[Marinir] Indonesia Digest: No: 21.06 ; 26 - 06 - '06

[Yap Hong Gie]

INDONESIA DIGEST
Indonesia's complex Issues in a Nutshell
By: Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 21.06 - Dated: 26 June 2006
In this issue:

MAIN FEATURE:

TOP TEN COMMODITIES AND SPECIAL ECONOMIC ZONES TO BOOST ECONOMY

NEWS AND BACKGROUND:

1.      Health, Culture and the Environment
200 Swept by South Sulawesi Flash Floods and Landslides
Mahakam River Porpoises Threatened  with only 70 existing
5 Orang Utans returned to the Wild

2.      The Economy, Trade and Industry
Indonesia's borrowing Falls to Pre-Crisis Levels
---------------------------------------------------------------

In this issue:

MAIN FEATURE:

TOP TEN COMMODITIES AND SPECIAL ECONOMIC ZONES TO BOOST ECONOMY

The government has identified Indonesia's top ten national export 
commodities, said Mari E. Pangestu, Minister for Trade, at the 6th. Congress 
of Indonesian Economists (ISEI) held recently in Manado. These are:(1) 
Textiles and textile products; (2) electronics; (3) automotive components; 
(4) cocoa; (5) coffee; (6) prawns (7) palm oil; (8) furniture; (9) 
handicrafts; (10) shoes and footwear.

Priority setting is important since no national consensus has yet been 
reached to identify a clear national trade vision and strategy. Whereas, 
through officially recognizing Indonesia's 10 ten commodities, this will 
increase their production and competitiveness worldwide, besides facilitate 
in international negotiations to determine tariffs. For example, Indonesia 
aims to become the number one producer of palm oil in the world, said 
Minister Pangestu.

This steps will be followed by a Plan of Action, which will be used to 
assess market trends, and determine which of Indonesia's best commodities 
have highest local content. Whatever the case, Indonesia must still rely 
heavily on natural resources.

Moreover, in the area domestic distribution, one key program is aimed to cut 
the chain of distribution, which must be done without causing upsets. The 
program is aimed to increase regional participation and boost small and 
medium scale enterprises. In infrastructure development, the program boosts 
improvements in ports and roads, as well as seeks the active participation 
of local governments. Banks also need assist to in order to cut the role of 
the middlemen. Another strategy is the use of storage godowns, so that 
producers are not forced to sell their produce to unscrupulous middlemen, 
since they can now store their goods awaiting more profitable times.

In the field of investments, improvements in the investment climate are key 
to development that include transparency, legal assurance, and ease in 
obtaining permits. For this purpose one-stop service offices are needed at 
regional level, as well as the formation of Special Economic Zones, said 
Minister Mari Pangestu.

Problems in bureaucracy, coordination, infrastructure and electric power 
supply

At the close of its Congress, ISEI formulated its assessments on the 
challenges faced by the Indonesian economy. ISEI Chairman, Burhanuddin 
Abdullah, who is also Governor of Bank  Indonesia, said that essentially, 
the Congress assessed that Indonesia's main challenge is in the 
implementation of the economic program, which is hampered by a problematic 
bureaucracy and poor coordination among government agencies. For example, 
Burhanuddin continued, fiscal deficit that could have become an economic 
stimulus, has instead become a budget surplus (because of slow 
implementation by government agencies).

In his closing speech to the Congress, on his part, Vice President Jusuf 
Kalla, who was formerly Chairman of ISEI, explained that there are three 
main issues that face the economy, these are: firstly, the existing high 
interest rate of over 15%, which is among the highest in the world, that has 
caused money to circulate in the financial sector only (and has not 
penetrated into the real sector). For instance, when the national government 
transfers funds to local governments, these are deposited at the Regional 
Development Banks, while in turn, these Banks again place these into the 
SBI. The reason for this situation is that with Regional Autonomy and 
Indonesia's decentralization policy, actions and the speed of development 
are determined by regions at regional level. This speed now needs to be 
accelerated, said VP Jusuf Kalla.

Secondly, power is expensive. Within the short span of two years, power 
plants must be built that can supply over 10,000 megawatts of electricity to 
the regions.

Thirdly, the distribution of goods is hampered by insufficient 
infrastructure, bad road systems and bridges. While, building infrastructure 
needs substantial budgets.

