore, hardly
be expected to be prepared to meet the challenges. Therefore, the
association urges that the government be more open to discuss the subject of
ASEAN air liberalization negotiations as well as Indonesia's stance
vis-à-vis the forthcoming open-sky policy, that involve all.

According to available documents from the Bureau of Trade in Services
Negotiations of ASEAN, the ASEAN Framework Agreement on Services (AFAS) was
signed by Economic Ministers during the 5th ASEAN Summit in Bangkok held on
15 December 1995. With it, AFAS agreed to adopt the structure and approach
of GATS in the WTO.  To date, ASEAN Economic Ministers (AEM) have agreed on
three packages in the Services Sector that include Air transportation,
Business, Construction, Finance, Maritime, Telecommunications and the
Tourism Sub-Sectors.

Furthermore, Monash International Pty. Ltd of Australia has prepared a study
for ASEAN Open Sky (which at the time was set at 2015) entitled "The Roadmap
for Integration of ASEAN: Competitive Air Services Policy". It is not clear
whether its recommendations have been adopted by ASEAN Transport Ministers.

In the meantime, the Centre for Asia-Pacific Aviation reports that with
hundreds of new planes to become operational in 2007, the year 2006 will be
"the quiet before the storm" for Asia-Pacific airlines, where 2006 will be
the deciding year whether the company will either survive or collapse.
Singapore Airlines, for example has purchased 60 new long range planes, with
India purchasing 111 planes of similar type. Singapore will also remain the
preferred regional hub, although air liberalization on air routes in the
region is proceeding very slowly.

Indonesia rules no planes of 20 years or older may be given operation
license

In the latest development, the Department of Transportation has issued a new
decision that newly registered planes to operate in Indonesia must not be
more than 20 years old, or have logged more than 50,000 take-offs and
landings. Airlines that have registered their planes before their planes
prior to the enactment of this decision on 16 January, may operate planes
that are less than 30 years and have logged no more than 70,000  take-offs
and landings.

Another new regulation to come in force is also the requirement that
scheduled airlines to operate a minimum of five planes, up from the earlier
stipulation of able to have a minimum of two planes only.

At the moment, the Department of Transportation has registered 28 companies
offering domestic and international scheduled air services, who operate
around 300 aircrafts. 75% of these are more than 10 years old, and 41 are
even above 35 years.

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

1.      Transportation and Tourism:

Bali Tourism down 5% year-on-year; now employs only 40% of hotel staff

>From Bali comes a dismal picture on the latest developments of tourism to
the island. Balidiscovery.com reports that total foreign direct arrivals for
2005 that have just been released showed that Bali ended 2005 with 1,386,499
foreign visitors. This is a decline of 4.92% from the record-breaking
performance of 2004 when 1.46 million foreign visitors came to the Island.
The relatively small 4.92% decline in arrivals for the entire year, however,
belies the calamitous impact of the October 1, 2005 terrorist bombing that
resulted in a 39.71% drop in foreign visitors for the last quarter
(Oct.-Dec.) of 2005 as compared to the same period one year before.

Comparing 2002 and 2005 - two separate years compelled to bear the brunt of
an October terrorist attack, both the levels of business and the sudden
declines in arrivals after each bombing attack largely mirrored each other.
In fact, total foreign arrival results for 2005 and 2002 vary by only
100,000, with 2005 turning in a performance that was a scant 7.8% better
than the earlier bomb-scarred year.

And, when comparing 2000 to 2005, there is a marked shift in Bali's market
mix:

. Asia Pacific - The Asia Pacific market share which also includes the
Island's 4 main source markets of Japan, Australia, Taiwan and South Korea
increased from a 56.46% share in 2000 to 59.18% in 2005. In fact, this
region peaked in market share in 2004, claiming 63.5% of all arrivals to
Bali.

. ASEAN - During the five periods from 2000 to 2005 ASEAN's market share
almost tripled, becoming 8.59% of all arrivals in 2005. Most of this growth
came from Malaysia and Singapore and reflects the new markets created by the
entrance of discount airlines, such as Air Asia, onto the regional travel
scene.

. The Americas - Although showing signs of slow recovery, foreign visitors
from the Americas now represent only 5.31`% of all Bali arrivals, down from
a 7.77% market share in 2000.

. Europe - Similarly, still in the process of making a gradual comeback,
European travelers to Bali now represent 26.14% of all arrivals, down from
the 30.9% share enjoyed in 2000. Most encouraging is the rapid increase in
the return of European travelers, marking a 13.43% improvement in 2005 as
compared to the previous year.

Meanwhile, Chairman of the Bali Transportation Association (PAWIBA), Bagus
Soediana,  told the Indonesian-language Bisnis Bali that following the
October 1, 2005 terrorist bombing only 12% of his Association's fleet is now
actively operating.

Representing a transportation armada estimated at 4,000 vehicles, PAWIBA
says the lack of foreign tourist following the most recent terror attack and
the equally dramatic downturn in domestic passengers following a doubling in
fuel costs on October 1, 2005, have caused Bali transportation fleet to
remain parked in local lots.

PAWIBA executives are both hoping and praying that a fast rebound of foreign
visitors responding positively to added security measures now being
introduced in Bali and a healthier level of domestic arrivals spurred on by
increases in civil servant salary levels may help their members avoid the
ever-increasing threat of mass layoffs among those working in Bali's tourist
transportation sector.

