[Marinir] Indonesia Digest: No 08.06 ; 13 - 03 - '06

[Yap Hong Gie]

INDONESIA DIGEST

Indonesia's complex Issues in a Nutshell
 By: Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 08.06 - Dated: 13 March 2006

In this issue:

MAIN FEATURE:

 PACKAGE POLICY TO IMPROVE INVESTMENT CLIMATE, ANNOUNCED

NEWS AND BACKGROUND:

1.      Culture, Health and the Environment:
The Sumatra Orang Utan "Seriously Threatened" as Habitat disappears

2.      The Economy, Trade and Industry
Ten Small Islands developed by Foreign Investors as Dive Resorts
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MAIN FEATURE:

PACKAGE POLICY TO IMPROVE INVESTMENT CLIMATE, ANNOUNCED

Finally, the long awaited Investment Policy package, that was promised to 
boost investments was announced on 2 March. Presidential Instruction No. 3 
of the year 2006 aims to strengthen services provided by investment 
institutions; synchronize laws and bylaws between the national government 
and local governments; improve rules and regulations pertaining to tax, 
customs, manpower, and Small and Medium Scale Enterprises (SMEs) and 
cooperatives; as well as ascertain rules and regulations on the environment 
. The package specifies target dates and clear measures to be taken by the 
government to improve Indonesia's investment climate.

Among these is the simplification in processes to establish a new company 
and obtain an operating license. This targets a gradual cut in the entire 
red tape, to be considerably shortened from a lengthy 150 days to a mere 30 
days. And, in order to achieve this target, the government decided to 
delegate authority to approve company license to the Provincial office of 
the Department of Law and Human Rights.

Furthermore, Minister for Finance, Sri Mulyani Indrawati explained that 
through simplifying customs regulations it is hoped to fast track the 
creation of a single window service, through modernization efforts. Which 
will include increasing the number of companies to be given the green line 
priority, that will greatly reduce inspection of goods. Other measures 
include (b) strengthening the role of bonded areas, (c) continue the fight 
against smuggling; and (c) further reduce bureaucratic intervention in 
customs.

In the area of Taxation, measures include (a) tax incentives for 
investments; (b) implementation of the self-assessment system to be executed 
more consistently; (c) revise value-added tax to promote exports; (d) 
protect the rights of  companies and persons being taxed, and (e) promote 
transparency and disclosure.

In the area of Manpower, measures include (a) create an improved industrial 
climate to support expansion for increased labour opportunities; (b) protect 
and increase placements of workers overseas; (c) Solve industrial conflicts 
fast, cheaply and fairly; (d) accelerate the process in the issue of permits 
for labour; (f) create breakthroughs in the development of transmigration 
projects, aimed to increase and expand opportunities for labour.

In the area of Small, Medium Enterprises ad Cooperatives, the government 
will further empower and increase the units of small, medium enterprises and 
cooperatives.

Cabinet Ministers are responsible for successful implementation

In all these areas, clear instructions are issued to particular Ministers to 
be in charge. For example, to finalize the Bill on Investments, this is the 
responsibility of the Minister for Trade, while to identify and separate 
responsibilities between the national government and the Regions in the 
framework of investments, this is the purview of the Minister for Home 
Affairs, whereas, improving institutions, is entrusted to the Coordinating 
Minister for the Economy.

While, simplifying customs procedures is entrusted to the Minister of 
Finance, as are procedures and incentives involving taxation. And, reduction 
of taxes levied by local governments is to be implemented under the auspices 
of the Minister of Home Affairs.

Indeed, Coordinating Minister for the Economy, Boediono, commented that 
Ministers identified in this Presidential Instruction are held responsible 
for the completion of each area, and thereby, stake their personal 
reputation and credibility.  Thus, in Cabinet Meeting, President Yudhoyono 
specifically instructed Ministers to heed schedules specified in 
Presidential Instruction No. 3 of 2006. The President further instructed 
Coordinating Minister Boediono to closely monitor its implementation, since, 
the President underlined, it is the implementation of the intentions that 
will determine its success.

Minister Boediono further added that the Bill on Investment will be 
submitted to Parliament this March. The Bill aims to further strengthen 
government policies as described in the Package for Investment as well as in 
the 2006 Infrastructure Policy Package.

Businessmen welcome package but await Implementation

Meanwhile, after a meeting with 30 business leaders from 14 Asian countries 
in Jakarta, Trade Minister, Elka Pangestu, informed the press that the 
international business world responded positively to the package, since 
through the Investment Package, Indonesia has given "positive" signals. 
Nonetheless, businessmen urge that for Indonesia to attract more foreign 
investment, her policies must be even more aggressive when compared to 
Malaysia and Vietnam.  Today, business awaits its implementation, which 
includes improvements in the labour system, improved tax and customs 
processes, and in particular the implementation of a one stop customs 
service.

Chairman of the Investment Board, Muhammad Luthfi, meanwhile, foresees that 
investments in 2006 will improve by 15.2%, compared to 2005, that registered 
total investments of
Rp. 613.5 trillion, led by the Industrial Sector. In the meantime, a survey 
of Overseas Business Operations by Japanese Manufacturing Companies in 2005 
found that industries considered to be best investments in Indonesia are in 
chemicals and automotive, where Indonesia is expected to offer potentials as 
production basis for these two industries.

In the latest development, Economic Observer, Aviliani, in an article in 
Media Indonesia of 13 March, deems that Presidential Instruction no. 3 of 
2006 is aimed to increase aggregate demand through fiscal stimuli, expecting 
that through this measure economic growth will be maintained, since the 
government is resolved to keep a tight money policy into the second semester 
of this year.