Indonesia-Singapore develop Batam-Bintan-Karimun Special Economic Zone

Whereas, to solve problems of poor bureaucracy and poor coordination, the 
government has therefore, created the Special Economic Zones, which will 
become breakthrough projects, added VP Kalla.  Batam and Bintan islands are 
to be the first such zone, with an agreement to be signed on Sunday 25 June 
by the governments of Indonesia and Singapore in Batam.
This agreement is aimed to create synergy between economic strengths 
available to both Indonesia and Singapore, said Kalla. However, the 
authority over the SEZ will remain with Indonesia, while Singapore will 
assist in the formulation of policies, especially fiscal policies. Indonesia 
offers land and location as well as infrastructure and manpower, whereas 
Singapore offers excellent marketing network. There are more than 17,000 
multi-national corporations operating in Singapore and these possess good 
networks. Indonesia may also adopt Singapore's trading system.

Meanwhile, to support development of Special Economic Zones, a revised Bill 
on Taxation will be submitted to Parliament on Monday, detailing special 
specifications pertaining to all such zones, not just applicable to the 
Batam-Bintan zone.

And indeed, on Sunday, 25 June,  President Susilo Bambang Yudhoyono of 
Indonesia and Singapore Prime Minister Lee Hsien Loong on Sunday witnessed 
the signing of a Framework
Agreement on Economic Cooperation, that has been expanded to cover the 
Islands of Batam, Bintan and Karimun, reports Indonesia's Trade & Investment 
News issued by the Office of the Coordinating Minister for the Economy.

The Agreement, signed by Coordinating Minister for Economic Affairs Boediono 
of Indonesia and Minister for Trade and Industry Lim Hng Kiang of Singapore, 
is aimed at cooperation between both countries to develop the Special 
Economic Zones (SEZs) in the region mentioned, as well as in locations 
elsewhere in Indonesia.

At a joint press conference with Indonesian President Susilo Bambang 
Yudhoyono on Batam, Singapore Prime Minister Lee Hsien Loong commented that, 
"Success in the SEZs will create win-win outcomes for both sides", reports 
Forex News.  "It combines the complementary strengths of Indonesia and 
Singapore into a package that is competitive and attractive to investors," 
he said.

Under the agreement, Singapore will provide support using its past 
experience in setting up similar SEZs and leverage on its status as a 
regional commerce hub to promote the three Indonesian islands.

While President Yudhoyono said that :"This framework agreement emphasises 
the cooperation in the areas of investment, finance and banking, taxation... 
in order to establish an investor-friendly environment in the special 
economic zones". "I hope that investors will take advantage of the 
opportunities that we are going to have ranging from shipyard, manufacturing 
sectors such as electronics... and even light industries such as garment, 
tourism, agriculture, aquaculture and education," he said.

Both leaders believe that the successful implementation of the Framework 
Agreement is important to guarantee the development of internationally 
competitive special economic zones in the region, and to serve as a model 
for the development of additional special economic zones in other parts of 
Indonesia. It is a clear sign of the political commitment from both sides to 
develop this area into a viable and dynamic center of growth with clear 
mutual benefits for both countries.


Details of the Agreement on Batam-Bintan-Karimun Islands

Continues Indonesia Trade& Investment News further: the SEZs development 
will be based on the principles of clear institutional structures, 
consistent policy framework, streamlining of investment procedures, 
development of efficient infrastructure, and effective zone administration 
and management.   The scope of cooperation that will be included in the 
zones will be investment, finance and banking, tax, customs, immigration, 
manpower, capacity building and other possible areas of cooperation. Other 
than cooperation to develop the special economic zones, cooperation will 
also include in the tourism, agriculture, aquaculture, small and medium 
sized enterprises, training and human resource development, and educational 
services.


 A National Team chaired by Minister Boediono is currently finalizing the 
policy framework for special economic zones.   The framework will include 
identifying a set of criteria required for areas to be determined as zones, 
and a set of policies that will be provided in the zone; and most 
importantly providing international best practices in terms of investment 
servicing and institutions.  Such policies would include amongst others, 
duty and VAT free inputs for re- export purposes with simplified procedures 
for the movement of goods, work permit and visa facilitation, and most 
importantly an integrated investment service authority where an investor can 
process all the necessary licenses and documentation, as well as take up any 
issues and problems.

It is envisaged that economic cooperation will enhance the consistency in 
implementation of the special economic zone concept.


While the policy framework in developing SEZs in Batam, Bintan and Karimun 
remains under the Indonesian policy framework, Singapore's experience in 
developing similar zones in other countries will certainly support a 
successful and effective implementation. The cooperation does not preclude 
Indonesia from cooperating with other countries to develop special economic 
zones in the islands and elsewhere.