In the hotel sector a similar dismal scene is presented by Chairman III of
the Hotel and Restaurant Association in Bali, Sumanto, who reported to
Bisnis Indonesia of 16 January, that average occupancy at Bali hotels in the
period from the last week of 2005 until mid January 2006 has hovered at a
scant 12%. This situation has forced hotels to reduce active staff on duty
by as much as 60%, although they will continue to be paid their
entitlements, albeit cut by 50% upon mutual agreement, and will be
reemployed when better times return. Total employment in the hotel sector in
Bali number 2 million.
At present, Sumanto said, increased fixed costs in fuel and electricity and
prescribed minimum regional pay, have increased total costs to hotels,
whilst tourist arrivals to the island have dropped.

2.      Health, Culture and the Environment:

Food and Drugs Agency: Use of Formalin in Food Nationwide 95% down

On Friday, 13 January, Chairman of Indonesia's Food and Drugs Agency (Badan
POM), Sampurno, announced that its inspectors found a drastic drop of up to
95% in the use of formalin in foods in the country. The announcement came
after weeks of incessant and unrelenting nationwide Television and press
exposure on the widespread misuse of formalin as preservative in daily
foodstuff such as noodles, tofu, meatballs and fish. The press conference
was held jointly with Health Minister, Siti Fadillah Supari, who had
heretofore been very vocal in her criticism of POM.

As Police began raiding formalin producers and chemical retail shops for the
misdirected distribution of formalin that was sold freely to the public,
Indonesians have suddenly stopped eating their favourite foods. This action
resulted in a drastic drop in the sales of these foods, affecting all those
in the chain, from fishermen and tofu makers, to sellers in traditional
markets and supermarkets, to street hawkers all over the country. All
invariably reported a more than 50% drop in sales in these foods, which
threatened the widespread closure of home industries and the drastic cuts in
the measly income of hawkers.

Minister for Cooperatives and Small Scale Industries, Suryadharma Ali,
disclosed that more than 8 million micro, small and medium scale businesses
had been affected by the widespread publicity on the misuse of formalin.
Whilst POM Chairman, Sampoerno added that in the Greater Jakarta area alone,
more than 1,000 tons of formalin was sold per month to individuals; with
2,700 tons sold to factories and 300 tons exported to Malaysia.

After thorough checks and surveillance, fourteen cities are now declared
free from misuse of formalin, so POM claims. These are : Jakarta, Bandung,
Semarang, Yogyakarta on Java; Jambi, Bengkulu, Padang on Sumatra; Manado,
Makassar, Kendari on Sulawesi; Ambon, Jayapura, and Pontianak, Samarinda on
Kalimantan.

Even Jakarta, with its millions of inhabitants has now been declared free
from the scourge of the misuse of formalin in foods, avers Sampoerno.

Whereas, five cities that are still under surveillance, since 20% of samples
were still found to contain formalin are: Denpasar on Bali, Mataram on
Lombok, Pekanbaru and Lampung on Sumatra and Palangkaraya on Kalimantan.

In its surveillance, POM divides inspection into two large groups, namely
the pre-market control (branded food produced in large factories) and
post-market control (non-branded foods made by small-scale and home
industries). Surveillance is also made on misuse of other chemicals such as
borax, food dyes and sweeteners, avers Sampurno. The reason for the drastic
drop given is because the free distribution of formalin to the public has
been strictly curtailed, and Police have arrested a number of food producers
found misusing formalin in their products.

An informal check on the public, to see whether Jakartans believe and trust
the statement made by POM Chairman, Sampurno, - has proved negative. Traders
believe that it will take between three to six months before the business in
fish, tofu, meatballs, and noodles will recover to normalcy.

3.      The Law and Good Governance:

Immigration To be Revamped

Just barely home from a formal visit to Malaysia last December, an obviously
upset President Yudhoyono called a small cabinet meeting even upon arrival
at the airport lounge in Jakarta. The topic of discussion was the input he
received abroad about gross embezzlement of monies and misconduct by
Immigration officials, both towards overseas Indonesian workers as well as
foreign businessmen, as reported to him in dialogues. These cases of
corruption occurred at the Consulate in Penang, the Embassy in Kuala Lumpur,
as well as at Jakarta's and Bali's international airports. Such reports
shamed Indonesia's image in the eyes of our ASEAN neighbours as well as the
world, said the President, and must be immediately stopped.

Present were Minister for Law and Human Rights, Hamid Awaludin, Chief of
Police, General Sutanto, and Minister for Manpower and Transmigration, Erman
Suparno, as well as Foreign Minister, Hasan Wirajuda. The President
instructed the Ministers to work together to clean up the Immigration
institution in the shortest possible time.

Not long after, Minister for Law, Hamid Awaludin reported that two
Immigration officials stationed in Penang and Kuala Lumpur have been
recalled to Jakarta for alleged corruption. In the past week, two former
ambassadors in Kuala Lumpur have come under investigation of the
Anti-Corruption Commission, KPK as witnesses to the alleged corruption.


KPK reported that corruption in Penang involved Rp. 13.8 billion and in
Kuala Lumpur Rp. 27.8 billion monies received from the public that have
remained unaccounted for.

Minister Awaludin promised that he would make a thorough revamp of the
Immigration Office both domestically as well as overseas, change those
suspected of corruption, and reformulate functions. Minister Awaludin
denied, however, that the existing Directorate General of Immigration would
become an institution away from the present auspices of the Department of
Law and Human Rights.

Meanwhile, Immigration at Indonesia's main airports, especially in Jakarta,
Bali, Medan and Batam, have come under close scrutiny of the Police and the
Anti-Corruption Commission, for corruption in the receipt of overseas travel
tax, known as "fiskal".

We regret that due to incomplete date available, the promised article on
landslides and mud flooding on Java is held over.

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