To accelerate the investment process, the Instruction stresses the need to 
delegate authority to the regional governments, whilst measures in customs 
and taxation are to achieve the government's improved and friendlier stance 
vis-à-vis the business community. Aviliani feels that sectoral departments, 
such as industry, and trade, must bear part of the blame for negative 
sentiments, since none have come up with a clear blue print on how to 
develop the range of industry from upstream to downstream, and have, 
therefore, been unable to propose  tax incentive schemes for the different 
categories. Along the same line, local taxes levied by regional governments 
have contributed significantly to Indonesia's high cost economy.

While, concerning labour policies, Aviliani expects that there will be 
widespread resistance to the new policies from the side of labour, since any 
changes in policies are seen as lowering their present bargaining position.

Aviliani, therefore, suggests that a number of steps must be taken ascertain 
that the positive measures as contained in the Instruction will be more 
effective, as follows:

Firstly, there is an urgent need to establish a long term plan, such as the 
former plan which was known as the National Development Guidelines (GBHN), 
but which has now been replaced by a five-year development plan only. 
Whereas, investments are necessarily long term by nature.

Secondly, the Bill on Foreign Investments has yet to be submitted to 
Parliament. This fact reduces certainty to investors. Thus, the Investment 
Bill should not only be general in nature, but should already mention chief 
priorities to be included, among which are resources based industries, such 
as agriculture, fishery, plantations, and others.
Thirdly, she said, Coordinating Minister for the Economy and related 
ministers must make it their first duty to identify priority sectors that 
urgently require investors.

And lastly, there must be provided better assurances to investors for doing 
business in Indonesia. These assurances must cover both the physical safety 
and security of investors and their investments, as well as provide legal 
certainties. Such measures are bound to attract more investors.

However, first and foremost, and above all, Aviliani opines that, in order 
to create positive breakthrough, the President must dare to push his 
ministers to be more aggressive in creating the needed change.
(Sources: Kompas, Bisnis Indonesia, Media Indonesia)      (Tuti Sunario)
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NEWS AND BACKGROUND:

1.                  The Environment, Health and Culture:

The Sumatra Orang Utan "Seriously Threatened" as Habitat disappears

The Orangutan great apes, that in the whole world are found in the wild only 
on the islands of Sumatra and Kalimantan, are in danger of extinction. Their 
habitat is fast disappearing through uncontrolled and illegal logging, their 
forest homes converted to plantations and settlements, or are themselves 
hunted down and caged, said Dr. Sri Suci Utami Atmoko, expert in biology and 
orangutan conservation.  The total population of the Sumatra orangutan 
(pongo abelii) and the Kalimantan orangutan (pongo pygmaeus) now living in 
the wild is estimated at a mere 65,000, reports Kompas daily.

Dr. Suci Atmoko estimates that the present Orangutan population in Sumatra, 
now totaling around 7,500, will reduce by half within one decade, and by 97 
percent within 50 years, if nothing is done to stop the disappearance of 
their habitat. After this the species will become extinct.

As today they number less than 1,000, the International Union for 
Conservation of Nature and Natural Resources has already registered the 
Sumatra orangutan as in "seriously endangered" position, so that 
conservation intervention is urgent.

Furthermore, the disappearance of their forest habitat creates problems in 
efforts to release the apes back to nature. There are now around 800 
orangutans in rehabilitation centers waiting to be released and returned to 
the wild. Orangutans can not be released in just any forest, as they must be 
released only into former orangutan forest habitat. Additionally, the human 
community where they are released must also accept them and be educated in 
conservation. Through promoting of eco-tourism, communities can benefit 
economically from involvement in the conservation of the orangutan.


2.      The Economy, Trade and Industry

Ten Small Islands developed by Foreign Investors as Dive Resorts

Not known to the general public, ten small Indonesian islands are already 
developed by foreign investors since three years, particularly in the marine 
tourism sector, confirmed Director for Small Islands in the Department for 
the Seas and Fishery, Alex Retraubun during his recent visit to Kupang, on 
the island of Flores.

The investors come from Britain, the Netherlands, Sweden, Australia, France 
and Germany. They all possess legal documents and appropriate licenses 
issued by the authorities at national government level as well as in the 
regional government. Although most of them operate through foreign direct 
investments, there are a number who have joined with local businessmen. 
While, foreign exchange received from these operations for local government 
vary in value between Rp. 5 billion to Rp. 20 billion yearly.

The islands are located in seven provinces, four islands are in the East 
Nusatenggara, and one each in the provinces of South Sulawesi, Papua, West 
Nusatenggara, Central Java, the Riau Islands , and West Sumatra 
respectively. The islands are developed as base resorts for diving to 
explore surrounding coral reefs and observe the wealth of the sea world, as 
well as allow tourists to enjoy the beaches.

In an about-face to his previous statements on Bidadari Island in East 
Nusatenggara some time back, Minister for the Seas and Fisheries, Freddy 
Numberi, now appreciates and supports such investments, as he now realizes 
that these activities create new job opportunities for the local population 
and boost the local economy. "Indonesian businessmen in Jakarta are most 
certainly rarely attracted to invest in far off-lying islands, therefore, 
the desire expressed by foreigners to invest in these remote islands must be 
supported and encouraged", Minister Numberi said. Nonetheless, Minister 
Numberi advices investors to heed all existing regulations, pertaining to 
investments and immigration.


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