The establishment of SEZs in Batam, Bintan and Karimun will bring benefits 
in terms of investment, growth, job creation and foreign exchange earnings 
to Indonesia.  The most immediate evident opportunities are in shipyards and 
oil related equipment and services.   Already 80 percent of oil supporting 
business in Indonesia are located on Batam such as casing and tubing, 
engineering, procurement and construction and drilling rig construction. 
There is also the potential to further develop oil related industries in 
this area, whether it be storage or refinery facilities, and petrochemicals. 
Given high oil prices there will be increased demand from Indonesia, as well 
as elsewhere. There are also already a number of shipyards such as which 
have plans to expand.  In both shipyards and oil supporting industries, 
there are also an increasing number of interested investors from other 
countries.
In the manufacturing sector, strategic priorities will be to develop and 
upgrade existing sub-sectors which are already strongly represented in Batam 
and Bintan like electronics, chemicals and precision equipment, as well as 
light manufacturing such as garments.   Other areas of mutual benefits would 
be in the tourism and wellness industry such as resorts and the potential 
synergies with the Singapore convention and exhibition
business; agriculture and aquaculture; and various service industries.


There is also potential in training and education activities to service the 
needs of the special economic zones, as well as wider.  The Batam 
Polytechnic inaugurated by the President today, is already a concrete 
example of Singapore and Indonesian cooperation in such capacity building.

The development of the zones in Batam, Bintan and Karimun will make it a 
center of growth with multiplier and spillover effects for the Riau Islands 
as well as the surrounding areas.  The successful implementation of special 
economic zones in these islands will become a model to be quickly replicated 
in other strategic regions in the rest of Indonesia.

The Government's decision to have Batam, Bintan and Karimun as the first SEZ 
is because they have good infrastructure, large existing number of foreign 
and domestic investors, and located strategically, so most ready to take off 
and develop in a short time.

Implementing the Agreement a Joint Steering Committee (JSC) will be 
established with co-chairs Minister Boediono and Minister Lim Hng Kiang. The 
JSC will meet within three months time to agree on the action plan for 
implementing the cooperation and adopting market oriented proposals.   The 
action plan will be implemented by the Joint Working Committee (JWC) which 
comprises co-chairs Mari Pangestu, Minister of Trade from the Indonesian 
side and Mr. Lim Siong Guan Chairman of Economic Development Board, from the 
Singapore side.

The action plan will include the short term priority of resolving immediate 
issues and problems faced by investors in the area, and ensuring the 
substantive improvement of implementation of existing policies. At the same 
time the action plan will outline the needed actions by a specified 
timetable, identifying policy framework of the special economic zone, and 
building up the needed integrated investment service unit, the management 
and monitoring systems, and the human resource support.

(Sources: Kompas, Bisnis Indonesia, Indonesia's Trade & Investment News) 
(Tuti Sunario)
----------------------------------------------------------------------------------------------------------------------


  NEWS AND BACKGROUND:

1.      The Environment, Health, and Culture

200 Swept by South Sulawesi Flash Floods and Landslides
While Indonesia had hardly recovered from the earthquake in Yogyakarta and 
Central Java, and the eruption of Mt. Merapi, more bad news comes from South 
Sulawesi where tropical rains poured for three days, swelling rivers, 
causing huge landslides and floods. By Friday 23 June, the number of victims 
found dead had risen to 198 and 73 missing, while rescue work continued 
trawling through mud and scouring nearby islands for more bodies and 
survivors.
In hardest-hit Sinjai district, 183 people were killed and 67 others 
remained missing, said officials. The floods here killed 89 while landslides 
killed 94.
Air Force personnel have dropped food to remote villages from helicopters, 
while total damage is being assessed. Vice President Jusuf Kalla who hails 
from South Sulawesi inspected the area Saturday, assuring evacuees that the 
government will provide emergency assistance as well as restore damages to 
homes.
The unusual and continuous downpour of rain, besides illegal logging 
activities on the hills above Sinjai are blamed for the flash floods, as 
well as the large-scale conversion of forest areas to cocoa and tea 
plantations. Meanwhile, Prof. Emil Salim, Indonesia's environment expert, 
believes that drastic changes in the weather are also caused by global 
warming and the greenhouse effect.
Mahakam River Porpoises Threatened  with only 70 in existence

The grand Mahakam river porpoise (orcaella brevirostris) of East Kalimantan 
is in danger of extinction, said Budiono, Director of the Institute for the 
Conservation of Rare Aquatic Species of Indonesia, as their habitat is 
becoming overcrowded with human activities. At present there are only an 
estimated 70 in existence, with a death rate of four per year.

Porpoises are often caught in fishermen's nets, are hit by motor boats, 
while the roar of engines especially from barges hauling coal from inland, 
cause porpoises to become stressed and can, therefore, rarely multiply. To 
locals, porpoises indicate the best locations for fish, or their absence a 
sign of oncoming floods.

At present, the two best locations where porpoises (or" pesut" as they are 
known locally) are found in the Mahakam are at Muara Pahu in the district of 
West Kutai and at Muara Kaman, in the district of Kutai Kartanegara.

The Conservation Institute, therefore recommends that a conservation area be 
designated at Muara Pahu, to a radius of 2.5 kilometers, while further 
socialization of communities on the need to protect these endangered species 
must be conducted. In principle the local government has agreed to the 
proposal, awaiting detailed scientific studies. The government also sees the 
need for local communities, especially children, to be aware of their 
existence and protect the Mahakam river porpoise.

Five Orang Utans returned to the Wild

Five Sumatran Orang Utans (pongo abelii) were recently sent to the 
reintroduction center at Bukit Tiga Puluh National Park in Jambi, to prepare 
for their final return to the wild. The five were returned from Malaysia and 
were earlier quarantined at Sembahe in North Sumatra. Director for Sumatran 
Orangutan Program Conservation, Dame Sianipar, said that another one has 
remained at Sembahe for treatment since it had contracted hepatitis B from 
humans. The total population of Sumatran apes left in the wild is estimated 
at 7 thousand.

2.      The Economy, Trade and Industry

Indonesia's borrowing Falls to Pre-Crisis Levels

The annual Consultative Group on Indonesia (CGI) meeting Wednesday 14 June 
saw "growing confidence" on the part of the government in managing a reduced 
borrowing program, which a statement noted was down to pre-crisis levels, 
reports Indonesia's Trade & Investment News issued by the Office of the 
Coordinating Minister for the Economy.

World Bank Country Director, Andrew Steer, noted that a "spirit of 
collaboration for Indonesia's growth and recovery", was evident as in the 
joint effort between donors and government in preparing a comprehensive 
damage and loss assessment for the Yogyakarta earthquake and the ongoing 
reconstruction program in Aceh.

The World Bank further stated that falling interest rates and faster 
government spending should lead to a recovery in the growth rate by year's 
end. "Indonesia is on track for annual growth of around 5.5% this year that 
could reach up to 7% in the medium term if recently announced policy 
packages on infrastructure and the investment climate are effectively 
implemented," a statement on the bank's web site said.

"Last year one million Indonesians moved out of poverty," said Steer. "But 
this has been a tough year with devastating natural disasters and sharp 
price increases. The government has put in place a series of innovative 
pro-poor policies - including the world's largest cash transfer program - to 
offset these challenges.

"If the government maintains its momentum on reforms in governance, the 
investment climate and infrastructure, millions more could also be lifted 
from poverty in the years ahead."

In his report, Coordinating Minister for Economic Affairs Boediono said that 
the government wishes to move to higher economic growth in the medium term 
in order to create jobs and reduce poverty. But, he noted, that this would 
require changing investment sentiments and further reform.

He promised a new package of financial sector reforms by the end of June and 
additional measures designed to improve the performance of SMEs.

The CGI meeting ended with commitments of $3.9 billion in loans and grant to 
the Government, which include $500 million carried over from unused 
commitments in 2005. The total commitments compare with $3.5 billion in 
2005.

Minister Boediono added that the latest loan and grant offers from the CGI 
would not worsen Indonesia's debt situation.

"Our indebtedness level in terms of the amount we borrow and our repayment 
needs will show no net increase," he said. "Neither will we suffer a 
widening gap between our debt stock and foreign exchange reserves, which 
have recently been increasing."

In a further development,  State Minister for National Development Planning, 
Paskah Suzetta said on 15 June that the government may not take up all loan 
offers pledged by foreign donors, given the high level of unspent funding 
allocations in the current state budget,

Suzetta said the exact amount of the loan offers that would be acted upon by 
the government would depend on the upcoming mid-year budget revision, 
reported The Jakarta Post.

Suzetta said that for the first time in the country's history, the House of 
Representatives will be involved in determining the exact amount of the loan 
offers that will be taken up.

"We don't have to pay commitment fees on those loan offers that we don't 
take up.  The government and the legislature will first look to see to what 
extent the unspent money can help plug the deficit," Finance Minister Sri 
Mulyani Indrawati said Thursday.

The government and the House are slated to revise the budget assumptions 
next month to take account of the economic changes that have taken place 
both at home and overseas.


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


 


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